New Deal or Raw Deal
How FDR’s Economic Legacy Has Damaged America
By Burton Folsom, Jr.
‘I was impressed as never before by the utter lack of logic of the man, the scantiness of his precise knowledge of things that he was talking about, by the gross inaccuracies in his statements, by the almost pathological lack of sequence in his discussion, by the complete rectitude that he felt as to his own conduct, by the immense and growing egotism that came from his office, by his willingness to continue the excoriation of the press and business in order to get votes for himself, by his indifference to what effect the long-continued pursuit of these ends would have upon the civilization in which he was playing a part. In other words, the political habits of his mind were working full steam with the added influence of a swollen ego. My deliberate impression is that he is dangerous in the extreme, and I view the next four years with no inconsiderable apprehension.” Raymond Moley, leading New Dealer who later became its leading opponent.
In this well researched and extensively footnoted book, the author goes beyond the territory covered in his FDR Goes to War by examining in detail the results of major (and some minor) New Deal programs. He concludes that, contrary to prevailing myth, the New Deal failed to achieve economic recovery and, in fact, prolonged the Great Depression.
The author begins with the National Industrial Recovery Act (known as the NRA), which became law in 1933 and was declared unconstitutional by the US Supreme Court (9-0) in 1935. Prior to the Court’s ruling, this effort to centralize economic planning through industry “codes of fair competition” forced many small concerns out of business, causing their owners to be prosecuted, fined and even jailed. It also increased unemployment, stifled innovation, and raised prices on people already facing insolvency. Roosevelt, of course, condemned the Court, saying it had a “horse and buggy’ interpretation of the Commerce Clause.
Folsom next examines the Agricultural Adjustment Act, also passed in 1933, which was supposed to balance supply and demand for farm commodities. Farmers were paid millions of dollars not to produce crops while FDR railed that one-third of the nation was ill-fed. In fact, many farmers set aside their worst land and used federal payments for fertilizer to increase the yield of the remaining acreage. As a result, for almost the first time in our history, the US became a major food-importing nation. The AAA enormously expanded the size and reach of the Department of Agriculture and the nation is still living with the results.
Folsom examines federalized relief and its effect on the American work ethic. When money was raised at the state and local levels, frugality prevailed. That changed with the new incentives to petition Washington. Even FDR eventually figured out that when you are willing to pay more for something you get more of it.
Inevitably, the parceling out of aid was used to reward supporters and to obtain votes.
Even Henry Morgenthau, Jr., secretary of the treasury and FDR’s friend and confidant despaired of the New Deal. He admitted to fellow Democrats on the House Ways and Means committee:
“We have tried spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see the country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises … I say after eight years of the Administration we have just as much unemployment as when we started… And an enormous debt to boot.”
Folsom disputes the assertion, made by both FDR and BHO, that the free market is obsolete and needs to be transformed by the wizards in Washington.
During the 1936 campaign, FDR conceded that the nation “grew to its present strength under the protection of certain inalienable political rights,” but argued, “these political rights proved inadequate to assure us equality in the pursuit of happiness.” Roosevelt wanted to equalize wealth. He wanted, and got high taxes on the rich. He “hammered away” at “economic royalists” and “malefactors of great wealth.” He singled out business as the arch villain and engaged in class warfare with a vengeance. He also used this rhetoric to win votes.
FDR wanted to permanently rearrange American economic life. “’Centralize power,’ FDR argued,’ and reduce the influence of free choice to create new economic arrangements between employer and employee, and between young and old.’”
In Obama’s Osawatomie, Kansas speech he argued that the nation has moved beyond what he called “the same old tune,” that the market “will take care of everything.” He went on to say that “it doesn’t work. It’s never worked.”
Folsom connects the New Deal programs to their modern manifestations. He makes the point that the same failed theories still dominate public policy and will continue to do so until the myth of the New Deal is refuted. Of course, FDR was a piker when compared to today’s spender-in-chief.
Much like the Obama administration, the experts in charge of managing the economy were academics or others who had little or no practical experience.
For those who cite the benefits of roads, bridges, and buildings created by the Works Progress Administration, (WPA), Roosevelt’s largest New Deal program responsible for employing millions of unskilled workers, Folsom turns to economist Henry Hazlitt:
“Every dollar of government spending must be raised through a dollar of taxation.” Whatever the WPA built, “had to be paid out of taxes … (F)or every public job created” by a project a private job has been destroyed somewhere else… High tax rates, approaching 80% of income on the wealthy, depressed investment and job creation…”
One point rarely mentioned by admiring New Deal historians is that New Deal programs were financed in large part by the poor. Excise taxes were imposed on items of consumption popular among the poor. “In the first four years of Roosevelt’s presidency, revenue from excise taxes exceeded that of income and corporate taxes combined.”
Nor is Roosevelt’s civil rights record discussed. The great liberal, fearful of angering Southern politicians, refused to support anti-lynching legislation. He refused to publicly support a constitutional amendment to abolish the poll tax, nor did he pressure the American Federation of Labor to permit Blacks to enter skilled trades. However, he did stage events to persuade Blacks he supported their causes.
The author also reveals Roosevelt’s less than stalwart character. The record shows he was duplicitous, even in dealing with members of his own party. Morganthau reported a revealing exchange.
“’Never let your left hand know what your right hand is doing.’ ‘Which hand am I, Mr. President?’ Morganthau asked. ‘My right hand,’ Roosevelt replied, ‘but I keep my left hand under the table.’ Morganthau added: ‘This is the most frank expression of the real FDR that I ever listened to.’”
FDR was vindictive. In his relentless quest for power he used the FBI and IRS to harass political opponents and did his best to intimidate the members of the press he had not charmed or provided with incentives to support his administration.
One of the last chapters in the book explains why, given Roosevelt’s failed economic policies, so many historians praise him. Folsom writes that about the time of Woodrow Wilson’s presidency, the constitutional views of the Founders gave way to “the progressive view of history.”
Folsom’s contrast of progressive ideology with the views of the Founder is one of the best this reviewer has read:
“In crafting the Constitution, the Founders emphasized process, not results. If we follow the Constitution, we won’t have a perfect society, which is unattainable by imperfect humans. But we will provide the opportunity for people to pursue their natural rights to the acquisition of property and their personal happiness. The results may yield sharp inequalities of income, but the process will guarantee chances for almost everyone…”
“The Founders emphasized the lessons of experience, not the opportunity to create utopia; they stressed fidelity and the rules of the game more than good intentions…”
“Where the Founders wanted government mainly limited to protect rights, Roosevelt and the progressives wanted expanded government to provide jobs, recreation, education and houses. ..Results in Roosevelt’s view, were more important than process; intentions more important that protecting natural rights; plans and new ideas more important than experience….In the progressive view, intentions and sincerity are among the noblest virtues a president can possess.”
In other words, admiring historians did not attend “to the 18% or more of the people who were unemployed during much of Roosevelt’s second term; their emphasis is on the caring intentions of his programs.”
The Founders were unimpressed by good intentions. “Good intentions assume that the leader, or leaders, know what is best for society… People with good intentions, however can be busybodies who use the power of government to do more harm than good.”
“Constitutionalists stress fidelity to process, obeying the rules, and the importance of duty and integrity. Consistent application of rules means people know what to expect and how to plan their businesses and their lives.”
Republicans have not coped very well with the massive increase of federal involvement in American lives since the 1930s, or with the new incentives for presidents to use subsidies for political purposes. They have been hesitant to antagonize the New Deal coalition even though “they have the most electoral success when they have challenged federal programs, as Ronald Reagan did in 1980 and as congressional Republicans did in 1994.”
This is an important book that should be read widely. Fulsom lays out the choices represented by the two political parties, assuming Republicans regain the courage of the convictions they espouse. It seems to this reviewer more than likely that the next election will be decisive: when we determine if the all consuming state will continue to take our money to buy our votes and our liberties, or the Founders’ vision will prevail.