Bravo to the action of the government

0

July jobs figures show the strong recovery from the COVID-19 recession is continuing. This is a victory for proponents of an effective Hamiltonian federal government that small government policies could never have achieved. The addition of 528,000 jobs in July brings the payroll back to where it was when COVID-19 reduced it by nearly 23 million in early 2020. The quick and relatively painless recovery that began in early 2021 has place because the federal government did what it needed to do. The Trump and Biden administrations and Congress have spent $5 trillion to $6 trillion to put money in the pockets of people thrown out of work by COVID-19, help businesses at risk of bankruptcy, and maintain state services and premises until COVID-19 can be managed. Federal spending has kept airlines from flying, small businesses from closing or being forced to sell at bargain prices, and more.

This success should be an important lesson in the historic American debate over the role of the federal government. From 2020 to 2022, he spent a river of money that states and local governments could never have collected and spent. This federal action averted what could have been a very serious depression. Indeed, if President Herbert Hoover and his administration after the crash of 1929 had done what the federal government did in 2020 and 2021, there would have been no Great Depression. Hoover could have used government money to replace the shortfall created by the stock market crash and the bankruptcy of private businesses and financial institutions, and that could have prevented disaster. However, he failed to play the strong role of government and the Great Depression broke out.

Hoover and his administration had an alibi. They took the advice of what they believed to be the best business and financial minds of the day. These leaders said to cut government spending and wait for the economy to heal. Led by Andrew Mellon, Hoover’s extremely wealthy and pedigreed Treasury Secretary, they took that advice and spent no money to end the economic bloodbath. As a result, the country experienced the Great Depression, not the kind of economic resurgence the United States experienced in 2021 and 2022.

The danger in 2022 is that self-styled “economic conservatives” and champions of small government will advocate policies that would repeat the mistakes of Mellon and Hoover. Mellon and his friends were focused on inflation, not jobs and growth. According to Hoover’s memoir, Mellon wanted to reduce “the high cost of living and the high living” and argued that the way to achieve this was to “liquidate” (sell) and cut expenses for everything. Accordingly, he told the President that the Great Depression would only end when wages and the prices of goods, services, and businesses had fallen to such an extent that “enterprising people (collected) the wreckage of less capable people “. What he was saying was that wages and prices should be encouraged to come down until very wealthy people like him and his friends can hire starving workers cheaply and buy the businesses, houses, farms and other assets of ordinary people for pennies on the dollar. .

Where are we in this historical context? Unfortunately, Mellonism is alive and well among today’s “conservatives”. They worry more about inflation than unemployment, while most Democrats lean the other way. The Federal Reserve, which is raising interest rates sharply, seems to be in the camp of the “conservatives” who are more concerned about the inflation record than the danger that the higher interest rates it organizes will not lead to recession and rising unemployment.

Is choosing to fight inflation rather than maintain a tight labor market really the right economic priority? For ‘conservatives’, this is almost always the case, as it makes workers more dependent and flexible. It is in a sense of class and power, not economics. Conservatives were appalled during the Roaring Twenties that workers could for the first time buy cars and homes on credit, even though it was good for business. A cartoon from this era had a well-to-do man saying, “You know how bad things get when your plumber offers to take you downtown.”

This somewhat modernized view persists in conservative economic thinking in 2022. The sentiment that it was wrong when plumbers could afford cars 100 years ago is echoed by Conservative senators today. today who are appalled that housekeepers and the millions of others who do the most unpleasant work are able to demand and get decent wages because of the current turmoil in the labor market.

The government’s economic policy objectives in 2022 should be to avoid a recession, keep the labor market strong and reduce inflation by increasing supply and innovation. Cutting government spending and raising interest rates is not what we should be doing. The country’s painful experience with the policies of Mellon and Hoover should have taught us that.

Paul A. London, Ph.D., was Senior Policy Advisor and Deputy Assistant Secretary of Commerce for Economics and Statistics in the 1990s, Deputy Assistant Administrator at the Federal Energy Administration and Energy Department, and Visiting Scholar at the American Enterprise Institute. . Legislative aide to Sen. Walter Mondale (D-Minn.) in the 1970s, he served as a foreign service officer in Paris and Vietnam and is the author of two books, including “The Competition Solution: The Bipartisan Secret Behind American Prosperity ” (2005).

Share.

Comments are closed.