Posts Tagged ‘Woodrow Wilson’
Obama’s Failed Keynesian Policies Have Given Us The Worst Economic Recovery Since The Great Depression
He’ll never admit it, though. In fact, he’s doubling down.
History, evidence and facts are of no consequences to those locked inside their own ideological hall of mirrors.
The record of President Obama’s first three years in office is in, and nothing that happens now can go back and change that. What that record shows is that President Obama, with his throwback, old-fashioned, 1970s Keynesian economics, has put America through the worst recovery from a recession since the Great Depression.
The recession started in December, 2007. Go to the website of the National Bureau of Economic Research (www.nber.org) to see the complete history of America’s recessions. What that history reveals is that before this last recession, since the Great Depression recessions in America have lasted an average of 10 months, with the longest previously lasting 16 months.
When President Obama entered office in January, 2009, the recession was already in its 13th month. His responsibility was to manage a timely, robust recovery to get America back on track again. Based on the historical record, that recovery was imminent, within a couple of months or so. Despite widespread fear, nothing fundamental had changed to deprive America of the long term, world-leading prosperity it had enjoyed going back 300 years.
Supposedly a forward looking progressive, Obama proved to be America’s first backward looking regressive. His first act was to increase federal borrowing, the national debt and the deficit by nearly a trillion dollars to finance a supposed “stimulus” package, based on the discredited Keynesian theory left for dead 30 years ago holding that increased government spending, deficits and debt are what promote economic growth and recovery. That theory arose in the 1930s as the answer to the Great Depression, which, of course, never worked.
That was the beginning of President Obama’s Rip Van Winkle act, pretending not to know anything that happened over the previous 30 years proving the dramatic, historic success of the new, more modern, supply side economics, which holds that incentives for increased production are what promote economic growth and recovery. Indeed, that Rip Van Winklism pretended not to remember the 1970s either, when double digit inflation and double digit unemployment proved Keynesian economics grievously wrong.
As should have been long expected, Obama’s trillion dollar Keynesian stimulus did nothing to promote recovery and growth, and almost surely delayed it. That is because borrowing a trillion dollars out of the economy to spend a trillion back into it does nothing to promote the economy on net. Indeed, it is probably a net drag on the economy, because the private sector spends the money more productively and efficiently than the public sector.
The National Bureau of Economic Research scored the recession as ending in June, 2009. Yet, today, in the 49th month since the recession started, there has still been no real recovery, like recoveries from previous recessions in America.
- Repeating FDR’s Mistakes
- FDR’s policies prolonged Depression by 7 years, UCLA economists calculate
- John Maynard Keynes: The Damage Still Done by a Defunct Economist
- Roosevelt Redux: How Obama is Creating a Great Depression of His Own
- The Audacity of Failure
- Obama’s economists missed what voters plainly saw
- Obama’s Legacy: A Failed Recovery & Double-Dip Recession
- Fed Warns Unemployment May Double Great Depression
“The power to tax is the power to destroy.” ~ John Marshall
Note: Article I, section 9, of the Constitution was modified by amendment 16.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Sixteenth Amendment, United States Constitution
(For Constitutional context, read “To secure these rights…”1 on The Bill of Rights and A “Living Constitution”2 for a Dying Republic. For additional resources, see The Patriot’s Topical Essays3 page and our Historic Documents4 page.)
Benjamin Franklin said it best: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
As our nation’s Founders understood, the federal government would be constitutionally limited both in the means of collection and expenditure of the taxpayer’s money. The Constitution afforded citizens this protection in Article I, Section 9, which reads, in part, “No Capitation, or other direct Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”
This constitutional protection was undermined, however, when the 16th Amendment was passed by Congress on July 2, 1909, and ratified on February 3, 1913: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Prior to the 16th Amendment, taxation in America was levied on the basis of consumption, not income. Tax based on consumption (a sales tax) entails limitations to that tax, because an excessive tax rate will itself stifle consumption and give rise to smuggling, black markets and other means of tax evasion. Speaking of taxation on consumption in the Federalist Papers5, the definitive explication of our nation’s Constitution6, Alexander Hamilton writes, “It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. … If duties are too high, they lessen the consumption; the collection is eluded; and the product to the Treasury is not so great as when they are confined within proper and moderate bounds.” Fellow federalist and the author of our nation’s Constitution, James Madison, adds, “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents….”
After all, writes Madison, the prerogatives of the federal government are limited by their explicit enumeration: “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce. … The powers reserved to the several States will extend to all the objects which in the ordinary course of affairs, concern the lives and liberties, and properties of the people, and the internal order, improvement and prosperity of the State.” Madison further notes, “If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions.”
Anti-Federalists also understood the need to restrict taxation to support only those things constitutionally reserved for the central government: “To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical,” concludes Thomas Jefferson. “A wise and frugal government … shall not take from the mouth of labor the bread it has earned. … Congress has not unlimited powers to provide for the general welfare but only those specifically enumerated. … Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands?”
At odds with these strict constructionist intentions was Franklin Delano Roosevelt, who did more damage to federalism than any president in our nation’s history. Indeed, he firmly believed in the funding of unconstitutional government growth by way of unconstitutional taxation. “Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle.” Of course, Roosevelt’s “American principle” was little more than a paraphrase of Karl Marx’s maxim, “From each according to his abilities, to each according to his needs.”
Yet the United States’ debate over taxation does not begin with Roosevelt, but dates back to the American Civil War. In 1861 Congress passed the nation’s first income tax, upheld by the Supreme Court, to fund the war against the seceded states. The tax consisted of a three-percent levy on incomes over $800; Congress repealed the income tax in 1872.
The income tax was soon resurrected, however, when Congress passed a two-percent tax on income over $4,000 as a part of an 1894 tariff bill. This time, though, the Supreme Court declared the tax unconstitutional in a five-to-four split decision. Under the leadership of such figures as William Jennings Bryan, the Democratic Party’s Populist Movement would keep alive the idea of an income tax over the next two decades.
Joined by the Republican Party’s progressive wing, Democrats attempted to install an income tax again in the tariff bill of 1909, under an amendment sponsored by Senator Joseph W. Bailey of Texas. With no real expectation that his amendment would pass, Bailey’s true intention was to embarrass Republicans as the party of “big business,” working against Democrats’ “party of the people.” Unable to confront the Democrats’ income-tax proposal directly due to the progressive-conservative split in his own party, Republican President William Howard Taft (1909-1913) did the unthinkable, recommending to Congress a constitutional amendment authorizing taxation on income. Though such an amendment’s passage through Congress seemed likely, Republicans considered the necessary three-fourths ratification by the states altogether impossible.
The 16th Amendment passed through Congress even easier than expected with votes of 77-0 in the Senate and 318-14 in the House of Representatives. Republicans’ plans went awry, however, when one state legislature after another gave its endorsement to the measure. Less than four years later, February 25, 1913, the 16th Amendment became the law of the land. Republicans had underestimated the wave of populist sentiment sweeping the country; a backlash to the era of America’s “robber barons.” For federal and state legislators alike, to vote against the amendment meant to be voted out of office.
Despite the shock of its passage in this political maneuver gone awry, the 16th Amendment had an innocuous effect in its early days. In 1913, only one percent the population paid the income tax, in an amount of one percent of net income only. This was not to last. Since 1913, through invasive taxation and regulation permitted under the 16th Amendment, the central government has intruded into every aspect of American life. As Nikita Khrushchev observed, “We can’t expect the American people to jump from Capitalism to Communism, but we can assist their elected leaders in giving them small doses of Socialism, until they awaken one day to find that they have Communism.”
Mindful of this “Marxist prophecy,” a commissioner for the Internal Revenue Service in the 1950s who resigned in disgust, T. Coleman Andrews, offers an analysis of the constitutional and social effects of the 16th Amendment so profound that it deserves to be quoted at length:
“Congress [in implementing the 16th Amendment] went beyond merely enacting an income tax law and repealed Article IV of the Bill of Rights7, by empowering the tax collector to do the very things from which that article says we were to be secure. It opened up our homes, our papers and our effects to the prying eyes of government agents and set the stage for searches of our books and vaults and for inquiries into our private affairs whenever the tax men might decide, even though there might not be any justification beyond mere cynical suspicion.
“The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that were given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed is concerned. Please remember that under the Sixteenth Amendment, Congress can take 100 percent of our income anytime it wants to. As a matter of fact, right now it is imposing a tax as high as 91 percent. This is downright confiscation and cannot be defended on any other grounds.
“The income tax is bad because it was conceived in class hatred, is an instrument of vengeance and plays right into the hands of the communists. It employs the vicious communist principle of taking from each according to his accumulation of the fruits of his labor and giving to others according to their needs, regardless of whether those needs are the result of indolence or lack of pride, self-respect, personal dignity or other attributes of men.
“The income tax is fulfilling the Marxist prophecy that the surest way to destroy a capitalist society is by steeply graduated taxes on income and heavy levies upon the estates of people when they die.
“The income tax is bad because it is oppressive to all and discriminates particularly against those people who prove themselves most adept at keeping the wheels of business turning and creating maximum employment and a high standard of living for their fellow men.
“I believe that a better way to raise revenue not only can be found but must be found because I am convinced that the present system is leading us right back to the very tyranny from which those, who established this land of freedom, risked their lives, their fortunes and their sacred honor to forever free themselves.”
How, then, do we free ourselves from the tyranny of the present system? Contrary to the closet socialism articulated by FDR and his New Deal successors, a national sales tax would be a welcome and constitutionally permissible alternative to the socialist vision and statist implications of the current system. Our present-day progressive income tax not only punishes hard work and free-market success, it also restricts economic growth by stifling consumers and the private sector. Most importantly, the elimination of the income-tax system through repeal of the 16th Amendment would eliminate the federal government’s prerogative to levy inequitable taxes, and force greater government conformity to its constitutionally defined strictures.
At the same time, economists recognize that legitimate tax reform and tax reductions can be disastrous if not accompanied by comparable reductions in government spending. Spiraling deficits, including those being run up by the current administration, will have dire consequences for long-term economic health. Therefore, it is essential that any meaningful tax reform legislation, including but not limited to the repeal of the 16th Amendment and replacing the income tax with an alternative like a national sales tax or flat tax, be accompanied by reductions in government expenditures under the guidance of the Constitution’s own parameters for the federal government’s activity.
Given the limited influence of constitutional constructionists and fiscal conservatives in both chambers of Congress, even after a decade-long Republican controlled Congress, any alteration to the 16th Amendment stands no chance of passage on Capitol Hill, or of ratification by the states. This hard reality must serve only to bolster the resolve of citizens committed to the Founders’ notion of a constitutionally limited government — a limitation largely enforced by restraints in the collection and expenditure of tax revenue. As the central government continues to encroach upon every sphere of our lives, the time is ripe to bring the issue of fair and just taxation before the public eye.
At American Thinker, Robert R. Barker draws eerie comparisons between FDR’s mistakes and the ones Obama is making now:
Franklin Delano Roosevelt (FDR) is to liberals as Ronald Reagan is to conservatives, a greatly revered hero of their cause. Barack Obama is following in FDR’s shoes. Roosevelt was more destructive to the economy in his own time than Obama has been in his… thus far.
Roosevelt responded to the recession he inherited with a combination of massive spending on new government programs and sweeping controls over private industry, (sound familiar?). His thinking was that government spending would get people back to work, and controls over private industry would end deflation. Rules and regulations over private industry were put in place designed, incredibly, to increase the prices of goods. The President and his advisors thought deflation was a cause of the recession. But of course it wasn’t a cause; it was a result.
The Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) were formed. The WPA was created to carry out infrastructure projects (sound familiar?) and the CCC to provide government jobs for young men by performing work of a conservation nature on government-owned land. The WPA and CCC were prime elements of FDR’s stimulus program. Both programs increased the size of government and added to the Federal payroll but did little for private industry which is the heart of an economy.
The Reconstruction Finance Corporation (RFC) was a government sponsored organization (GSO) structured somewhat like Fannie Mae and Freddie Mac. The RFC was expanded by Roosevelt and served as the money conduit for bailing out failing banks. It was funded with over 5 billion dollars in taxpayer money, equivalent to 84 billion today after adjusting for inflation. According to Wikipedia, “The RFC was bogged down in bureaucracy and failed to disperse much of its funds. It failed to reverse the problem of mass unemployment.” (Sound familiar?)
FDR created a Farm Board with the power to control the amount of production and the price of grains and livestock. The board mandated that crop farmers let some of their fields lie fallow. Agriculture farmers were paid by the government for crops that didn’t exist because they were forbidden to plant them. Livestock farmers were not overlooked either. Six million young piglets were ordered destroyed at taxpayer expense. The purpose was to reduce the supply of pigs and increase the price of bacon and pork. Instead of pigs, Obama chose to destroy used cars. At least that move is more humane.
Roosevelt’s first legislative victory was congressional passage of the National Industrial Recovery Act to be administered by the National Recovery Administration (NRA). This new law created a new agency giving Washington vast powers of control over private enterprise. It established maximum and minimum wages and price controls over many goods and services. It was the most contentious of all the programs in Roosevelt’s “New Deal.” Had it not been for the economic crisis then at hand, such sweeping legislation could never have been enacted. (Sound familiar?)
But the NRA turned out to be a step too far. In an attempt to end the controversy surrounding the program, Roosevelt chose to make an example of a kosher chicken processing firm run by two immigrant brothers in Brooklyn, NY. The proprietors were arrested, tried, found guilty and jailed for selling chickens at prices below those allowed by the law and for permitting wholesale customers to pick and choose which birds they wanted to buy. Both acts violated regulations set by the National Recovery Administration.
The strategy backfired when the proprietors, the Schechter brothers, fought back. The case went to the Supreme Court where, by a unanimous decision, the National Industrial Recovery Act was declared to be unconstitutional. The NRA which administered the Act was dismantled. Today we see parallels in Obama’s use of czars and broad powers of regulation to control the private sector. If the question of the constitutionality of the Patient Protection and Affordable Care Act, commonly known as ObamaCare, winds up in the Supreme Court it will be one more instance of Roosevelt redux.
Eight years after Roosevelt was first elected, unemployment stood at 14.6%. Henry Morgenthau, Jr., FDR’s Secretary of the Treasury from 1934-1945, admitted to himself in a written in his personal diary that the stimulus spending programs had failed.
“We have tried spending money. We are spending more money than we have ever spent before and it does not work… We have never made good on our promises. . . . I say after eight years of this administration we have just as much unemployment as when we started . . . . And an enormous debt to boot!”
Then on December 7th 1941, Japan attacked Pearl Harbor. The unemployed went back to work. Assembly lines ran around the clock making tanks and planes, guns and ships in the all-out war effort. FDR, already the only President to win a third term, went on to win a fourth.
Obama is treading the same path as FDR, repeating the same steps that turned a recession into the Great Depression. But fear not; we survived the Civil War, Woodrow Wilson, Franklin Roosevelt and World War II. We’ll survive Barack Obama as well. But we must make certain he only reigns for one term.
Presented by Thomas E. Woods, Jr., at “The Great Depression: What We Can Learn From It Today,” the Mises Circle in Colorado; sponsored by Limited Government Forum of Colorado Springs and hosted by the Ludwig von Mises Institute. Recorded Saturday, 4 April 2009.
Whatever I or anyone else thinks about Mr. Beck’s programming or political views, on one central historical issue he is correct: The progressive movement did indeed repudiate the principles of individual liberty and limited government that were the basis of the American republic. America’s original progressives were convinced that the country faced a set of social and economic problems demanding a sharp increase in federal power. They also said that there was too much emphasis placed on protecting the liberty of individuals at the expense of broader social justice. So did this make them socialists—a charge frequently leveled by Mr. Beck?
Woodrow Wilson did oppose the actual socialist movement of his day, and he didn’t believe that the government at the time was capable of accomplishing everything socialists then had in mind. Nevertheless, in his 1887 essay, “Socialism and Democracy,” Wilson considered the socialist principle—”that all idea of limitation of public authority by individual rights be put out of view”—to be entirely consistent with democratic principles: “In fundamental theory socialism and democracy are almost if not quite one and the same. They both rest at bottom upon the absolute right of the community to determine its own destiny and that of its members. . . . Limits of wisdom and convenience to the public control there may be: limits of principle there are, upon strict analysis, none.”
Theodore Roosevelt also recoiled from the socialist movement. But in his famous “New Nationalism” speech of 1910, he said it was necessary that there be “a far more active governmental interference” with the economy. “It is not enough,” he said, that a fortune was “gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community.”
To achieve their ends, progressives understood that the original constitutional limits on the scope of the federal government had to be breached. This is why Roosevelt railed against court decisions, like the famous Supreme Court case of Lochner v. New York (1905), that upheld individual property rights against progressive legislation (in this case a law limiting the number of hours a baker could work). It is also why Wilson consistently advocated the adoption of a more English-style government, where there is no written fundamental law to serve as a check on the authority of the national legislature.
The Original Tea Party
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The Civil War and Gilded Age
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FDR’s State And LBJ’s Society
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Big Gov’t and Tea Parties
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Prior to 1913, there was no federal income tax. The states had rights and representation in Washington DC, there was no Federal Reserve Bank, and the federal government lived under the enumerated powers afforded within the US Constitution. What a difference one year can make…
Almost a hundred years later, it’s clear that the policies established in 1913 must be revoked in order to restore power to the people and the states. But can the American people stuff the Genie back in to the bottle?
The History of the US Tax System can be summed up in one paragraph…
Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities.
Passage of the 16th Amendment to the Constitution would forever change life in America and not for the better.
The 16th – The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.
It’s hard to imagine how the aforementioned amendment could have been written any broader, or why 36 states would agree to such an open ended federal power to strip citizens of their rightful earnings via taxation without representation and with literally no boundaries or limits to how far the federal government could ultimately go in their effort to buy the votes of some with the assets of others.
Since 1913, the federal tax code has been used as a primary tool of leftist social engineering in which the people have been forced to fund a government they no longer recognize and no longer support. The US Congress has a mere 11% approval rating today and the Executive branch is supported only by the 28% of citizens who benefit personally by the robbing of fellow citizens.
The states are now fiscal dependents of the federal government and the federal government is a twenty trillion pound ape trampling through the rose garden of American life, and nobody seems to have any clue how to rein it all in.
Further, thanks to the passage of the 17th Amendment, also passed in 1913, the states no longer have representation in Washington DC. Once again, what seemed like a simple sentence and a good idea to some at the time has since been used by the federal government to eliminate state’s sovereignty and rights.