It is no accident or manifestation of random luck that the United States is the single greatest economic power ever to grace the planet as a sovereign nation. It is no accident, because our founding fathers had a vision of a nation in which government played a very small role in commerce and an even smaller role in the lives of its citizens. The necessity for a small federal government and independent sovereign states/governments, kept together by a voluntary agreement that became our constitution, was crucial to the success of the country. Our founding fathers knew that it was important to curtail the growth of government and so our founding document’s purpose was to ensure the federal government be kept in check. Three branches of government were introduced and made part of the constitution in order to create a checks an balance on each separate branch of government. Yes, our great nation, the greatest economic power the world has ever known, was made possible by the well thought-out intentions of a few great visionaries so many, many years ago.
John Locke, Adam Smith and Thomas Hobbes, philosophers and economists created the conceptual framework that become interwoven into the Constitution of the United States of America. Our founding fathers embraced their ideas and their principles. Life, liberty and the right to own and keep private property out of the hands of government, were the building blocks of our nation. Freedom for people to govern themselves and the necessity to create a firewall between government and the private sector are constitutional mandates.
The very idea of separating government and the private sector was extraordinary and, yes, intentional. That government must not be allowed to interfere with the private sector (laissez-faire) was, from the outset of our nation, a key ingredient in our founders recipe for creating a new nation, the likes of which the world had never seen. These principles of life, liberty and the right to own and keep private property out of the hands of government are the bedrock of this great nation and are often referred to as the American Dream or Democratic Capitalism. Yes, capitalism. Unfettered capitalism means government cannot interfere with the private sector economy. It was an intentional constitutional mandate.
For a time, this constitutional mandate remained in place. And for a long time, and as a result, America flourished. Then came the Great Depression. The Great Depression changed everything. It opened the door for governmental control and interference with the private sector economy. Once that door was cracked open, governmental legislators (our employees) plowed through the door and forced upon us a flood of bureaucratic tyranny (numerous, repressive laws), not seen since the English monarchy attempted to flex its might in an effort to reign in the thirteen colonies at the end of the 18th century.
Contrary to what many believe, the Great Depression was not caused by the stock market crash of 1929. While this crash was certainly devastating to the economy at the time, it was not the cause of the worst economic event in U.S. history. Rather, it was the government’s interference in the private sector that brought about a recession that became a depression. The Smoot-Hawley Act was intended to protect the livelihoods of American farmers by imposing importation restrictions on agricultural products coming from foreign nations. As soon as the private sector got wind of this legislation, even in proposed form, it reacted violently and the stock market crashed in 1929. But then, Smoot-Hawley hit a bump in the legislative road and, thinking this legislation would die on the vine, the stock market rallied and commerce re-started itself. But Smoot-Hawley was not dead. It re-emerged and became law in 1930. Once again the stock market plummeted. To make matters worse, President Hoover, proposed, and Congress passed, legislation that created one of the largest tax increases in the nation’s history; an increase in the federal income tax rate from 25% to 63%. Included in this tax increase was a tax on checks. Every check that was drafted was subjected to an excise tax. Not surprisingly, consumers reverted to the use of cash, instead of checks, in an effort to avoid the excise tax they could ill-afford. Runs on the banks began to increase and by FDR’s election in 1933, banks were all but broke and the financial system was in ruins.
FDR, one the most activist of Presidents, saw this as an opportunity to experiment with a new economic concept, known as Keynesian Economics. Keynesian economics argued that in times of an economic downturn, the federal government, though spending measures, could help re-start the economic engine. FDR was a fanatical Keynesian. Law after law was passed creating knew, novel ways to spend our way out of the recession. None succeeded. After ten years of Keynesian economics, the U.S. unemployment rate stood fast at 13%. The Keynesian economic experiment failed and it failed miserably.
Now lets fast forward to October 1987 when, for reasons still unknown, the stock market crashed once again. Ronald Reagan was our President at the time. The year before, 1986, saw the tax cuts he had signed into legislation become the law of the land. How did Reagan react to this crash? He didn’t. He believed the U.S. economy would heal itself and that the newly enacted tax cuts would eventually create an economic boom. Limited government intervention was his response to the 1987 crash. Reagan, it turns out, was spot on. His laissez-faire-Adam Smith approach to the 1987 crash allowed our capitalist economic system to correct itself and the byproduct of his great leadership was an economic boom that lasted almost sixteen years. It is too bad we did not elect a Ronald Reagan in 2009. No doubt his response to the 2008 economic collapse would have been to cut taxes, reduce government spending and get government out of the way of the private sector. No need to experiment with Keynsian economics, as the Reagan model for economic recovery was a tried and true one. But Reagan was not elected. Instead a President bent on re-defining America into the European model, was elected and Keynsian economic experiment was, once again, dusted off and brought into the American economic laboratory. There is little doubt to many true Americans that another try at big government interference with our free market will fail once again.
Then came along the Scott Brown election. The election of Scott Brown was a repudiation of big government, plain and simple. Most Americans believe government is the problem and not the solution. We believe as long as the government stays out of our way, we can prosper as a nation. We do not subscribe to socialist principles. We do not believe in the European Dream. We embrace, instead, the American Dream.
Tom is a Certified Public Accountant, a Certified Financial Planner, Author, Professional Speaker and Financial Self-Help Guru. Tom’s groundbreaking financial self-help book, “Rich Habits” (order at: www.richhabits.net), has received 5 star reviews on Amazon.
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