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October 6, 2009

PC’s new BB&T Program for the Study of Capitalism kicked off its inaugural guest lecture on Sept. 24 with a discussion on the merits of government intervention during times of economic crisis.

Economist and historian Robert Higgs, the senior fellow in political economy and editor of The Independent Review for the Independent Institute, presented his own insights on the Great Depression, the New Deal, and today’s economic crunch.

Admitting his views are not representative of most mainstream historians and economists, Higgs said it is a mistake to compare today’s economy with the Great Depression.

“Present-day conditions bear no comparison with the Great Depression,” he said, pointing out that, while unemployment today is pushing 10 percent, approximately half of the labor force was either fully or partially unemployed during the Depression.

Unlike most historians, Higgs said he traces the roots of the Depression to World War I, a conflict that shattered a global peace that fueled international trade and improved the economic well-being of most people during the Industrial Age.

During that era, he argued, most people shared an ideology that government’s role in the economy was more to enforce property rights but not to set prices or restrict trade.

“Before World War I, the amount of sorrow for most people was diminished,” Higgs said. “We tend to forget those things. People were hopeful; there was a vision of perpetual prosperity.”

The war changed that paradigm, he said.

“Why did people plunge into this cauldron of destruction?” Higgs said. “The facts cannot be wished away. World War I destroyed the old order. Now, instead of global trade, we had governments ordering where resources were used.”

“War planning,” he said, reordered the U.S. economy – leading to conscripted labor and nationalizing industries such as the railroads. Calling it “war socialism,” Higgs said the U.S. went from being not only an economic power in the world but also a major military power.

Higgs attributed the first World War to damaging the U.S. economy but said government, at that point, allowed the economy to adjust and recover on its own without interfering. It was working, he said, until the crash in 1929. By the mid-1930s, after the U.S. economy continued to decline for several years, the government relented and began implementing President Franklin D. Roosevelt’s New Deal.

“Politicians liked nothing better than being saviors,” Higgs said. “(The New Deal) was a great vote-buying scheme; in 1936, FDR was re-elected by an astonishing margin.”

Still, he argued, the Depression lasted until after the end of World War II when a general peace was re-established.

“I believe 1946 was the most glorious year in the modern American economy,” Higgs said. “You will never hear your grandparents talk about how bad 1946 was – because it wasn’t.”

Hearkening back to the actions taken by Congress during the Depression, Higgs said the U.S. government did spend public money on some worthwhile projects, including dams, post offices, and other public works programs. But those programs also, he argued, make government a competitor with private companies.

Higgs leveled his harshest criticism at the Roosevelt Administration by calling the New Deal an attack on the “investor class” and on productivity.

“It was an amazingly wrong-headed thing to do,” he said. “… The story does not get any better. What was done  right? Virtually nothing.”

Even today, Higgs said, the federal government is more inclined to “fix” the economy through stimulus packages and bailouts instead of letting the free market tend itself.

“We’re in a heap of trouble,” he said.