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FDR's Latest CriticsWas the New Deal un-American?

By Eric RauchwayPosted Thursday, July 5, 2007, at 7:18 AM ET

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.

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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.

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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.

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Eric Rauchway, the author of Blessed Among Nations: How the World Made America and The Great Depression and the New Deal: A Very Short Introduction, is professor of history at the University of California, Davis.

COMMENTS

Remarks from the Fray:

Without FDR, without the "New Deal", this country had every chance of sliding into anarchy or a "right wing" or "left wing" authoritarian government, whether it was the Communists, Long or Coughlin or their like that came out on top. Whatever the "legality", whatever the economic impact, the "New Deal" worked. And it worked because FDR and his advisors and his supporters recognized that desperate people make desperate decisions (sans the Germans and their elections in 1932 and 1933, which was a choice between the Nazis and their allies and the Communists) and that people with money in their pocket to buy food, clothing and shelter wouldn't be interested in overthrowing the government.

Economically, such programs are sound, just as they are today. It takes just about as many people, say ten in one day, to build a Ford Taurus as a Bentley, only a Taurus costs $25K and a Bentley costs $300K. Instead of having a man with $10M buy a single Bentley, you let him buy his Bentley, tax him $300K and give the $300K to 12 Americans, who buy a Ford Taurus. You've just created work for 120 people, who, like the 12 Americans that received government assistance can now buy a Ford Taurus, which sustains the market. On top of that, $3K of each car is profit, so that the guy who was taxed $300K gets $396K back on the deal, where if he wasn't taxed in the first place, no one would buy cars and he wouldn't get any revenue from the sale of cars.

This is a simplified analogy, but the reality of American capitalism is that the desire for short term gain, the insatiable greed, prevents the most extreme American capitalists from looking and thinking long term. So when a company lays off 10,000 workers or defaults on their pension plans and then complains about falling revenue, because now 10,000 people can't or won't buy their product, the first thing they ask for is government relief through tax cuts.

Government taxes are overhead, you blithering idiot capitalists! The taxes you pay on corporate income pays for the State Department, whose major mission is US economic interests in overseas markets, the Commerce Department which helps protect you from unfair foreign competition, the Defense Department who provides a secure, stable environment overseas for your markets and suppliers, etc, etc. You would have to pay a commercial provider for the same services if there wasn't a government to provide them for you, and the government's cheaper because other taxpayers are helping to carry the burden. Taxation on individual income from investment is not "double" taxation. The individual is paying for those government services from which the individual, not the corporation benefits.

--extlcusa

(To reply, click here.)

If you blame FDR for not curing the depression then you must blame the Republicans for pursuing policies in the 1920's that either led to the depression or once it came did nothing to alleviate it.

Hoover kept reciting his mantra, Prosperity is just around the corner. The RFC offered money for expansion to corporations when the problem was a lack of purchasing power among farmers, laborers, and the middle class. He said that in the long run a dole would destroy the spiritual fiber of those who received it.

FDR replied, "People don't eat in the long run. They eat three times a day." How would the spiritual fiber of American workers be improved by helplessly watching their families starve and shiver during the winter?

The critics of FDR say the depression would have healed itself because big business, the investors and bankers would have had their confidence restored and the economy would have revived. They also claim that churches and charitable groups in the private sector would have sustained the unemployed. At a time when inspirational leadership and new directions were needed, The Republicans would have presented the American people with the dour, platitude and cant spouting Herbert Hoover followed by Alf Landon, governor of Kansas, a state known for its hidebound conservatism.

The radical alternatives to FDR such as Father Coughlin, Francis Townsend, Huey Long and Communism were the real dangers to America, not the New Deal. The New Deal preserved capitalism, free enterprise and the American way and did not destroy it.

One must also consider foreign policy as it evolved under FDR. The Republicans and America Firsters like Lindbergh would have let England and France stew in their own juice and would not have aided England and the Soviet Union with lend-lease. The bill establishing the draft passed by only one vote due to Republican opposition. The Japanese attack on Pearl Harbor and Hitler's declaration of war finally jolted the Republicans out of their isolationism. America was fortunate to have FDR as its leader during these years.

Let the critics of FDR give concrete polices that Hoover and Landon would have used to cure the depression. Yes, the war cured the depression but rearmament was the reason for Germany's return to prosperity and merciless industrialization and agricultural collectivization by Stalin were the reason for the rising strength of the Soviet Union. Prove that anything like that happened in America or that the nation would not have been far less prepared for war under Hoover and Landon.

--Livy

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