It was May 1939. In less than two years, the Empire of Japan would spoil America's splendid isolation (a term that actually refers to a period in British foreign policy) and drag us into World War II, thus ending the Great Depression.
But on that May afternoon, electric fans cooled the House Ways and Means Committee room as the congressmen puzzled over the economy's persistent doldrums. No previous recession had lasted even half as long. The unemployment rate had again topped 20 percent -- though it had been seven years since the New Deal began. Henry Morgenthau, Roosevelt's Treasury Secretary, was testifying, and he was brutally honest about the results of the greatest (to that time) experiment in Keynesian fiscal policy.
"We have tried spending money. We are 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 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."
Burton Folsom Jr. in his new book, "New Deal or Raw Deal," has unearthed the above quote and much more -- an extraordinarily timely bit of historical housekeeping. Over the weekend we learned that several GOP governors, starting with Louisiana's Bobby Jindal, are going to decline funds from the "stimulus" bill just passed by lopsided Democratic majorities in Congress. This, too, has happened before.
In 1932, Congress passed the Emergency Relief and Construction Act. Congress made $300 million (I know, today we spend that on disposable coffee cups for the agriculture department) available to the states to relieve unemployment. Some states, like Illinois, seized disproportionate shares ($55.4 million) while other states, like Massachusetts, declined all federal help. Gov. Joseph Ely believed that relief should remain a local matter. The Boston Civic Symphony performed a number of concerts to benefit the unemployed. Boston College and Holy Cross played an exhibition football game for charity. And the city's schoolteachers agreed to donate 2 percent of their salaries for six months to benefit the poor.
But with Washington handing out funds and other states gobbling them up, Massachusetts voters realized that they were paying for the relief of Illinois' citizens and again privately for their own. They traded Gov. Ely for a Gov. James Michael Curley, who would play the game under the new rules. (Bostonians were so fond of Curley that, later in his career, he remained mayor of Boston despite having to serve two years of his mayoral term in a federal penitentiary.)
The ERA was replaced by the Works Progress Administration (lampooned by critics as "We Piddle Around"). The WPA is the model for the stimulus bill just passed. All those supposedly "shovel ready" projects (which we know will not actually be ready to go for a year and often longer than that) are the 21st century versions of the roads, bridges, schools, and airports built by the WPA. Did it work? Folsom does not deny that some worthy projects were completed by the WPA. But at what cost? Every dollar spent by the WPA had to be collected in taxes from other citizens. Those lost tax dollars might have been used to fund private projects that would have achieved the same ends, perhaps at lower cost. Economist Henry Hazlitt noted at the time, "For every public sector job created by the bridge project a private job has been destroyed somewhere else."
The New Deal has been canonized by historians. Folsom reminds us that it was a series of political decisions by very politically minded men. Political motives often determined where federal money was spent. The New Dealers wanted to relieve suffering. But the suffering of those in solidly Democratic states like the Deep South was less urgent to them than that of those living in swing states like New Jersey and Pennsylvania. WPA workers often complained of pressure to contribute to the Democratic Party. Journalist Lorena Hickok noted that Pennsylvania was "honeycombed with politicians all fighting for the privilege of distributing patronage."
As economic policy, the New Deal was a dismal failure. But here's what keeps Republicans up at night: As a political strategy, it proved very effective.
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