Do we ever learn from history? Economic experts Harold L. Cole and Lee E. Ohanian write:

“Why wasn’t the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.

So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.

The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation’s antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of “fair competition” which spelled out what producers could and could not do, and which were designed to eliminate “excessive competition” that FDR believed to be the source of the Depression.”

The greatest damage being done now is with the bailout – and government ownership – of the banking system. The bailouts to this point have stabilized, but not eradicted the issues that lead to their problems. Additionally banks are telling those whom they received the funds – the taxpayers – to go pound salt when it comes to increasing lending and lowering their rates of interest on loans.

Yet the federalization of the banking system is the greatest danger.

Lawrence M. Reed:

“The nation’s central bank, the Federal Reserve System, grossly mismanaged the money supply, first expanding it excessively and producing an unsustainable boom in the 1920s, then presiding over a radical contraction of the money supply from 1929-1933. For a very detailed analysis of that disastrous policy, I recommend Murray Rothbard’s classic book, America’s Great Depression.

Then in 1930, Congress and the White House radically raised tariffs, precipitating a world trade war and a serious collapse in U. S. export industries, especially agriculture. In 1932, Congress and the White House doubled the income tax. Then Franklin Roosevelt’s “New Deal” prevented recovery for eight years through its costly and counterproductive policies.

The underlying cause of the business cycle is money and credit expansion that is artificial, that is, prompted by political manipulation of interest rates and bank reserve requirements. Banks today have only marginal control over such things and for the most part, must be responsive to genuine market conditions. A general, economy-wide excessive expansion of credit and currency is the result of a centrally orchestrated policy of the Federal Reserve, not of individual banks.”

Will we repeat the same mistakes?