The New Deal Would Have Worked, If...

If only the government had spent more money for a longer time.

by: thomas e. brewton | published: 12 15, 2008

Liberal-progressive-socialists again eagerly anticipate returning to the disastrously failed economic policies of Franklin Roosevelt. Apparently religious faith in socialism outweighs rational consideration of evidence.

The standard liberal-progressive-socialist litany is that socialism, in the New Deal and subsequent years, would have succeeded, if only the government had spent more money for a longer time.

Many liberals lament that the New Deal didn't go far enough in socializing the economy. That was a major reason for the savage antagonism between the liberal establishment of the 1960s and the New Left student radicals like Bill Ayers and Bernadine Dohrn, the spiritual parents of president-elect Obama's educational policies.

In addition to blind religious faith in the secular religion of socialism, liberal-progressives are beset by ignorance. For three generations, students have been taught a completely false version of the Depression's causes and of the actual results attained by President Roosevelt's New Deal.

Despite President Franklin Roosevelt's devaluation of the dollar, deliberate inflation of prices, nationalization of agriculture and industry and massive deficit spending, unemployment remained in double digits. Those levels, from 1933 until our entry into World War II in 1941, were more than twice as high as our present unemployment rate. Not until the 1950s did industrial production regain the levels of 1928.

The initiating cause of the Depression was over-expansion of the money supply by the Federal Reserve during the 1920s, which led to excessive investments in farm and machinery production for export to post-World War I Europe.

Similar over-expansion of the money supply led to over-allocation of resources in fledgeling tech companies in the 1990s dot-com boom-and- bust, as well as in the housing mania and speculative lending and investing practices in the present situation.

Presidents Hoover and Roosevelt turned an ordinary business recession (which should have lasted only about two years) into the worst economic downturn in our history. They accomplished that feat by pursuing the same economic policies now urgently sought by liberal supporters of president-elect Obama.

First, by raising income taxes on individuals and businesses; taxing "the rich" and distributing receipts to favored economic and social classes.

Second, by condemning businessmen as social criminals (note current rhetoric by Senator Charles Schumer and Congressmen Henry Waxman and Barney Frank).

Third, by promoting inflation and devaluation of the dollar (Fed Chairman Bernanke and Treasury Secretary designate Timothy Geithner are neo-Keynesian, flood-the-market-with-artificial-money advocates).

Fourth, by clamping many rounds of new regulations upon business.

Fifth, by supporting socialist labor unions (see the Wall Street Journal's interview with SEIU's CEO Andy Stern).

Sixth, by punishing businesses that sought to reduce costs enough to enable resuming production at a profit. Major employers that reduced wages or laid off workers were threatened with Federal reprisals.

Seventh, by pursuing beggar-thy-neighbor protectionist policies (raising tariffs, or today rescinding and curbing free-trade agreements with foreign nations in order to please labor unions).

Eighth, by centralizing business management decisions in Washington bureaus (see the current possibility of bailing out the Big Three automakers and subjecting their business plans to Federal oversight).

Ninth, by making it impossible for banks to float bonds for long-term credit to support business expansion; uncertainty about what the Federal government would do next was the enemy of credit expansion (witness today, when credit markets remain frozen, because of massive flip-flops in bailout programs by the Treasury and the Fed; Bear Stearns is merged into Chase, but Lehman is allowed to go belly up; The Treasury is to buy bad assets from lenders; then, instead, it injects capital into selected banks).

Tenth, by making daily business decisions a matter of speculative chance; FDR's New Deal came out with so many new plans, new agencies, and new regulations, month after month, that it became impossible for businessmen to make rational decisions for long-term investments that were needed to create new jobs and to ramp up the economy.

For more background, read Robert Higgs's post on the Mises.org website, The New Deal and the Great Duration.

In A New Deal Frame of Mind (February, 2007), I wrote:

The New Dealers were a brash, cock-sure bunch who came from the academic world to Washington intending to wipe out as much of our capitalistic system as possible. They viewed the business and financial communities as a cross between Neanderthal ignorance and evil perversity. They assumed that all right-thinking people were united in the view that businessmen and bankers existed to oppress "the people."

While 1950s apologists like liberal historian Arthur Schlesinger, Jr., prettied the recollections of the New Deal by describing it as "saving business from itself," the facts show clearly that the New Dealers were rabid anti-capitalistic socialists...

Robert Higgs, in "Depression, War, and Cold War" (2006), writes:

"Accepting his party's nomination for the presidency in 1936, Mr. Roosevelt railed against the "economic royalists" who were allegedly seeking a "new industrial dictatorship"..... Privately, he opined that "businessmen as a class were stupid, that newspapers were just as bad".... Just before the election of 1936, in an address at Madison Square Garden, he fulminated against the magnates of "organized money..." ....To uprorious applause, he threatened: "I should like to have it said of my second Administration that in it these forces met their master."

See also The Raw Deal (June, 2007).

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