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Walmart's New Health Food Push: Is It Too Hard to Swallow?However, the financial crisis (which spawned federal bank bail-out legislation) and the nation's pronounced recession (which requires fiscal stimulus to end), has meant that things occurring in Washington once again have great relevance for investors.
And one current D.C. development must be evaluated: the House Republican leadership's decision to seek a federal spending freeze for the fiscal 2010 federal budget, The AP reported.
Repeating President Hoover's mistake
House Minority Leader U.S. Rep. John Boehner, R-Ohio, said he and other Republicans will advocate a spending freeze for the fiscal 2010 budget.
"The American people want and deserve better solutions from both parties in Washington, and they expect us to work together to make the same tough budget choices they are being forced to make during this economic downturn," Rep. Boehner said, the Agence France-Press reported.
Fiscal Policy / Economic Analysis: This is a truly ludicrous proposal. House Republicans, taking a stance that favors their conservative political base, believe not spending more will stimulate the U.S. economy. That's incorrect, and would represent a serious policy error if implemented. The U.S. economy needs as much stimulus as it can get from the federal government (and from other sources) to fill a more than $2 trillion GDP output hole, and fiscal stimulus, if large enough, will provide much of it. Limiting spending will reduce that stimulative effect and prolong the recession, which is already more than a year old -- so, essentially, by advocating a spending freeze, the House Republicans are favoring an action that would hurt the U.S. economy, and the nation. A spending freeze given the economy's current condition is simply absurd.
A spending freeze also would mirror the actions (inactions, really) that President Herbert Hoover, took when the Great Depression started after the October 2009 stock market crash.
Hoover was president of the United States for three years after the Great Depression started, did very little to reverse the economy's negative spiral -- and U.S. GDP declined every year, from $865 billion in 1929 to $643 billion in 1932. The U.S. unemployment rate also increased every year under Hoover after the stock market crashed, from 3.1% in 1929 to a staggering 23.5% in 1932.
Hoover's inaction, inadequate policies, and grave missteps led to massive suffering, misery, unemployment and destitution in the United States -- and many economists would argue that most of the suffering and unemployment was needless: they could have been avoided with the correct public policies. In sum, Hoover's strategies were an economic disaster for the American people and for the United States, and set the stage for Democrat Franklin D.Roosevelt's 1932 election victory and the start of the New Deal.
If today's House Republicans back a spending freeze, they're essentially repeating the errors of Hoover: the policy stance is injurious, counter-productive, wrong, and absurd.
To end the recession, the United States must create demand, and that means large fiscal spending and ample amounts of quantitative easing from the Fed.
How does one explain the House Republicans stance? Their safe congressional districts dominated by conservatives. A lack of two-party competition means House Republican incumbents' biggest electoral challenge would be from a primary by a more-conservative Republican than from a Democrat in the general election. Hence, the House Republicans must maintain a conservative stance, lest they be ousted from office by their political base: a smart policy from a self-interested, re-election standpoint, but it's a horrible policy stance for the nation.
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Reader Comments (Page 1 of 1)
3-09-2009 @ 3:11PM
jd in michigan said...
while the freeze proposal may not be the best approach, lazzaro ignores the democrats proposals that include spending that is cleary not stimulative as it comes too far in the future. yet, this spending will potentially hurt the economy as it creates future uncertainty about interest rates and taxes. before completely condeming hoover, be sure to check the unemployment numbers in 1932 and in 1936 after the new deal was in place -without ww2 economy was heading south despite the massive expansion of federal spending - sound familiar?
3-09-2009 @ 2:58PM
joe soule said...
Our author should do a little more thinking before writitng. Freezing the budjet with the 1 TRILLION dollar increase to our already hugh deficit will still allow much needed stimulus but may give the congress the reason to spend carefully and require disclosure so they and we will know our spending will do some good. We've already thrown away enough without results. When money is spent in the right places we will get positive results and confidence will return.
3-09-2009 @ 3:12PM
unkeat said...
what is truly ludicrous is to raise taxes during a recession. Obama wants to suck billions out of the economy with his tax hikes for the "rich". Taking that kind of dough out of the economy will just slow it up, effectively canceling any positives from the stimulus. Also, taking money of of the pockets of the one group that invests and creates businesses, products and jobs is pretty darn stupid in this kind of economy.. I guess it will make democrats feel better to punish the rich...too bad the rest of us will suffer.
3-09-2009 @ 5:38PM
Mike said...
Lazzaro apparently doesn't understand history. FDR's policies actually kicked off another recession in midst of the depression, during 1937-1938. Big labor, protectionism and price fixing drove up unemployment even further.
Granted not all of the New Deal was bad. FDIC insurance prevented future bank runoffs, and social security and unemployment were needed at the time. However the primary coffin nail in the economy was NIRA, which was the centerpiece for the second new deal, or "stimulus."
Long story short, Hoover was bad, FDR compounded things worse. Flash forward to today. Bush was bad, and Obama...
3-09-2009 @ 6:15PM
Marty Love said...
Obama inherited this horrible economic problem and it will just take a little time for his policies to start working and he needs us to support him, have respect for him as our leader, and "envision" the "sun coming out"! People never spend money when it is cold or raining. But as soon as the sun comes out, they feel more hopeful and spend money and sometimes, after a few weeks of sun, lots of it. Obama came into office in January, dead cold winter — of course trade and commerce is still not happening. When the sun comes out in May, it will start to get better. So just feel hopeful that it will get better late spring and summer. The oceans don't really warm up even in warm climates until August and September actually has the warmest ocean waters. So look to early Fall for the real increase and change to happen in this country for the best. Yep, until then, times will be tough, but it can get better quicker if we support our commander-in-chief and and all work together.
3-09-2009 @ 9:58PM
bathroomstall1 said...
the govt should not be bailing bussinesses out,let them fail,its the american way,what is wrong with these jerks?
3-27-2009 @ 11:02AM
Jeremy said...
Does the author know anything about Hoover's presidency?
4-02-2009 @ 7:45AM
xf22b said...
Clearly the author knows very little about Hoover. Hoover didn't oversee any "spending freezes" and he certainly didn't cut taxes.
He increased spending, increased the top tax rates from 26% to 63%, instituted a tax on bank checks, and never cut spending during his recession. He proposed social security type pensions, government funded healthcare, and other things similar to the current President.
He was so similar in fact, that Roosevelt’s running mate, John Nance Garner, accused the Republican of “leading the country down the path of socialism”.
But of course, then Roosevelt showed him up on the spending, debt, socialism, welfare, taxes, tariffs, and regulation fronts.