Fed Up with FED - Thomas Sowell

May 7,2011

When people in Washington start creating fancy new phrases, instead of using plain English, you know they are doing something they don't want us to understand.

It was an act of war when we started bombing Libya. But the administration chose to call it "kinetic military action." When the Federal Reserve System started creating hundreds of billions of dollars out of thin air, they called it "quantitative easing" of the money supply.

Those who are true believers in the old-time Keynesian economic religion will always say that the only reason creating more money hasn't worked is because there has not yet been enough money created. To them, if QE2 hasn't worked, then we need QE3. And if that doesn't work, then we will need QE4, etc.

Like most of the mistakes being made in Washington today, this dogmatic faith in government spending is something that has been tried before-- and failed before.

Henry Morgenthau, Secretary of the Treasury under President Franklin D. Roosevelt, said confidentially to fellow Democrats in 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work."

The idea that the federal government has to step in whenever there is a downturn in the economy is an economic dogma that ignores much of the history of the United States.

No economic downturn in all those years ever lasted as long as the Great Depression of the 1930s, when both the Federal Reserve and the administrations of Hoover and of FDR intervened.

 The myth that has come down to us says that the government had to intervene when there was mass unemployment in the 1930s. But the hard data show that there was no mass unemployment until after the federal government intervened.
 
Yet, once having intervened, it was politically impossible to stop and let the economy recover on its own. 

That was the fundamental problem then-- and now.