A new light on some economic myths
We are only a month away from the opening of the Hawaii Legislature
and so it is a good time to visit some of the myths that misinform our voters
and legislators’ thinking on economic matters.
The first myth is that only anti-trust regulation kept Rockefeller,
and the other ‘Robber Barons’ of the late 1800s, from perpetuating monopolies
and extorting money from consumers. While the so-called “Robber Barons” fought
their competitors like junkyard dogs — some survived and some did not — their
welfare should not be our concern. Our concern should only be how the general
public gains or loses from the process.
General wage levels, allowing for inflation, began increasing
markedly from 1880 on,
which was the time of the rise of the corporations and the activities of the
‘Barons.’ That was a public gain. Rockefeller, who controlled 90 percent of the
oil industry in 1880, lowered the price of kerosene, then the principal petroleum
product and used by consumers to light their homes, from 58 cents to 8 cents
per gallon over a 20 year period by ruthlessly cutting costs.
Another gain for the public.
As for anti-trust regulation protecting the public, the fact
is that Rockefeller’s Standard Oil was set upon by competitors and by 1911 its
market share was down to 64 percent
before being broken up by the courts into smaller units. When competition was
already breaking the back of this quasi-monopoly, what was the point?
The general public also benefited from the activities of the
other “Robber Barons.” As examples, during this period, steel, transportation and
fuel prices declined markedly all the while that wages were increasing. It was
a significant rate of improvement from earlier times for the general public.
The second myth
is that President Roosevelt rescued the country from the business-caused Great
Depression of the 1930s by using government spending and “priming the pump.” This
myth has caused many to view such actions as a panacea to cure all economic
However, economists have come to recognize that far from
being the fault of business, what could have been a normal recession turned
into the Great Depression because of government incompetence. The Federal
Reserve was unwilling to sufficiently boost the money supply.
Congress passed depression-prolonging measures such as the National Industrial
Recovery Act, with its many business-stifling requirements, and the
Miller-Tydings Act outlawed discounting. As a result of these and a host of
others, the economy stumbled along, with unemployment in 1938 still at 19
percent, until the build up to World War II led the country into recovery.
In short, because the Roosevelt
administration believed in cooperative national planning rather than competitive
free markets, its attempts to change our economic system prolonged the
The third myth is that Reagan’s tax rate cuts in the 1980s
caused budget deficits unlike the Clinton
administration, which did not cut tax rates and experienced surpluses.
However, under Reagan, tax collections during his eight
years were 20 percent greater, even allowing for inflation, than under the
eight years of the immediately previous administrations of Nixon/Ford and
Carter. What caused the deficits was Congressional spending; Reagan had to work
with a Democrat controlled Congress whose spending rose 50 percent faster than
tax collections. That is what caused the large deficits. 
While the economy grew under Clinton at the same rate as under
Reagan (strange as that may seem given recent rhetoric),
Clinton had to deal with a Republican controlled Congress,
and spending increased at only one third the rate of tax collections. Thus, the
crimp on spending is what caused Clinton’s
These three myths are the prevailing reasons that voters continue
to approve of elected officials increasing business regulation, increasing government
spending to “prime the pump” and keeping taxes high.
Cliff Slater is a
regular columnist whose footnoted columns are at: www.lava.net/cslater
Historical Statistics of the United States.
Dept. of Commerce, Bureau of the Census. p. 165, Series 736. & p. 164,
Folsom, Bruce W. Jr. The Myth of the
Robber Barons: A new look at the rise of big business in America.
Young America’s Foundation. 1991. p. 83.
This is not to say that there were no negative impacts but rather that
regulatory impositions should be weighed against the benefits.
Friedman, Milton & Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960. Princeton University Press. 1971. p. 299.
Smiley, Gene. Rethinking the Great Depression. American Way
Series. 2002. Has an extensive bibliography of recent economic studies of the
Roosevelt’s attempt to control pricing, labor
costs, mandatory union representation, production quotas, entry controls, and
other anti-competitive measures demonstrated his total disdain for the free
market. Roosevelt’s acceptance speech at the 1936
Democrat convention has been described as a declaration of war against
business. Tax increases, union stimulating legislation such as the Wagner Act,
the Fair Labor Standards Act, and the Walsh-Healey Act all played their part in
delaying economic recovery. The 1933 and 1935 Securities Acts hindered business
in raising funds in the capital markets, which also helped delay recovery.
Average real GDP during the Clinton
years was 27.9 percent greater than the average of the preceding eight years.
On the same basis, the GDP improvement during Reagan’s years was 26.7 percent.
See Data sources.