Sunday, December 07, 2008

The FDR "Solution"

Tibor R. Machan

` It is a very scary prospect but if president-elect Barack Obama is serious about admiring President Franklin Delano Roosevelt for how the latter dealt with America’s Great Depression, then America and the world may be in for some very ugly times indeed. This is because by the most reliable historical accounts, FDR managed to overcome the economic crisis of his day not by his Keynesian political economic policies (of government spending and extensive government funded public works). Instead it was World War II that brought the economy back into shape, and that only several years after the end of the war.

In her book, The Forgotten Man: A New History of the Great Depression, Amity Shlaes demonstrates that it is a widespread myth that FDR lead the country to economic recovery by means of his public policies--by way of agricultural price supports, new mortgage markets, working-hours legislation, securities regulation, etc., etc., as well as innumerable projects funded by the federal government, mostly focused on the country’s infrastructure.

Even defenders of it, such as Eric Rauchway writing for Slate (7/05/07), admit that The New Deal “did not end the Great Depression. The war did that. Open the authoritative reference work Historical Statistics of the United States and you will find that the unemployment rate did not return to its 1929 level until 1943.” This despite the fact that unemployment, which reached 23% at the height of the Great Depression, did begin to subside for most of the years of FDR’s presidency (except 1937-38).

All in all, though, what brought America out of its economic malaise was not The New Deal but the highly revved up war economy. At what price? Well, at the price of approximately 300,000 fallen Americans, along with about as many wounded and, of course, the dead and wounded of Germany, Italy, and Japan. Yes, arguably the war was a just one for America, given that Germany declared war on it. But however one assesses the causes of the war, its impact on the American economy does not seem to offset its enormous destructiveness. Nor, as far as historians can determine, did FDR get America into the World War so as to revive the American economy. Nonetheless it is a cautionary fact for us all that war and not the Keynesian economic policies of The New Deal appears to have been the instrument by which the country recovered economically.

By the way, the essence of those policies amounts to using money taken in from and borrowed against future taxes to stimulate the economy, to get people to work, to spend funds on various types of production--precisely what many in Washington insist is needed today. The fact that such an approach is wholly unproductive because government takes resources from the economy and uses these as politicians judge best, while those who owned the resources are prevented from using them according to theirs. (No doubt, sometimes this can bear some useful fruit--the original owners of the resources may not have wanted to spend it and thus refused to stimulate growth just the way politicians imagined it should be stimulated. Even thieves can at times spend usefully the loot they take from their victims!)

My worry is that in desperation, after all the government tinkering with the economy will prove to have been ineffective, there may be a strong, even irresistible temptation to get entangled in various military endeavors in part so as to obscure that fact. It would be sheer naïve idealism to think that American politicians are immune to such a development. So it is better to be vigilant than complacent.

There is a theory of public affairs that focuses not on what politicians and public officials intend but on the unintended consequences of their policies. It might best be supplement with the realization that once certain policies are initiated by politicians, given their power to tax and otherwise coerce the population, they are likely to stick to them no matter what.
Stubbornness isn’t just some quirk of certain individuals but can actually drive public policy.

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