The cover of Time magazine has Barack Obama photoshopped into Franklin Delano Roosevelt’s famous convertible, complete with oval-shaped glasses and cigarette holder held between the teeth. “The NEW New Deal,” The cover reads. Surely many who voted for Obama saw him as potentially the new FDR, the man to lead us out of hard economic times.
But they’ve been misled, for even FDR wasn’t FDR. He is a quasi-mythical creature who not only didn’t end the Great Depression but probably greatly prolonged the nation’s economic agony with his New Deal programs and a menagerie of other foolish measures.
Just look at the numbers from Bureau of Labor Statistics, Survey of Current Business. Unemployment from 1923 to 1929 averaged a mere 3.3%. In FDR’s first year, 1933, it hit its high point of 24.9%. Joblessness did decline for the next three years to 14.3% in 1936, but that’s still deep in depression territory.
The next year unemployment actually spiked up and didn’t fall to 1936 levels again until 1941. “By June 1937, writes Marquette University economic historian Gene Smiley in The Concise Encyclopedia of Economics, “the recovery...was over.”
Even FDR Treasury Secretary Henry Morgenthau admitted the New Deal had failed. “We are spending more than we have ever spent before and it does not work,” he declared in 1939. “We have never made good on our promises...I say after eight years of this Administration we have just as much unemployment as when we started...And an enormous debt to boot!”
Finally war came to the rescue. America began exporting huge amounts of food and equipment first to Britain and then the Soviets, even as it geared up its own war machine that was practically non-existent in 1940. Joblessness inevitably plummeted as over eight million Americans joined the military in less than two years.
Was it really The New Deal that doubled the GDP from 1939 to 1943 or that slashed unemployment by two-thirds just from 1940 to 1942 and then cut even the 1942 figure by more than half the next year?
The grotesque reality is that it wasn’t an American aristocrat who led us out of the Great Depression but a monstrous Austrian corporal.
One reason the New Deal couldn’t end the Depression and probably extended it is because it wasn’t merely a quick economic boost or the shoring up of vital institutions that, once fallen, might set off a domino effect on other businesses.
Rather, over many years its programs merely swiped money from the relatively efficient private sector and gave it to government programs that were often deliberately inefficient. Anybody familiar with the architecture of structures built under the Works Progress Administration knows they are readily identified by their use of too much material, too much space, and hence too much labor.
As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson: “For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”
Yet Obama apparently either doesn’t know his history or doesn’t care. He’s just proposed what one news outlet called “a monster new 'new deal,'” supposedly a two-year plan aiming to create or protect 2.5 million jobs with massive deficit spending.
FDR also spooked entrepreneurs, corporations, and would-be stock market investors with a tremendous tax attack. The income tax top marginal rate increased to 79% between 1930 and 1940, the corporate income tax rate doubled from 12 to 24%, and Roosevelt tacked on an “excess profits” tax to boot. He imposed an excise tax on dividends, liquor taxes, and a capital stock tax, while increasing liquor taxes. Finally, he instituted the Social Security payroll tax with a 2% rate.
UCLA economists Harold L. Cole and Lee E. Ohanian assert that but for New Deal anti-free market measures, the Depression would have ended in 1936. In a paper for the Federal Reserve Bank of Minneapolis, they observed Roosevelt believed excessive business competition led to low prices and wages.
Therefore, FDR “came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25% above where they ought to have been, given market forces. “The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies," Cole said in separate comments.
Other economists, including Nobel Laureate Robert Lucas Jr. and the late Leonard Rapping concluded that the steady expansion of the money supply, but for FDR’s influence, should have ended the Depression in 1935.
And for all the talk about the uplifting effect of his “fireside chat” pep talks on the common man, he scared away those he needed to reassure most – those with money to invest – with his blame-business rhetoric and his incessant new economic experiments. The market abhors uncertainty; the New Deal was uncertainty incarnate.
Only the most obstinate Democrat-hater hopes the economy won’t recover during Obama’s first term. But to the extent he imitates that guy with the cigarette holder – and he’s seems determined to do so – brace yourself for Great Depression II.