Alternative answers to this week’s Time magazine cover quiz: “What Barack Obama Can Learn from FDR”:

Changing the rules of the game prolongs economic downturns:
“Regime Uncertainty in 1937 and 2008,” here.
“Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” here.
“Banking Act of 1935 + Fed’s Exercise of This Authority = New Deal Policy,” here.
“Regime Uncertainty in the 1930s: A New Deal Insider’s Account,” here.
“Arguably Ripping into the Federal Reserve from Within,” here.

Keynes was wrong:
“Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy,” here.

Government officials do not and can not know how to manage the economy:
“Instead of Stimulus, Do Nothing—Seriously,” here.
“Mommas, Don’t Let Your Babies Grow Up to Report on the Government’s Financial Reforms,” here.

Smooth rhetoric doesn’t imply virtue:
“Another Presidential Inaugural Speech,” see here.

Economic warfare against other nations produces blowback:
“A Date Which Will Live in Infamy,” here.

Getting “out of the way” is your best course of action:
“The Great Escape from the Great Depression,” here.

Credit for all to Robert Higgs.

One of the strangest claims of today’s environmentalists is that “green” technology is actually highly productive and efficient, so that by switching to environmentally friendly production methods, firms can increase their profits, and by adopting energy efficient practices at home, consumers can save money. Obama’s plan to outlaw incandescent light bulbs, for example, is being pitched in terms of efficiency and thrift:

“I know light bulbs may not seem sexy, but this simple action holds enormous promise because 7 percent of all the energy consumed in America is used to light our homes and businesses,” the president said, standing alongside Energy Secretary Steven Chu at the White House.

Obama said the new efficiency standards he was announcing for lamps would result in substantial savings between 2012 and 2042, saving consumers up to $4 billion annually, conserving enough energy to power every U.S. home for 10 months, reducing emissions equal to the amount produced by 166 million cars a year, and eliminating the need for as many as 14 coal-fired power plants.

In other words, consumers can save up to $4 billion annually by switching to the kinds of bulbs the President likes (presumably the ugly knotty ones that produce that creepy shade of bluish-white), but consumers are too foolish to do this on their own. Likewise, firms can reap substantial rewards by producing and marketing these über-bulbs, but are too shortsighted to make the necessary investments without a government mandate.

As a marketing strategy, I understand perfectly the government’s and the Green’s approach here. If market participants had a good idea of the true costs and benefits of such policies, they would reject them out of hand. Better to persuade consumers that expensive environmental mandates are really money-saving devices. But, of course, this is logically inconsistent, absent some kind of subtle and complex “market failure” argument. Nothing stops firms from adopting efficient technologies and consumers from switching to lower-cost products. Indeed, that is exactly what they do on the free market. If you have to force them to switch, it’s hard to make the case that the switch is really in their best interest, absent crass paternalism. Oh, I forgot, this really is all about crass paternalism.

In the mid-1990s, when I was engaged in the research that would eventually be published early in 1997 in an article titled “Regime Uncertainty” (a modestly revised version of which appears as chapter 1 of my Depression, War, and Cold War), I had not read Raymond Moley’s book After Seven Years, published in 1939. Mea culpa. I should have read it much earlier. I am embarrassed to admit that although I purchased a copy in a used-book store many years ago, it sat on my shelf unread until recently.

Not for nothing is this book a standard source for New Deal historians. Moley was the leading figure in the “Brains Trust” that guided Franklin D. Roosevelt’s policy thinking and speaking during the 1932 campaign and, to a lesser extent, during the interregnum between Roosevelt’s election and his inauguration as president and, to a still lesser extent, even later (but then not as an organized group). Although Moley’s association with FDR grew somewhat strained after the president’s first year in office, he continued to work as a close adviser and speechwriter for several years until, in 1936 and 1937, he could no longer countenance the direction in which Roosevelt was taking the New Deal.

Had I read the book before the mid-1990s, I would have recalled then that Moley gave one of the clearest, best informed accounts ever written of the problem of regime uncertainty in the 1930s, an account all the more valuable and weighty because he was the ultimate insider, a man who had worked at the heart of the New Deal from its inception (he even lays claim [p. 23, fn. 6] to having given this political program its name). As I noted in my own article (see Depression, War, and Cold War, p. 8), my “hypothesis is a variant of an old idea: The willingness of business people to invest requires a sufficiently healthy state of ‘business confidence.'” Moley’s discussion proceeds under this well-worn rubric.

In the following long quotation, I present Moley’s most sustained and complete account, which appears on pp. 370-72 of the volume published in New York by Harper and Brothers in 1939. He begins this account by faulting the president for, among other things, “a failure to understand what is called, for lack of a better term, business confidence.” He then goes on to write (I omit here one small footnote giving publication details for a book cited):

Confidence consists, on the one side, of belief in the prospect of profits and, on the other, in the willingness to take risks, to venture money. In Harry Scherman’s brilliant essay on economic life, The Promises Men Live By, the term is, by implication, defined much as Gladstone defined credit. “Credit,” Gladstone said, “is suspicion asleep.” In that sense, confidence is the existence of that mutual faith and good will which encourage enterprises to expand and take risks, which encourage individual savings to flow into investments. And in an age of increasing governmental interposition in industrial operations and in the processes of capital accumulation and investment, the maintenance of confidence presupposes both a general understanding of the direction in which legislative and administrative changes tend and a general belief in government’s sympathetic desire to encourage the development of those investment opportunities whose successful exploitation is a sine qua non for a rising standard of living.

This, Roosevelt refused to recognize. In fact, the term “confidence” became, as time went on, the most irritating of all symbols to him. He had the habit of repelling the suggestion that he was impairing confidence by answering that he was restoring the confidence the public had lost in business leadership. No one could deny that, to a degree, this was true, The shortsightedness, selfishness, and downright dishonesty of some business leaders had seriously damaged confidence. Roosevelt’s assurances that he intended to cleanse and rehabilitate our economic system did act as a restorative.

But beyond that, what had been done? For one thing, the confusion of the administration’s utility, shipping, railroad, and housing policies had discouraged the small individual investor. For another, the administration’s taxes on corporate surpluses and capital gains, suggesting, as they did, the belief that a recovery based upon capital investment is unsound, discouraged the expansion of producers’ capital equipment. For another, the administration’s occasional suggestions that perhaps there was no hope for the reemployment of people except by a share-the-work program struck at a basic assumption in the enterpriser’s philosophy. For another, the administration’s failure to see the narrow margin of profit on which business success rests – a failure expressed in an emphasis upon prices while the effects of increases in operating costs were overlooked – laid a heavy hand upon business prospects. For another, the calling of names in political speeches and the vague, veiled threats of punitive action all tore the fragile texture of credit and confidence upon which the very existence of business depends.

The eternal problem of language obtruded itself at this point. To the businessman words have fairly exact descriptive meanings. The blithe announcement by a New Deal subordinate that perhaps we have a productive capacity in excess of our capacity to consume and that perhaps new fields for the employment of capital and labor no longer exist will terrify the businessman. To the politician, such an extravagant use of language is important only in terms of its appeal to the prejudices and preconceptions of a swirling, changeable, indeterminate audience. To the businessman two and two make four; to the politician two and two make four only if the public can be made to believe it. If the public decides to add it up to three, the politician adjusts his adding machine. In the businessman’s literal cosmos, green results from mixing yellow and blue. The politician is concerned with the light in which the mixture is to be seen, the condition of the eyes of those who look.

Mutual misunderstanding and mutual ill will were, of course, unavoidable in the circumstances, and the ultimate result was a wholly needless contraction of business [in 1937-38] – a contraction whose essential nature was so little understood that it was denounced in high governmental quarters as a “strike of capital” and explained as a deliberate attempt by business to “sabotage” recovery.

After Seven Years contains many more nuggets of valuable information for the student of the New Deal or of Franklin Roosevelt himself. If you are at an early stage of your learning, do not wait as long as I did to read it.

Much has been made in recent weeks about the fact that the GM bankruptcy agreement moved the government’s claims to GM ahead of bondholders with secured debt.  Had GM gone through typical bankruptcy proceedings the bondholders would likely have ended up owning more than half of GM, not the 10 percent they actually got.

Critics of the deal have had two major criticisms: first, that it is unfair to bondholders, and a confiscation of their wealth; and second, that this sets a bad precedent and will make it more difficult for firms to issue secured debt in the future.

Look at what it does to GM, though.  First, it makes GM a government-owned company.  Everybody sees that.  Second, auto companies raise revenue during normal times through issue of a combination of equity and debt, and this deal means nobody is going to want to buy GM debt.  So rather than helping move GM from public ownership to private ownership, GM is put in a position where it can only borrow from the federal government, meaning that GM will remain permanently dependent on the federal government for support.  It can’t raise money in the bond market like other companies, because potential bondholders see the risk that their interests will again be shuttled behind the federal government’s.

There is no way out for GM.  Even if it can start building cars profitably, like a private company, its bankruptcy settlement means it can’t finance itself like a private company.  GM cannot survive.

GM has already found buyers for its Saturn and Hummer lines.  The best policy at this point would be to sell off GM’s other lines while they still have some value.

As has been discussed elsewhere, the FDA is threatening General Mills over its advertising Cheerios’ assistance in lowering cholesterol. In so doing, the FDA claims to be the sole gatekeeper for health information in the U.S. Yet as Dan Klein and Alex Tabarrok show on our related website, FDAReview.org and in related commentary; and Robert Higgs’s extensive research supports, the FDA’s practices have rather resulted in untold unnecessary deaths by keeping life-saving technology and drugs from the doctors and patients they could have helped — economists’ estimates vary from hundreds of thousands to millions of lives lost by the FDA’s use of its power to keep efficacious drugs and devices from the market. Yet at the same time, drug manufacturers remain liable for damages their products are alleged to have caused, even though passed as “safe” by the FDA.

In the late 1960s, Paul Ehrlich became a media darling following the publication of his book, The Population Bomb. Ehrlich’s crystal ball apparently enabled him to see with certainty that population growth would soon outstrip resources, proclaiming “the battle to feed all of humanity is over … In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now.” Among other policy prescriptions, Ehrlich called for “compulsory birth regulation… [to be achieved by] the addition of temporary sterilants to water supplies or staple food. Doses of the antidote would be carefully rationed by the government to produce the desired family size.” Fortunately, the U.S. had not yet reached the state it has apparently reached today, and his policy recommendations were not enacted. However, it was a hugely popular view championed in the media and on college campuses, with thousands of college students undergoing voluntary sterilization. Other countries, of course, bought into this Malthusian view; the most extreme being China’s mandatory one-child policy, resulting in forced abortions and sterilizations, and the abandonment and killing of millions of female babies. This has had numerous and as-yet untold unintended consequences, from the tragedy of families now childless following the deaths of their single children in last year’s earthquake, to the epidemic of the sex-slave trade in China’s female-starved cities. Meanwhile, the subsequent lives of those American college students of the ’70s who may have later changed their minds about wanting children is unknown.

As history has proven, rather than the dystopia Ehrlich outlined, the 1970s and ’80s were a time of increasing prosperity virtually worldwide, and all economic evidence is that humans are a net asset to the world. While population quadrupled in the 20th century, life expectancy has at the same time increased, doubling since the 19th century, and worldwide per capita food production is nearly 50 percent higher than 50 years ago. A bug researcher, Ehrlich was not and is not an economist — a student of Human Action — and thus fails to take into account the wondrous effects of human ingenuity. The Green Revolution turned previous areas of desolation and privation into bread- (and rice-) baskets; while countless other innovations and discoveries have resulted in the cost of nearly every natural resource falling, indicating their relative abundance.

Today we face the specter of reduced lifestyles in the West and continued privation and poverty in the less developed world as a result of the fearmongering of the global-warming lobby. Led by some of the largest utility companies (including the late Enron) and nuclear power companies like Exelon (see the Huffington Post’s “Internal Memo: Nuclear Power Company Could Make A Billion A Year From Climate Change Law“); and carbon-trading financial titans such as Al Gore, the current worldwide crusade to end access to cheap and efficient energy smears any attempts to question its “consensus:” see for example “EPA May Have Suppressed Report Skeptical Of Global Warming“. The squelched report’s author found the studies the EPA is using to support global warming legislation are at least three years out of date and “global temperatures are roughly where they were in the mid-20th century. They’re not going up, and if anything they’re going down.”

If drug companies and General Mills are to be held to the strictest liability for their claims, ought not the same standard be applied to those who not only make false contentions, but are further able to get legislation enacted severely negatively impacting millions, if not billions, of individuals, while profiting from it themselves? Will we be able to sue Al Gore or any of the utility companies who have spent $51 million in the past six months lobbying for today’s legislative changes, for damages caused by their claims?

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For more on the special interests behind today’s fearmongering, see “The Climate-Industrial Complex Some businesses see nothing but profits in the green movement“, and David Theroux’s related blog post, “The Climate-Industrial Complex.”

This is the first in a series of photos relating to my book (co-authored by Linda Royster Beito), Black Maverick: T.R.M. Howard Fight for Civil Rights and Economic Power (Urbana: University of Illinois Press, 2009). The book is about the civil rights leader, self-help champion, entrepreneur, and surgeon, T.R.M. Howard.

Pictured at right is Howard, then a Republican candidate for Congress in Chicago, as he meets with Eisenhower on the eve of the 1958 election.

For the other photos (some of which do not appear in the book, see here.

Nice profile of the Institute of Economic Affairs here. Of Arthur Seldon and Ralph Harris, Colin Robinson notes:

Their common characteristic was sheer perseverance. Without that, they could not have continued to fight for the best part of 25 years a conventional wisdom that favoured highly interventionist economic and social policies, supported by a political and economic establishment that regarded Harris and Seldon as cranks whose views had no relevance to the times in which they lived. Seldon and Harris demonstrated the power of ideas, as few others have done. By the late 1970s they had begun to create a changed intellectual climate which laid the groundwork for the election of a reforming government which implemented a programme which revived the British economy.