“The doctrine of regulation and legislation by ‘master minds,’ in whose judgment and will all the people may gladly and quietly acquiesce, has been too glaringly apparent at Washington during these last ten years. Were it possible to find ‘master minds’ so unselfish, so willing to decide unhesitatingly against their own personal interests or private prejudices, men almost godlike in their ability to hold the scales of justice with an even hand, such a government might be to the interests of the country; but there are none such on our political horizon, and we cannot expect a complete reversal of all the teachings of history.”
A friend sent the above quote with an invitation to guess the speaker. We would not have guessed. It was Franklin Delano Roosevelt, in 1930, when he was still governor of New York.
Which goes to show that the people who rule us are no dopes. It also provides more evidence of our dictum: people come to think what they must think when they must think it.
As last as 1930, Roosevelt was still among the living. He campaigned for president on a conservative platform, arguing that Herbert Hoover was a spendthrift. Roosevelt pledged to balance the budget.
Was he a liar? Probably no more than anyone else. Between being governor of a state and president of the US, his thinking changed. He found that the times no longer called for it. When the Great Depression began, people thought it was just a ‘recession.’ They thought the economy would recover quickly.
It was only when that didn’t happen that the voters demanded the government ‘do something’ to bring the depression to an end. Actually, the government had already done more than enough. It had practically caused the boom of the ‘20s… and then the depression of the ‘30s all by itself. First, the head of the Federal Reserve at the time had decided to help out his English friends by delivering a ‘coup de whisky’ – lower interest rates – to the financial sector. Stocks soared.
Then, after the bubble burst, the Hoover administration intervened heavily in the markets, refusing to allow the economy to adjust quickly. Not only that, but two errant members of Congress – Smoot and Hawley – set off a trade war, putting further pressure on international commerce and economic growth.
And once again, the feds are meddling. The New York Times:
“The action at the Group of 20 summit meeting here signaled the determination of many of the wealthiest countries, after enacting spending programs to counter the worldwide financial crisis , to now emphasize debt reduction. And it underscored the conviction of European nations in particular that deficits represented the biggest threat to their economic stability.
“President Obama and Treasury Secretary Timothy F. Geithner had consistently advocated a measured approach to debt reduction that would not stymie growth and lead to a double-dip recession.
“The United States, however, joined other countries at the summit meeting, which was met by protests and several hundred arrests, by endorsing a goal of cutting government deficits in half by 2013 and stabilizing the ratio of public debt to gross domestic product by 2016. Canada’s prime minister, Stephen Harper, had proposed the targets, backed by Germany and Britain. “
Stabilize public debts by 2016? By then, the US and other major economies will have more government debt than GDP. It is bound to be too late for many of them.
And even this modest goal presumes that economies are able to grow faster than their debt – in real terms. When you get debt equal to 100% of GDP, you’re over a barrel. If interest rates were to return to the double digit levels of the ‘70s, it could cost more than 10% of GDP just to pay the interest.
That’s not going to happen. Things fall apart before they get that far out of whack. Something else will have to happen. But what? Don’t know…
But we can take a guess.
The ‘recovery’ won’t work. Instead, as in the economy of the ‘30s, the feds will keep trying to help it. They will come to think what they need to think – that they need to spend more and more…until they have spent too much.
Maybe they already have.
for The Daily Reckoning
G20 Meddlers At It Again was originally published in The Daily Reckoning on 6/29/10.