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

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

(Continued from page 1)

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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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.
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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

(To reply, click here.)

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