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    The myth that has plagued U.S. domestic policy

    Last month, while visiting an Ohio manufacturing plant, President Obama touted the success of the $787 billion "stimulus" package that he and fellow Democrats forced through Congress back in February of 2009.  Speaking to residents of Mahoning Valley-- where the unemployment rate is 15.1 percent-- the President said:



    If the ‘just say no’ crowd had won out, if we had done things the way they wanted to do, we’d be in a deeper world of hurt than we are right now.


    A recent article written by Thomas Sowell, however, illustrates just how false Mr. Obama's assertion is.  In his piece, Sowell attacks the "widespread belief... that government intervention is the key to getting the country out of a serious economic downturn."  He does so by examining how the policies employed by Herbert Hoover and FDR during the Great Depression affected unemployment.  Many believe that President Roosevelt's New Deal agenda aided an America recovery during the Depression.  Not so, says Sowell:



    Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash.


    Unemployment peaked at 9%, two months after the stock market crashed — and then began drifting generally downward over the next six months, falling to 6.3% by June 1930. This was what happened in the market, before the federal government decided to "do something."


    In June of 1930, the federal government decided to impose higher tariffs in order to "save" American jobs by reducing the demand for imported goods.  Within 6 months, unemployment shot up past 10 percent.  It remained in double digits throughout the remainder of the the 1930s.  Sowell writes:



    If more government regulation of business were the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.


    A 2004 economic study found that New Deal policies had actually prolonged the Great Depression.  While the unemployment rate reached 9% after the market crash of 1929, it decreased as the market recovered.  Following the massive federal interventions of the Hoover and Roosevelt administrations, however, unemployment skyrocketed.  It rose above 20% in 1932 and stayed above 20% for 23 consecutive months.  As Sowell observes:



    The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten.


    But there was one big difference between the 1929 crash and the 1987 crash: the response of the federal government.  After the 1929 stock market crash, there was an unprecedented level of government intervention in the national economy.  As a result, American was forced to endure a horrific depression which left as many as one-fourth of all workers unemployed.  After the 1987 crash, however, the Reagan administration refused to intervene in the economy despite the outcries in the media that the government needed to "do something."  As a result, the crash was followed by two decades of economic growth with low unemployment.


    Sowell notes:



    Those who are convinced that the government has to "do something" when the economy has a problem almost never bother to find out what actually happens when the government intervenes.


    Unfortunately, the current President of the United States seems to fall into that category of thinking.