In one of history's more candid reflections, Henry Morgenthau Jr., Treasury Secretary under President Franklin D. Roosevelt, confessed, "We have tried spending money. We are spending more than we have ever spent before, and it does not work."
Just six years after crafting the New Deal, Morgenthau declared that efforts to create jobs and restore America's ravaged economy by expanding the federal government to unprecedented levels had been a failure. By Morgenthau's own assessment, the New Deal saddled our country with "as much unemployment as when we started ... and an enormous debt."
More than 75 years have passed since FDR signed the New Deal into law, and many noted economists are studying the Great Depression and trying to learn from the experience. In 2004, a team of UCLA economists concluded that the policies of the New Deal, which suppressed competition and kept unemployment in the range of 9 percent to 16 percent, actually prolonged the depression by seven years.
Amity Shlaes, an economic scholar and historian, has argued that the sheer "arbitrariness" of the New Deal exacerbated the crisis. The National Recovery Administration, the operative arm of the New Deal's competition code, failed to establish clear, actionable policies for businesses to follow. Some corporations got sweetheart deals while others were unduly penalized. As a result, businesses stopped investing in equipment, hiring came to a halt, and the markets froze. Many economists conclude that the New Deal fostered uncertainty, which was salt in the wound of the U.S. economy.
As in 1933, today our nation is confronted with an economic crisis that grows worse each day. The burst of the housing bubble and the subsequent credit crisis has badly impaired our financial markets. Many individuals and small businesses are struggling to get loans, and the home foreclosure rate is rising. Large corporations, once deemed "too big to fail," are teetering on the edge of insolvency. In December, the nationwide unemployment rate reached a 15-year high of 7.2 percent.
Some in Congress are rallying around a "solution" that sounds alarmingly familiar: spend more than we have ever spent before. Literally. And the nearly $900 billion stimulus measure that the House passed and the Senate will consider has many deficiencies.