• Burton Abrams, The Terrible 10: A Century of Economic Folly, Independent Institute, 2013, 186 pages, $24.95.
Most of us like lists, especially those apt to spark debate. In The Terrible 10, Burton Abrams gives us a list of the 10 worst government blunders of the last century. Each chapter explains why the particular program or policy created high costs with little or no offsetting benefit.
Abrams has the background to write this book. He’s a professor of economics (University of Delaware) and directs the Independent Institute’s illuminating MyGovCost.org website. Let’s look at his terrible 10:
• Prohibition. This attempt to legislate morality and improve the people through coercion backfired disastrously. Abrams recounts the glowing aims and of the prohibitionists, then shows that the results were the opposite: a huge increase in crime, corruption, injury or death due to the consumption of illegally produced booze, and more.
The country would have been far better off if those who wanted to stop alcoholism had stayed with voluntary means.
• Monetary Policy during the Depression. Many mistakenly believe that the Depression occurred just because of some innate instability in capitalism. What few know is that government monetary policy played a crucial role in the Depression.
Abrams shows that the Federal Reserve System, established in 1914 to help smooth business cycles and prevent panics, failed to act properly once the country started sliding into recession in 1929-30. The Fed dithered while many small banks collapsed; the nation’s money supply fell sharply. If the Fed hadn’t blundered, we wouldn’t have suffered anything like the calamity of the Depression.
• The Hawley-Smoot Tariff. While the government’s monetary mistakes were mainly to blame for causing the Depression, other policies made it much worse, especially the Hawley-Smoot Tariff of 1930.
The standard belief at the time among Republicans was that high tariffs were good for the domestic economy. Rep. Willis Hawley and Sen. Reed Smoot concocted a protectionist trade bill that raised duties substantially on a wide array of imports. Although the bill drew opposition from business leaders (Henry Ford called it “economic stupidity”) and leading economists, President Hoover believed it would ease America out of the Depression.
It backfired. Predictably, foreign nations retaliated with their own trade bills, causing American exports to wither. The resulting international trade war helped set the stage for World War II.
• Social Security. Abrams doesn’t shrink from calling Social Security a “Ponzi Scheme.” Early beneficiaries made out well, but the system is unsustainable.
Congresses and presidents repeatedly tried to buy votes through expanding benefits, but the program will run out of money before long, requiring either huge tax increases or benefit reductions. Furthermore, Social Security has done great damage by causing people to save less than they would have otherwise.
• Tax Follies. High marginal rates on successful people enable politicians to extract vast amounts of wealth for their policies, many of them wasteful or even counterproductive.
Abrams explains that we bear many hidden costs because of our tax system, for example the squandering of resources on lobbying for favorable tax rules and the man-hours devoted to doing our taxes or paying experts.
• Medicare and Medicaid. Just as Social Security is widely regarded as a “compassionate” and necessary expansion of government, so are Medicare and Medicaid generally applauded for providing medical care for the elderly and the poor.
Abrams disagrees, arguing that both programs cause Americans to be dependent on government, to their detriment. Instead of working, saving, and making the best arrangements possible in a free market, Americans are stuck with inefficient, bureaucratized programs.
In 2003, Medicare was made much worse with Part D, covering drug costs for every beneficiary. That has been great for the big drug companies, which were involved closely in writing the legislation, but it just means more dependency on the government and higher deficits.
• The Nixon-Burns Political Business Cycle. President Nixon wanted desperately to win re-election, but economic conditions were not rosy in 1971. Therefore, he wanted Federal Reserve chairman Arthur Burns to adopt an easy money policy meant to quickly boost employment. Burns, however, said that such a policy would cause long-term inflation.
Nixon, however, was adamant and put unrelenting pressure on the scholarly economist. Burns finally gave in and Nixon easily won in 1972, but Burns was proven right: America got years of high inflation combined with a sluggish economy. That led to the election of Jimmy Carter, and yet more bad economic policy.
• Environmental Mismanagement. Abram’s eighth folly is federal meddling to protect the environment.
He’s not opposed to laws that stop air and water pollution, but opposes programs that impose high costs in pursuit of “green” purity. One example he examines in detail is ethanol subsidies.
• Government Failure and the Great Recession. Abrams explains how government follies caused the housing bubble and the consequent financial crash that ruined people who took out ill-advised mortgages, wiped out many jobs, and damaged financial institutions that had invested in worthless securities.
• Decades of Deficits. The temptation to spend money now (in ways that garner votes) and paying for it in the future is nothing new, but in recent decades, American politicians have put the pedal to the metal.
While Keynesian economists say that deficits “stimulate” the economy, Abrams responds that government borrowing crowds out more useful private uses for limited capital. He’s especially critical of Obama’s huge “stimulus package” that did little short-run good in exchange for heavy future taxes.
George Leef is a contributor to Carolina Journal.