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Don't Repeat Errors of New Deal

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
November 10, 2008
New York Post


The historical model that the Democrats are choosing to hold up as they ponder our financial crisis isn't Harry Truman's Fair Deal or Lyndon Johnson's Great Society. It is Franklin D. Roosevelt's New Deal. At least three economic reforms under discussion now were also central in the New Deal package. Trouble is, these reforms didn't necessarily work well when they were first tried-and some failed outright.

Consider, for starters, a stimulus package. President-elect Obama has said that "the one thing I can say with certainty is that we are going to need a stimulus package passed either before or after my inauguration."

The idea, presumably, is that handing consumers a check-pre-Christmas bonus, perhaps-will encourage them to spend. Businesses will in turn benefit and then spend themselves.

Last summer saw the failure of just such a stimulus-President Bush's. University of Michigan economists found that, instead of spending as proposed, consumers saved their money. But the original stimuli of the New Deal also failed.

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