Dow Soars -- But The Recession Is Not Over -- Obama Repeats Failures of The New Deal

Originally Published at The Minority Report

Roosevelt Policies Prolonged The Depression — Is History Repeating?

As the Dow Jones Industrial average plummeted following last November’s presidential election, the new Obama Administration told us that stock market gyrations were unimportant, and not indicative of the nation’s economic health.

“What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability of the United States … to regain its footing,” he told the country in March.

“There are a lot of losses that are working their way through the system and it’s not surprising the market is hurting as a consequence,” he stated, following a meeting with British Prime Minister Gordon Brown. “`We dug a very deep hole for ourselves. There were a lot of bad decisions that were made. We are cleaning up that mess. It’s going to be sort of full of fits and starts, in terms of getting the mess cleaned up, but it’s going to get cleaned up. And we are going to recover, and we are going to emerge more prosperous, more unified, and I think more protected from systemic risk.”

Today, bolstered by a GDP report that showed “only” a one percent contraction in the nation’s economy, and a resurgent Dow, the president is pointing toward the end of the current recession.

“Business investment, which had been plummeting in the past few months, is showing signs of stabilizing. This means that eventually, businesses will start growing and hiring again,” he said.

But a rally on the Dow is far from an indication of economic recovery — a look at the market during the Great Depression warns us of over-optimism.

Depending upon the honesty of the American History books you chose to read, the Great Depression began somewhere between 1929-32 and lasted until 1938-48. Revisionists have President Franklin Roosevelt’s “New Deal” pulling the nation out of depression — others point to the war years of 1942-45 — while more honest historians admit that the depression lasted until economic reforms were finally passed in 1947-48.

A study done in 2004 by economists at UCLA demonstrates that the “New Deal” policies of President Roosevelt prolonged the Great Depression rather than ending it.

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Lee E Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.” [emphasis mine]

“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said UCLA economist Harold L Cole. “So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.”

At any rate, the Great Depression was preceded by the Stock Market Crash of 1929 and terrible government policy from both the Hoover and the Roosevelt Administrations. Policies admired by the economists in the Obama Administration who are poised to duplicate them.

As history repeats itself, a look at today’s Dow recovery is in order. “The stock market is sort of like a tracking poll in politics. It bobs up and down day-to-day,” the president told us in March. “And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

And this is why Bear Market rallies in the Dow can provide a false sense of optimism — an optimism that fuels additional poor choices in both the public and private sectors. When the Obama Administration sees a surge in the Dow, it tells the public it portends an end to the Recession and optimistically proclaims that its policies are working to claw our way out of the economic malaise in which the nation is mired.

“Even as we rescue this economy, we must work to rebuild it stronger than before. We’ve got to build a new foundation strong enough to withstand future economic storms and support lasting prosperity,” the president said.

But the president is relying on discredited policies of a bygone era — policies that failed then and will fail now — to propel this nation forward. From a high of 14,000 the Dow plunged to below 6700 in March. now, five months later with the Dow up by nearly 50 percent, the president sees light — while past performance would indicate nothing out of the ordinary.

As the above graph indicates, the Dow experienced no less than six Bear Market gains during the Great Depression — gains ranging from 12 percent to as much as 72 percent — all while the economy was in collapse and unemployment soared.

“Those who fail to learn from the lessons of history are doomed to repeat them.”

This president seems determined to doom this nation to Great Depression II — having learned all the wrong lessons, and finding all the wrong answers.

From an NRO interview of Rep Frank Lucas in January:

“The president offered a comment in the conference the other day. He said that the spending program that President Roosevelt used in the beginning of the depression – the real problem was that Roosevelt slowed down on public spending in the first two years. If he’d just kept on spending that money, we’d have gotten out of the depression quicker…”

If that sounds suspiciously like “Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Vice President Joe the Biden said. “The answer is yes, that’s what I’m telling you.”

The president seems incapable of understanding the lessons of history. It will be up to the American people to teach him those lessons — think 1980!

Originally Published at The Minority Report