New Lessons From The New Deal

National Review Online: A New Book Sheds Light On The Mistakes Of FDR's Signature Program

(National Review Online)  This column was written by Jerry Bowyer and Glen Meakem.

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Sometimes, books create paradigm shifts in how we view history. “The Forgotten Man: A New History of the Great Depression,” by Amity Shlaes, is just such a book. An absorbing journey through that era, it sets the record straight on both the causes of the Great Depression and how the New Deal policies failed.

Conventional wisdom holds that the Great Depression was sparked by the 1929 stock market crash; that capitalism had to be saved from itself; that Hoover failed to do so; and that Franklin Delano Roosevelt helped us through the period with his New Deal policies.

But this narrative, as Shlaes makes clear, fails to recognize how the economy actually works since it reflexively champions government as a savior for the common man. In reality, reckless government intervention can make a bad economic situation much worse. The New Deal, in fact, is what put the “Great” in the Great Depression.

“The Forgotten Man” dispels many of the core myths and false assumptions relative to this period. Such as: A stock market “bubble” and crash did not cause the Great Depression, it was prompted by the Smoot-Hawley Tariff Act. President Hoover then shrunk the money supply and raised taxes, only exacerbating the economic dilemma. Hoover, who may have been a great humanitarian before becoming president, failed miserably in his economic stewardship.

But then Shlaes examines FDR and his hallowed New Deal. While she acknowledges Roosevelt’s genuine charisma, and the fact that he did make the banking system more transparent, she exposes his New Deal as a massive and unprecedented government intervention - a gross experiment that had profoundly negative consequences for the economy.

FDR’s policies were often heavy-handed and capricious, which left the markets unable to plan for the future - a vital ingredient for recovery and growth. One anecdote relates how John Maynard Keynes, the godfather of liberal economics, told Roosevelt that he should nationalize the utility companies or leave them alone, but above all that he must stop with the constant threats and meddling that only served to hamper them.

FDR was a market meddler of the most reckless sort. As Shlaes tells it, when an advisor asked Roosevelt how much the gold price should change one day, Roosevelt replied that it should rise by 21 cents. When the advisor asked why, Roosevelt said 21 was the product of 7 times 3, which are lucky numbers. The advisor later wrote in his diary, “If anyone knew how we did this, they would be frightened.” Well, the markets were indeed frightened, and stayed frightened for much of the decade. They knew there was no method to FDR’s statist madness.

The New Deal, in fact, was based on a profound distrust of the market. FDR’s National Recovery Administration actually argued, incredibly, that consumer choice would slow the recovery. No wonder the recovery was so tepid for much of the decade.

Predictably, however, modern New Deal defenders refuse to be swayed. Eric Rauchway, who reviewed “The Forgotten Man” for Slate, argues that unemployment fell and GNP grew during Roosevelt’s watch. Therefore, the New Deal had to be working. “Historians disagree on which part of the New Deal most encouraged economic growth,” he writes, “but at the least the New Deal did not prevent this recovery.” So, according to Rauchway, because the economy was merely not shrinking in the 1930s, the New Deal as a consequence must have been benign. Talk about faulty logic.

In truth, the zeitgeist of the 1930s was that democracy and capitalism were doomed, and that collectivism was the wave of the future. Mussolini, at the time, even made it to the cover of Forbes magazine. And while FDR’s brain trust did not share the totalitarian goals of the day’s biggest-government prototypes - Soviet communism, Italian fascism, and Nazism - they sure liked the idea of central planning. Stuart Chase, a popular economist back then, argued, “Why should Russians have all the fun?”

Collectivism was eventually rejected around the world as the 20th century progressed, for obvious reasons: It does not work economically and creates grotesque systems politically. Yet many still reflect warmly on the central-planning vehicle that was the New Deal. But such nostalgia misses the fact that democracies depend on limited government and must have well-functioning market economies. You cannot have political freedom without economic freedom, a point FDR never seemed to grasp.

Shlaes makes it abundantly evident that the Great Depression was an avoidable tragedy, which is a lesson that too many of our public officials need to learn. In Congress today there is a growing chorus for protectionism and higher taxes, policies that if enacted will lead inevitably to economic decline, more government intervention, and a further spiral downward.

“The Forgotten Man” will make any reader say, “Never again.”

[wogerwabbit]

So, according to these buffoons, we let the market control everything and the government can go back to sleep. Trust the benevolent corporations they say. Brilliant idea! Now everything can be as expensive as healthcare and prescription drugs.

[gkc99]

I''m sure if the NRO, Mouth of Sauron, had been around in those days it would have been telling us that to let the unemployed die on the streets from starvation was a necessary "Market Correction" and that we should just let Herbert Hoover "Stay the Course."

It''s strange how Repugs don''t care about anybody except themselves, stuffing their own wallets, fueling their own road hippos, and fvck everybody else.

[myidoncbs]

In their desperation to denigrate FDR, a Democratic hero, so they can dismantle every part of the "New Deal", NRO admits, "reckless government intervention can make a bad economic situation much worse." Now, let''s apply that reasoning to Bush''s beloved Medicare Part D, just one of his many gifts to wealthy corporations.

The Repugnant Ones say medical care must remain in the hands of the HMOs and the drug companies, because GREED IS GOOD and actual health is bad for profits! Could it be that Government is the only entity powerful enough to limit this kind of immoral profiteering? Could it be that government might actually have some motive other than profit that would allow it to (potentially) act in the interests of the people? The NRO doesn''t want you to think so.

GOP talking points:
1. Big government is BAD.
2. Private business is GOOD.
3. Eternal war is GOOD. (But don''t mention how expensive it is!)
4. The boogeyman''s gonna get ya!
5. Trust US to save you.
6. Pay no attention to the deficit; it''s just paper.
7. Oh, and pay no attention to the Constitution; it''s just paper, too!

[quatrops]

The eternal dialogue about which economic system is "best" and what amount of government "control" or intervention is appropriate or effective, is just that --- eternal. This NRO article and Shales'' book don''t really add anything to our understanding of what, at a given time, is the most effective approach to dealing with economic problems and engendering a reasonably healthy economy.

I would argue that, for the most part, the approach, as long as its reasonably well thought out, doesn''t make much difference. What DOES make a difference, more than any other factor, is the charisma of the leader.

Roosevelt''s New Deal was effective not for what it was, but because Roosevelt was Roosevelt. His charismatic nature brought about hope in the American people, and eventually confidence in themselves.

The same could be said of John Kennedy, although his tenure was far too short.

And yes, even Ronald Reagan. As much as I disagreed with his politics and his economics, his administrations were effective not because of those factors, but because he was who he was --- a charismatic leader. Had Reagan been in office the past 7 years, the Iraq war would be over - one way or another - and we could be getting on with life. (Come to think of it, he had enough confidence in his beliefs that he wouldn''t have lied to get us in to the war, so there probably wouldn''t have been one!)

[servant-43]

MyIDonCBS

I am so glad to hear you agree with the Constitution. You must be pro-God!

[servant-43]

Everyone makes mistakes. I for one forgive Roosevelt for his mistakes. Now we need to fix them. The quickest way to dismantle Social Security would be a good start.

[servant-43]

gkc99

In a recent poll conducted by "DateLine", the greatest majority of charitable contributions come from Republicans AND poor people. Why do you think Republicans do not care. If you want a free handout just for you to have I suggust looking to the source of everything that has been created on this planet.

[gkc99]

"greatest majority of charitable contributions come from Republicans AND poor people. If you want a free handout just for you to have I suggust looking to the source of everything that has been created on this planet"--Posted by servant-43


How can there be a "greatest majority"? So you say the majority of charitable contributions come from "Republicans and poor people"? That sounds like an impossibility. Poor people give the most of any economic group to charity? Ha! Oh, and Republican contributions to the Repug party don''t count as "charity" no matter how mentally deficient Repug leaders are--maybe the "buy George Bushit a brain" fund would bring in some Repug bucks tho''! Give it a shot!

[ioweign]

Everyone makes mistakes. I for one forgive Roosevelt for his mistakes. Now we need to fix them. The quickest way to dismantle Social Security would be a good start.

Posted by servant-43 at 03:12 PM : Sep 30, 2007

Won''t happen - too many small businesses !

You won''t believe this - but Social Security was actually a conservative Republican idea - Sen. Brewster (R) of Maine worked on legislation to provide old-age pensions (the forerunner of Social Security) although he was a prominent opponent of welfare and spending programs in President Roosevelt''s New Deal.

[ioweign]

The Civilian Conservation Corps - the most popular and successful program of the Depression !!