The Forgotten Man: A New History of the Great Depression by Amity Shlaes

Reading between the lines.
July 5 2007 7:18 AM

FDR's Latest Critics

Was the New Deal un-American?

Seventy-five years ago this week, on July 2, 1932, Franklin D. Roosevelt accepted the Democratic nomination for president and pledged "a new deal for the American people." He promised public works, agricultural price supports, new mortgage markets, working-hours legislation, securities regulation, freer world trade, reforestation, and repeal of Prohibition. Congress passed laws for all these goals and added, in his first term alone, watershed management, legalization of labor unions, deposit insurance and a stronger Federal Reserve Board, and Social Security. All these remain: We live in the nation the New Deal made.

As Roosevelt pointed out, the New Deal wasn't so new. He claimed inspiration from the progressivism of Woodrow Wilson, under whose administration Congress created the Federal Reserve System, lowered tariffs, and tried to legalize unions. Republicans supporting him cited Roosevelt's cousin-uncle Theodore, under whose administration Congress began to regulate corporate accounting and passed truth-in-advertising and pure-food laws. Farm supporters of the New Deal drew on the decades-old tradition of populism, which opposed the gold standard and demanded that government assist rural residents as much as it assisted railroad corporations. What was new in 1932 was a basket case economy with 23 percent unemployment, offering the possibility of getting these American traditions together to fuel a national majority coalition—which is what the New Deal did.

Despite its deep American roots and its popularity across class, regional, religious, racial, ethnic, and to a degree even party lines, the New Deal never lacked critics. They came mainly from the corporate boardrooms and the white-shoe law firms. They could not deny the New Deal's popularity, so they challenged its Americanness. They claimed, as the attorney Frederick Wood did in 1935, that Roosevelt aimed at "some form of national socialism—whether Soviet, Fascist, or Nazi." Some duPont executives, annoyed that the New Deal was raising wage rates for black workers, created the American Liberty League for "encouraging people to get rich" instead of supporting Roosevelt. They made the 1936 election a referendum on the New Deal.

Roosevelt won this referendum by a record majority. He appealed most to the poor—pollsters found Roosevelt garnered 76 percent of the lower-income vote. But he won more than 60 percent of middle-income votes, and even 42 percent of upper-income votes.

If the New Deal survived that test, so did the white-shoe critiques. Today, Grover Norquist complains the New Deal was "un-American." And like-minded Amity Shlaes says in the Wall Street Journal that she wants "[t]o write sympathetically about the Liberty Leaguers." Which she does, in her new book, The Forgotten Man. Despite its subtitle, it's less "a new history of the Great Depression" than what Shlaes says it is: a resurrection of the duPont critique of the New Deal, circa 1935. The New Deal was un-American, she argues, and bad for business.

The New Deal did bear some relation to European welfare states, but it was an uneasy one. Consider Social Security, which would have been simpler had the Democrats written a European-style law, using general funds to support retirees. Instead, out of an American conviction that we "mustn't have a dole," Roosevelt insisted on a contributory scheme which has required repeated tweaks. Shlaes never makes a clear argument about New Dealers' relationship to European politics, center or left. She writes first that "the problem of the New Dealers on the left was not their relationship with Moscow or the Communist Party in the United States, if indeed they had one," but then gives a chapter to discussions of various leftish reformers' interest in the Soviet Union, without showing that this significantly affected New Deal policy.

As for being bad for business: The greatest knock on the New Deal is it 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.

But if the New Deal did not end the Great Depression, was it doing some good? Historical Statistics of the United States says yes: Except in the 1937-38 recession, unemployment fell every year of the New Deal. Also, real GDP grew at an annual rate of around 9 percent during Roosevelt's first term and, after the 1937-38 dip, around 11 percent.

So on the numbers, the U.S. economy improved briskly during the New Deal. Things that are moving quickly and in the right direction, but still haven't reached their destination after a while, are things that have a long way to go—which is true of the U.S. economy recovering from 1932. Historians disagree on which part of the New Deal most encouraged economic growth, but at the least the New Deal did not prevent this recovery.

Shlaes makes a different argument about numbers, because she uses different numbers. She starts each chapter with a rat-a-tat of just-the-facts, but instead of GDP, which represents the overall economy, she quotes the Dow Jones Industrial Average, which represents the maybe 10 percent of Americans who owned stock. And though she quotes an unemployment number, she doesn't quote the figures I've just mentioned. Instead she chooses different estimates of unemployment that (she acknowledges) show a much larger share of Americans out of work during the New Deal.

If you want to know how the New Deal treated ordinary Americans, this choice really matters. Let's look at a figure Shlaes gives twice in her book and again in her Wall Street Journal editorial: She has unemployment at 20 percent in the 1937-38 recession. That's appalling—almost as bad as 23 percent in 1932. Based on such a statistic, you could think the New Deal wasn't alleviating the Great Depression. But that number hides something: A third of the people Shlaes counts as unemployed had a job that the New Deal gave them through its relief programs.

Now, you may say, wait: Those people really shouldn't count as employed—we're not interested in government make-work, we're interested in the real economy. Fair enough—and if you look again at Historical Statistics of the United States, you'll see another measure of unemployment—private, nonfarm unemployment—measuring the real, industrial economy. And on that measure, unemployment again runs markedly lower under Roosevelt than under Hoover. John Maynard Keynes might have explained that the New Deal wasn't just offering make-work, it was stimulating the economy—and Shlaes in fact at one point says the same: "[I]t functioned as Keynes ... hoped it would." Yet of all the possible ways to measure unemployment, Shlaes chooses the only way that hides the effect of New Deal relief programs and makes it look as though the economy performed as poorly under Roosevelt as under Hoover.

Roosevelt did make mistakes, the National Recovery Administration—which let industry cartels set noncompetitive, price-raising codes—chief among them. Roosevelt admitted NRA was "pretty wrong," and historians generally agree. But the NRA lasted less than two years and did not typify the New Deal, which mostly protected Americans' rights to strike bargains for themselves in a marketplace it left largely intact. Laws like these—for example, the Wagner Act protecting the right to unionize—kept the state small, as Sen. Robert Wagner explained: "[W]e intend to rely upon democratic self-help by industry and labor instead of courting the pitfalls of an arbitrary or totalitarian state." That was Roosevelt's legacy.

Shlaes prefers Calvin Coolidge, whom she calls a "minimalist president." This might surprise Coolidge, who declared, "The nature of man requires sovereignty. Government must govern. To obey is life. To disobey is death." Coolidge backed an increase of federal power to restrict immigration, and under him the federal payroll grew by 40,000 employees (after shrinking under Warren Harding).

But for Shlaes, as for the Liberty Leaguers, government isn't big unless it restricts big business; then big government is bad. She makes this point plainly: "[T]o force business to go on spending when it did not want to was to hurt business," she says of wage-raising policies. Yes, and to force labor to go on starving when it did not want to was to hurt labor. Sometimes government, as Coolidge said, must govern, which means balancing one interest against another. Roosevelt made this homely insight the hallmark of his administration. And it's why the American people kept him in office and why so much of his New Deal remains.

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