Balanced, Thorough History Lessons As Important as Culture Wars in our ISDs
“Who controls the past now, controls the future. Who controls the present now, controls the past.”
Phillip W. Magness of the American Institute for Economic Research would likely recognize that as a line from George Orwell’s “1984.” Whether or not it informed a recent study he co-authored is an open question, but it would be a fitting conclusion.
Along with Jeremy Horpedahl and Marcus Witcher, professors of economics and history respectively, at the University of Central Arkansas, they discovered differences between how college-level introductory economics, and history textbooks document the causes of the Great Depression.
That is a concern since some of those books are used in local public schools, and some big causes are omitted from them.
While the econ texts in the study leaned toward monetary policy and trade as culprits, history books tended to focus on income inequality, debt and the stock market crash. Though they put equal emphasis on consumer demand issues, trade is the most accurate of them all.
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One of the most devastating things President Herbert Hoover did was sign the Smoot-Hawley Tariff Act of 1930. Not only did it raise taxes on consumers, it also sought to protect an ailing farm industry.
Say you’re considering opening a business here in Bexar County, but see municipalities shielding entrenched competitors who are slow to react to changing market conditions. That might give you pause. Subsequently, a chill is put into economic dynamism.
Mix in predictable retaliation from trading partners a hundred years ago, and international commerce was thrown against the ropes. The added hikes in spending and more than doubling of tax rates knocked the economy down for the count.
New President Franklin Roosevelt merely put his foot on its neck with the New Deal. According to Magness et al, the different textbooks have that in common, too; little mention of the negative impact of fiscal and regulatory actions.
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“In Chicago, where half the working population was unemployed at the beginning of 1932, Mayor Anton Cermack telephoned people individually begging them to pay their taxes.”
Imagine Mayor Ron Nirenberg, or Judge Peter Sakai doing that after the U.S. government gave them and the state of Texas the greenlight to shut down your employer’s business when a virus hits. How would you respond?
That is an excerpt from “Give Me Liberty!”, a U.S. History textbook used in NISD high schools. It was written by Eric Foner, one of the authors sampled in the study.
Taking (more) money out of private hands is never a good idea, both on principle and for the sake of growth. No one is more tightfisted with their income than the worker who earned it. No one is quicker to redirect their resources away from failing enterprises than the investors who saved them.
In national economic terms, increasing taxes was tantamount to a boxer wailing away on an opponent who’s already been counted out.
“Didn’t FDR save us from the Great Depression” many ask. “He had to do something.” That’s certainly an impression from Foner’s textbook. What he and quite possibly other authors fail to consider is that it was those very efforts that kept the economy on the mat.
Government, by its very nature, is not set up to succeed. It faces no competition, it will not go out of business, and all it needs for financing is to tax any and every action of its citizens. Therefore, it lacks the proper incentives to be effective, much less efficient.
The bigger and more ambitious it gets, the more the negative fallout is compounded.
Whether it’s by a heavy regulatory burden (National Recovery Administration, Agricultural Adjustment Act), entering directly into ‘competition’ with private sector businesses (Works Progress Administration, Civil Works Administration), or both, all but the biggest companies get quashed.
And then those firms are incentivized to getting in bed with government to secure their respective market positions. It’s a vicious cycle that feeds upon itself.
Factor in the tussle with the Supreme Court, its invalidation of parts of the New Deal, and Uncle Sam randomly getting religion about balancing the budget, and private enterprise was arguably too punch-drunk to establish a foundation for genuine prosperity.
The New Deal turned what would most likely have been a cyclical recession, into a generation-defining depression. Instead of that, students assigned Foner’s textbook learn that the stock market crash and the “highly unequal distribution of income” were to blame.
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The stock market for one, is simply a leading indicator of investment capital being (re)allocated. Income inequality however, is completely out of place in this lesson.
Those with a higher tolerance for risk reap the financial rewards when their businesses succeed. Others of us other hand, choose career paths that are not as lucrative.
Moreover, a focus on income inequality and its effect on the economy is misguided. It implies that consumer spending drives growth, one of the biggest economic myths out there.
Consuming depreciates, or literally destroys a product (think food). That’s the opposite of growth, which is actually the result of production. Such a characterization is little more than justification for politicians to spend and say it’s to “stimulate growth.”
Unfortunately, destruction is employed more detrimentally in this broader narrative.
Foner mischaracterizes the beginning of the end of the depression. He rightfully cites the midterm elections of 1938, in which FDR’s democrats lost almost 70 seats in Congress, as “the end of the New Deal. Further reform initiatives were dead on arrival, and old ones were abolished.”
A “stalemate” had set in.
However, throw in the repeal of a tax on corporate profits, and in actuality the seeds for growth had been planted. Government was not only going to do less, but it was trying to undo some of what it did that caused the harm.
Alas, he falls in with the chorus of so-called experts who declare that “only the mobilization of the nation’s resources” for World War II brought us out.
Think about that for a moment. The eventual death of labor and destruction of land and capital, three of the four key factors of production, was good for the economy? Actually, all four factors were negatively affected when you consider the entrepreneurs who were amongst the casualties.
Students would benefit from a counterbalance somewhere along the lines of “there is another school of thought that argues that the government activism embodied in the New Deal may have contributed to the depth and extent of the Depression.”
Many of us refer to that school as basic economics.
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While this is an analysis on the causes of the Great Depression, it is a lesson our kids are learning in school. It is an incomplete one of questionable decisions made on a national level that can and have trickled down to local governance.
As we’ve seen, cities and counties can overspend, overtax, overregulate, and overborrow just like countries can. And the fallout is every bit as detrimental.
If the people entrusted with educating our kids, and choosing their textbooks, don’t present an accurate, sufficient review of important lessons like this one, we risk living out another prescient saying: those who ignore history are doomed to repeat it.
We’ve done more than enough of that already.