government

 

There are two ways society can try to solve problems: more government or more freedom. We can look to two historical periods to see how each of these approaches worked: the 1930’s and the 1980’s.

During the 1930’s, in the midst of the Great Depression, President Franklin Roosevelt stated in his first inaugural address that:

This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.

In other words, the solution to our problem is more government. The result was an entire decade of economic stagnation.

The best explanation as to why the Great Depression lingered on for so long, despite the continued effort of the Roosevelt administration’s “war” on the Depression, comes from economist Robert Higgs.

Higgs points out that when the government “wages war” on an economic depression with a flurry of legislative changes, massive regulatory burdens, threats against businesses and general hostility towards investors, it is hardly surprising that businesses decided not to risk their funds and invest under the aura of “regime uncertainty” created by the Roosevelt administration. The result, ironically, was that the first attempt to use government to fight a recession resulted in the first prolonged economic depression in U.S. history.

Fast forward to the 1980’s. In his first inaugural address, President Ronald Reagan’s took on the fight against stagflation, which included persistent high inflation combined with high unemployment and stagnant demand in our country’s economy. President Reagan told the country:

In this present crisis, government is not the solution to our problem; government is the problem.

President Reagan announced to the entire country that the solution to the ongoing economic malaise was more freedom, not more government.

The beginning of the Reagan years saw a sharp recession–to which the administration responded by continuing President Carter’s policy of deregulating major industries such as the airline industry and telecommunications industry. The recession ended quickly because the government did not declare “war” on the emergency and muddy the waters with a flurry of new programs or hostility towards business. It chose more freedom instead of more government.

President Reagan’s economic legacy is far from perfect, but the stark contrast between the experience of the United States during the 1930s and the 1980s should remind us all about the importance of economic freedom.

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