Recession cures no cure at all.

• Author: Bresler, Robert J.

THE OLD NOSTRUM from the physician's Hippocratic Oath, "First, do no harm" should apply to government with even greater force. In the past, government interventions designed to help the economy resulted in the cure only exacerbating the disease. This is well illustrated in Amity Shales' brilliant The Forgotten Man: A New History of the Great Depression, in which she documents how the interventionist policies of the New Deal prolonged the Great Depression and caused a severe downturn in 1937, when most of Europe already was on the path to recovery. She admits that not all of Pres. Franklin Roosevelt's policies were damaging. He did have his Secretary of State Cordell Hull negotiate reductions in tariffs after the disastrous protectionist policies of the Herbert Hoover years; he did enact banking reform and establish the Securities and Exchange Commission, which brought some degree of stability to financial markets.

His most important initiatives, nonetheless, did more harm than good. The National Recovery Administration (NRA) sought to cure the dire situation by mandating an increase in prices and wages. Subsequently, as Shales explains, "NRA rules were so stringent they perversely hurt business ... frightened away capital, and discouraged employers from hiring workers." Roosevelt raised taxes on business and upper-income individuals, weighting down an already fragile economy. Hence, it was only the massive spending during World War 11 that finally ended a decade of economic misery.

The continuing legacy of the New Deal remains our current entitlement state, where numerous interest groups insist on protecting some government program from which they benefit, regardless of its cost or economic necessity. Thus, presidential candidates feel obligated to reassure each group that its favorite entitlement will not be taken away--and often promise new ones. Even Pres. George W. Bush, a putative conservative, tacked on an expensive prescription drug program for seniors to this ever-growing list. It does not take an economic downturn for some group to be added to those expecting entitlements. A nationalized health system, promised by the Democrats, could put the entire country on the list.

If promises of new benefits are expected during good times, what then should the public expect during an economic downturn? The housing crisis and ensuing credit crunch has sent fears of a coming recession. One fear is that housing prices are too low. Yet, for...