FDR's depression and turnaround

The key to understanding how the country came out of the Great Depression of the '30"s lies in reading certain economists' explanation and avoiding the deeply flawed liberal historians's account. Liberal historians typically want to give credit to all FDR's collectivist programs, i.e., NIRA, NLRA, et al., when the opposite is the case.  Once these failed experiments were overturned in the courts and voluntarily by the administration in 1938-39, productivity and employment began to rise.  As pointed out in this WSJ piece the real recovery was well underway, and unemployment was declining, well before the out break of WWII.  Roosevelt's programs actually retarded the recovery and prolonged the suffering and unemployment by several years at least.  The Austrian economists, von Mises, Hayek, Rothbard and others predicted this outcome but were shouted down by "interventionists", collectivists and all the other charlatans who promoted government solutions to solve the perceived shortcomings of capitalism and the free enterprise system.   In reality all the GD proved was the more the government interferes in  the free market, with credit creation, employment programs and the like, the worse things get.  Some people never learn, witness the Obama administration, and for that matter the Bush administration that preceded it.

LATimes's Michael Hiltzik

Michael Hiltzik writes two columns on economics each week for the LATimes.  He is a liberal pretty much aligned with the Democrat Party proscriptions for curing depression and recessions.  In today's column "Obama's push for jobs conjures up FDR's approach", Hiltzik endorses the Obama plan to increase government spending on the infrastructure and raising taxes on the wealthy, two major components of FDR's New Deal plan.  He also knocks Romney's recent announced plan as a "return to the Bush era".  In extolling the New Deal proscriptions, Hiltzik seems to have forgotten this revealing 1939 quote from Henry Morgenthau, a major player in the Roosevelt Administration as Secretary of the Treasury:

"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."^[9]


Morgenthau was clearly frustrated by the fact that deficit spending by the government did nothing to reduce enemployment during the first 8 years of the Roosevelt Administration.  And yet, here we are in another recession/depression of a similar magnitude to the Great Depression of the '30's, and Hiltzik and the democrats are calling for the same failed policies Morganthau condemned.  


Hiltzik's book, "The New Deal: A Modern History, is due out sometime this week.  Whaddaya want to bet it doesn't include this Morganthau quote?

FDR's depression

Most people are not aware that the Great Depression started with the stock market collapse in 1929, shortly after Herbert Hoover was elected president.  Hoover, a technocrat/businessman, began a series of make work and other government spending programs that FDR expanded upon once he became president in 1933.  Many of the New Deal programs were simply variations and amplifications of the Hoover Administration's attempt to create jobs with government projects and planning.  Walter Williams, a conservative economist, talks about the evolution and failure of some of these programs in this column here.  It's worth noting that there was at least as much unemployment, north of 20%, in 1939/40 as in 1931/33 long after the programs of Hoover and FDR were put into play.  Clearly they had no impact on the unemployment rate.  So why are so many keen on the leadership of FDR during this period?  Maybe because he introduced many programs that have come to be known as the social safety net the runaway costs of which have now driven us into bankruptcy.  Those who believe in a government directed economy that delivers the fruits of everyone's labors evenly are always keen on more and more government programs and regulations to effect this end.  Hoover and FDR started the ball rolling and their big government followers remain grateful to these two.

Elizabeth Drew of NYT Book Review provides the liberal view

Elizabeth Drew is obviously a garden variety liberal who shows no evidence of having read anything about past recessions and depressions and who is clearly unaware of George Santayana's classic admonition: "Those who do not remember the past are condemned to repeat it".  The past was Herbert Hoover's reaction to the onset of the Great Depression in 1929 to dramatically increase taxes and create government spending programs willy nilly. Things got much worse over the next three years and in 1932 FDR ran against these profligate big spending programs, won big over the incumbent Hoover and proceeded in the next several years to double down on all Hoover's misguided tax and spending programs. Only the onset of the second world war in 1941, twelve years after the Great Depression began,  put Americans back to work thus ending the longest and deepest economic correction in our country's history.  In short the high tax big spending government programs during the '30's did little other than to prolong a recovery and make a bad economy worse.  So here we have the example of another "pundit" essentially agreeing with Obama's position on raising taxes and continuing big spending government programs that history showed us did not work.  And so it goes in liberal circles today.

2012 Election prospects

Soon, and hopefully people will be analyzing and deconstructing Obama and his administration after the fact.  The likely comparison that will come to mind is Jimmy Carter and his failed administration of the late '70's.  It's hard to think of much Carter did right, especially in foreign affairs, but to his credit he did get one thing right on the economy: deregulation.  By all rights, he should get a great deal of credit for starting the deregulation ball rolling that eventually freed up the US economy from the rigid controls that inhibited competition and therefore growth especially in transportation and communications. Affordable airfares, telephone service and shipping costs all contributed positively to the fabulous growth of the economy that occurred during the '80's and 90's.  Unfortunately Obama has no understanding of the workings of our modern economy as is apparent from this article, and sees the commercial world largely through the prism of the 18th century mercantilism that Adam Smith debunked and buried once and for all in  "Wealth of Nations".  Obama also has no idea of the significance of the Austrian School of Economics and its emphasis on the incentives that drive free markets in the creation of wealth.  This latter shortcoming in Obama's education is particularly unfortunate for had he been aware of all the failed policies of Herbert Hoover in his attempt to promote recovery from the onset of the Great Depression in 1930 and 1931, he would have understood that the democrat party's Keynsian deficit financing effort and the various bailouts were not going to work.  Long before FDR's great spending debacle, Hoover tried them all, including large tax increases on income and capital and the infamous Smoot-Hawley protectionist tariff law that killed all export markets for US producers. In fact, for those who are familiar with the Hoover presidency, it is his administration that Obama's most closely resembles and will most likely be linked with not Carter's which at least gave us deregulation.

2012 Election prospects

Soon, and hopefully, people will be analyzing and deconstructing Obama and his administration after the fact.  The likely comparison that will come to mind is Jimmy Carter and his failed administration of the late '70's.  It's hard to think of much Carter did right, especially in foreign affairs, but to his credit he did get one thing right on the economy: deregulation.  By all rights, he should get a great deal of credit for starting the deregulation ball rolling that eventually freed up the US economy from the rigid controls that inhibited competition and therefore growth especially in transportation and communications. Affordable airfares, telephone service and shipping costs all contributed positively to the fabulous growth of the economy that occurred during the '80's and 90's.  Unfortunately Obama has no understanding of the workings of our modern economy as is apparent from this article, and sees the commercial world largely through the prism of the 18th century mercantilism that Adam Smith debunked and buried once and for all in  "Wealth of Nations".  Obama also has no idea of the significance of the Austrian School of Economics and its emphasis on the incentives that drive free markets in the creation of wealth.  This latter shortcoming in Obama's education is particularly unfortunate for had he been aware of all the failed policies of Herbert Hoover in his attempt to promote recovery from the onset of the Great Depression in 1930 and 1931, he would have understood that the democrat party's Keynsian deficit financing effort and the various bailouts were not going to work.  Long before FDR's great spending debacle, Hoover tried them all, including large tax increases on income and capital and the infamous Smoot-Hawley protectionist tariff law that killed all export markets for US producers. In fact, for those who are familiar with the Hoover presidency, it is his administration that Obama's most closely resembles and will most likely be linked with not Carter's which at least gave us deregulation.

Roosevelt -- Good Prez or not

Clearly Conrad Black here believes FDR to be one of the greatest presidents.  He pooh poohs some of the recent books, like one I'm currently reading, "New Deal or Raw Deal"  by Burton Folsom, that challenge the conventional wisdom that FDR's policies saved capitalism, etc, etc.  More on this later.