"This is the best deal since 1932." So said House Financial Services Committee Chairman Barney Frank (D-Mass.) regarding the increased public appetite for government intervention in the economy. Incoming White House Chief of Staff Rahm Emmanuel echoed the sentiment when he told the Wall Street Journal, "You never want a serious crisis to go to waste."
Oh, boy. While Barack Obama's appointments so far have been fairly moderate, other Democrats are whistling "Happy Days are Here Again" and dusting off their wish lists for federal spending. "The House and Senate Appropriations committees hope to use December to negotiate a $410 billion omnibus measure that can be swiftly approved when the new Congress convenes," reports the Politico. Wasn't it just two months ago that Speaker of the House Nancy Pelosi -- supposedly outraged that the Congress was being asked (by Bush and Paulson) to pony up $700 billion to prevent a total freeze of credit markets around the globe -- intoned "SEVEN HUNDRED BILLION DOLLARS." She repeated it for emphasis: "Madame Speaker, when was the last time anyone ever asked you for SEVEN HUNDRED BILLION DOLLARS? It's a staggering figure."
But that was then. Now the cover of TIME magazine features Obama as FDR and the term "new New Deal" is on everyone's lips. Columnist Paul Krugman is fine with that, except he objects that Roosevelt didn't do enough!
The conventional wisdom has had a rough time of it lately among scholars. You know the fairy tale. You were probably taught it in school. During the 1920s, America practiced laissez-faire economics. The 1920s were seen, as historian Amity Shlaes put it, as a period of "false growth and low morals." Greedy businessmen got out of control and created a market crash in 1929. President Hoover, obedient to Republican ideas concerning noninterference in the market, did nothing. The economy spiraled into a depression. Roosevelt was elected in 1932, banished fear, inaugurated the New Deal, and put America back to work.
A series of recent books has demolished the myth. Some of Roosevelt's reforms were salutary (the Securities and Exchange Commission, reform of the Federal Reserve) but the New Deal's chief object was never achieved -- it did not solve the nation's unemployment problem. The CATO Institute's Jim Powell points out in "FDR's Folly," "From 1934 to 1940, the median annual unemployment rate was 17.2. At no point during the 1930s did unemployment go below 14 percent. ... Living standards remained depressed until after the war." Stanford University history professor David Kennedy has acknowledged, "Whatever it was, the New Deal was not a recovery program, or at any rate not an effective one."
Amity Shlaes' "The Forgotten Man" reminds us that FDR was a class warrior with a vengeance, always at pains to pin the nation's ills on "economic royalists" who had, he claimed, depressed wages, fixed prices, and conspired to keep all of the nation's wealth in their own greedy hands. FDR's war on businessmen (which featured not just rhetorical but actual criminal prosecutions) spread fear and timidity throughout the entrepreneurial sector. Shlaes writes, "The New Yorker magazine's cartoons of the plump, terrified Wall Streeter were accurate; business was terrified of the president. But the cartoons did not depict the consequences of that intimidation: that businesses decided to wait Roosevelt out, hold on to their cash, and invest in future years."
It is only recently that the New Deal myth has really taken hold. At the time there was less pretense. In "New Deal or Raw Deal?" Burton Folsom of Hillsdale College quotes Treasury Secretary Henry Morgenthau. Testifying before the House Ways & Means Committee in May of 1939, the FDR ally and acolyte did not sugarcoat it:
"We are spending more money than we have ever spent before and it does not work. I want to see this 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 this Administration we have just as much unemployment as when we started and an enormous debt to boot."
On balance, the New Deal damaged the nation profoundly by extending and deepening the Great Depression. No other downturn in American history lasted so long or afflicted so many.
So no repeats, thank you very much.