The Disaster Called the New Deal
by David Gordon
by David Gordon
New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. By Burton Folsom, Jr. Threshold Editions, 2008. Xvi + 318 pages.
Readers of The Mises Review will not be surprised to learn that Folsom considers the New Deal a failure. Nevertheless, even those already familiar with such books as John T. Flynn's The Roosevelt Myth will find Folsom's book valuable. Folsom advances new and important arguments.
His anti—New Deal verdict is hard to dispute: levels of unemployment at the end of the 1930s remained at depression levels. In May 1939, Treasury Secretary Henry J. Morgenthau Jr., one of Franklin Roosevelt's best friends, testified before the House Ways and Means Committee: "I say after eight years of this Administration we have just as much unemployment as when we started And an enormous debt to boot" (p. 2). When he spoke, unemployment exceeded 20 percent. Further, and here Folsom has absorbed the pioneering research of Robert Higgs, not even the onset of World War II ended the Depression. True enough, unemployment ended; but this was only because of the draft. Absent this military slavery, there is every reason to think that Roosevelt would have continued to struggle with unemployment.
A diehard defender of Roosevelt might essay two replies to this indictment. He might argue that Roosevelt was insufficiently far-reaching: despite his radical reputation, Roosevelt only reluctantly embraced the Keynesian prescription of increased public spending. Roosevelt did indeed spend a great deal on government programs; but this must be balanced against his tax increases. When the two are taken together, the stimulus that New Deal outlays provided the economy was less than needed to restore prosperity. William Leuchtenburg, one of the most influential historians of the New Deal, favors this approach.
"The havoc that had been done before Roosevelt took office," Leuchtenburg argues, "was so great that even the unprecedented measures of the New Deal did not suffice to repair the damage." Some historians say that FDR should have done more deficit spending during the recession of 1937. (p. 12)
December 11, 2008
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