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[bobf <bobford79 AT yahoo.com>]

This article is in today's Washington Post.  The author has been receiving a 
lot of press because of the public fued with Paul Krugman over the economics 
of the Great Depression.  True history can sometimes be unkind to the deeds 
of 'great' men.  Some of the arbitrary actions by FDR were astonishing.

Obama, I think, will follow the lead of the Lindsays and Krugmans.  He is 
talking a trillion dollar stimulus, right off the bat.  That isn't arbitrary 
, but it is a dumbfounding number.

Obama, so far ,has exhibited above average leadership skills, I think.  Many 
people who were afraid of him are actually now comforted.  The man has a real 
Reagan-esque quality, that way.  I know I will never support him becuase his 
big government, collectivist, statist ideology is anathema to my ideas of 
freedom and personal liberty.  But, he does have a real essence of a 
'leader', which is good.  I don't hink he will panic the country.

Who knows, maybe he and Lindsay and Bernake & Krugman are all right, and this 
will work itself out in several years.  I don't think so, but, in 2000, I 
thought that GWB would make a decent President. So, I am not a stranger to 
being wrong

------------------------------------------------------------------------

A Chilling Uncertainty 

The Lessons of Roosevelt's Experimentation


By Amity Shlaes
Wednesday, December 31, 2008; Page A15 

The United States has entered the era of the experiment. President-elect 
Barack Obama is putting forward an infrastructure program whose plans and 
price tag are unclear. Treasury Secretary Henry Paulson whipped up the 
Troubled Asset Relief Program to buy up bad mortgage instruments, and, 
expanding on that experiment, President Bush wants to try extending TARP to 
autoworkers. 

The idea that experiments are warranted in current circumstances comes from 
the New Deal. The official history is familiar: FDR put forward multiple 
projects, some at cross-purposes. Yet New Deal inconsistency was not a 
problem and might have been a virtue. Through "bold, persistent 
experimentation," his catchphrase, Franklin Roosevelt brought recovery. 

Modern economists, monetarist or Keynesian, have not rejected this story 
line. The trouble with the 1930s, in their view, is that government did not 
fiddle enough. Had the Federal Reserve, the Treasury or the White House 
fiddled more, the Depression might have been shorter or less severe. The New 
Deal Fed, they say, never got the price level quite right. Or, the New Deal 
stimulus programs were too little. And so on. 

But there is significant evidence that the very arbitrariness of the New Deal 
made the Depression worse. 

In 1932, stunned market players and citizens wanted to know what the new 
rules were. They voted for a party with a platform so moderate it could have 
been written by today's Concord Coalition: stability, sound money, balanced 
budgets. That was the Democratic Party, led by Roosevelt. 

Many of FDR's initial plans did bring stability: His first Treasury secretary 
worked to sort out banks with the outgoing Hoover administration in a fashion 
so fair that an observer noted that those present "had forgotten to be 
Republicans or Democrats." By creating deposit insurance, FDR reduced bank 
runs. His Securities Act of 1933 laid the ground for a transparent national 
stock market. Equities shot up. 


But other policies were more arbitrary. Using emergency powers, FDR yanked 
the country off the gold standard. Both American and international markets 
looked forward to a London conference at which a new monetary accord was to 
be struck among nations. Over the course of the conference, though, FDR 
changed orders to his emissaries multiple times. Some days he was the 
internationalist, sending wires about international currency coordination. 
Other days he was the cowboy, declaring that all that mattered was what the 
dollar bought in farm states. The conference foundered. 

Some of the worst destruction came with FDR's gold experiment. If he could 
drive up the price of gold by buying it, he reasoned, other prices would rise 
as well. Roosevelt was right to want to introduce more money into the economy 
(the United States was deflating). But his method was like trying to raise an 
ocean level by adding water by the thimbleful. What horrified markets even 
more was that FDR managed the operation personally, day by day, over a 
breakfast tray. No one ever knew what the increase would be. One Friday in 
November 1933, for example, Roosevelt told Treasury Secretary Henry 
Morgenthau that he thought the gold price ought to be raised 21 cents. Why 
that amount, Morgenthau asked. "Because it's three times seven," FDR replied. 

Morgenthau later wrote that "if anybody knew how we set the gold price, 
through a combination of lucky numbers, etc., I think they would be 
frightened." 

They were. The "Roosevelt Rally" flattened. The arbitrary quality of other 
initiatives reinforced concerns. The New Deal centerpiece, the National 
Recovery Administration, helped some businesses compete and criminalized 
others for the same behavior. Sometimes Roosevelt goaded federal prosecutors 
into harassing corporate executives. Other times, he schmoozed the same execs 
at the White House. In 1936, FDR pushed through deficit spending. In 1937, he 
was Mr. Budget Hawk. 

Uncertain, markets froze. Businesses refused to hire or invest in equipment. 
Unemployment stayed stuck in the teens. The 'deal' part of the New Deal 
phrase was problematic; businesses didn't want individual favors, they wanted 
clear laws for all. Industrialist Ernest Weir summed up what his community 
was desperate for FDR to do: "Above all to make the program clear and then 
stick to it." 

Today, uncertainty also chills. Questions abound over the future regulation 
of stocks and derivatives, over tax policy, over bailouts. All this makes it 
hard for the market to settle on equity or home prices. And Americans follow 
stories about names -- Secretary Paulson, Secretary-designate Timothy 
Geithner -- more than they do the news about the Fed or the Treasury. 

Luckily, we are entering the optimal time for reducing uncertainty: a new 
president's first hundred days, with a majority to back him on the Hill. 
Obama might start by rebuilding key institutions: creating a super-Securities 
and Exchange Commission, a tough regulator with clear plans for overseeing 
stocks as well as those instruments that had been monitored unpredictably 
because of vague status. He should also halve corporate tax rates, currently 
some of the world's highest, and reduce the capital gains rate to 5 percent. 
Rewriting the Fed law to clarify it will make avoiding an Alan Greenspan 
bubble easier. Defining his infrastructure program clearly would have the 
effect of putting up a sign: Open for Business. 

Some will say all that sounds politically impossible. Until recently, though, 
so did a trillion-dollar infrastructure project. A new hundred days spent 
making good laws will bring sturdy recovery. A hundred days spent making more 
deals will not. 

Amity Shlaes, a senior fellow at the Council on Foreign Relations, is the 
author of "The Forgotten Man: A New History of the Great Depression." 

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123002660.html?hpid=opinionsbox1