Populist Policies will Harm the Poor

(Guest Post by Matthew Ladner)

After the 1929 stock market crash the American public became firmly convinced that the government had to do something: “Action and Action Now!” as Franklin Roosevelt put it. In reality, the government had already taken far too much action and deepened the crisis. Congress foolishly passed and President Hoover signed an act that instituted a global trade war. The Federal Reserve tightened credit during the downturn (the Fed had even less of an idea about what it was doing in those days) in a move reminiscent of medieval leech medical practice. Anxious to do their part, the New Dealers flailed about chaotically creating a never-ending series of agencies dedicated to the proposition that the American government knew how to order our affairs better than the American people.  The United States had plenty of stock market crashes and recessions before 1929, but previous downturns tended to be of a short-lived variety. It took a parade of highly empowered fools to create and sustain the Great Depression. To the credit of the New Dealers, they at least recognized and corrected Hoover’s folly in creating a system for liberalized global trade after World War II- a system that helped generate and sustain growing global prosperity.

Angry populists of today should take the time to study this sad history. “I’m from Washington, and I’m here to help!” was once understood as the punchline to a joke due to the unfortunate tendency for government action to backfire. Efforts on the left to raise the minimum wage to $15 for instance will doubtlessly accelerate a substitution of technology for routine labor. The inexperienced and unskilled will suffer most. We’ve already for instance seen the advent of an automated hamburger joint:

Great for a relatively small group automation experts, not so much for a huge group of 16 year old kids looking for work.

Likewise let’s consider two scenarios for the United States slapping 45% tariffs on foreign goods. In the first scenario, other countries recognize our greatness and beg for forgiveness, submitting to whatever demands we care to make. In the second scenario, impacted nations retaliate with tariffs against American goods sold in their markets, costing the United States jobs. We reverse the economic benefits of comparative advantage and specialization to indulge in another idiotic trade war that the World War II generation wisely swore off. Whatever net manufacturing employment gained represents a direct transfer from the pockets of consumers, who now must pay higher prices for goods. Needless to say, those with the least amount of money suffer the most from increased prices.

The first scenario seems fantastically unlikely, the second almost certain. H.L. Mencken stated that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” Let’s be careful what we wish for- empowering a new generation of economically illiterates will end in disaster, especially for the poor.

 

 

 

 

 

 

 

 

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One Response to Populist Policies will Harm the Poor

  1. Greg Forster says:

    Alas, we seem to be in need of some good and hard re-learning of the lessons of the past.

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