Conservative Intellectuals Embrace FDR, Jump Off Cliff

Conrad Black, the Canadian newspaper publisher, has written a five-pound, 1,280-page biography, Franklin Delano Roosevelt, Champion of Freedom, just published by Public Affairs Press. This is as worshipful a biography of FDR as has ever appeared, giving him credit for "the reinvention of the American state." Black claimed FDR was "the savior of American capitalism and the foremost reformer in the country's history." Black hails FDR for "overcoming the Depression" and winning World War II. Black says flat-out that "Franklin D. Roosevelt was the most important person of the twentieth century."

Black's work comes long after the tidal wave of pro-FDR books which swept across the American literary landscape from the 1940s through the 1970s and wasn't spent until the 1990s. Included were memoirs by dozens of New Dealers, almost all of whom are gone, and multi-volume works by pro-FDR political historians like James MacGregor Burns, Arthur M. Schlesinger, Jr., Frank Freidel and Kenneth S. Davis, who are either dead or in the twilight of their careers.

The current trend is for books to be more critical of FDR. There have been a number of books about FDR's devious entry into World War II and his handling of the war, most recently Thomas Fleming's The New Dealers' War (Basic Books, 2002). Meanwhile, dozens of economists at major universities around the United States have investigated the effects of FDR's New Deal policies, and I report their overwhelmingly negative findings in my new book FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003) – which Conrad Black attacked in a Wall Street Journal op-ed (October 29), to which I replied (November 6).

Franklin Delano Roosevelt, Champion of Freedom is noteworthy because the author, a member of the British House of Lords, is reputedly to the right of Margaret Thatcher and is married to conservative political columnist Barbara Amiel. The jacket of Black's book features enthusiastic blurbs by such noted American conservative intellectuals as Tom Wolfe, George F. Will and William F. Buckley Jr., plus Henry Kissinger who was Secretary of State under Republican presidents.

Of course, it's no secret that big government conservatives dominate what passes for a conservative movement these days. Both Ronald Reagan and Newt Gingrich expressed admiration for FDR.

Do conservative intellectuals really understand what they're embracing? One needn't get into FDR's war policies. FDR's New Deal was bad enough, and as noted Conrad Black celebrates both.

Contrary to Black's claim that FDR helped "banish the Depression," FDR's New Deal failed to resolve the most important problem of the era, namely unemployment that averaged 17%. FDR came to power in March 1933, the worst point of the Great Depression, with a quarter of workers unemployed, and during the next three months there were heartening signs of a rebound. Nondurable goods manufacturing jumped 35%, durable goods manufacturing jumped 83%, and the stock market started to rise. At this rate, unemployment would have been down to about 5% by the fall of 1934.

However, investors and businessmen soon realized how FDR's fabled "Hundred Days" of madcap legislation would throttle business. For example, the Securities Act, passed on May 27, 1933, made it more difficult for employers to raise capital. On June 16, 1933, FDR signed the National Industrial Recovery Act, authorizing some 700 industrial cartel codes (1) to force wages above market levels, which discouraged employers from hiring, and (2) to force prices above market levels, which discouraged consumers from buying. To maintain high prices, production was cut back – the opposite of what was needed for recovery. The economy had a relapse as manufacturing declined, and the unemployment situation failed to improve.

In May 1935, when FDR was planning to extend the National Industrial Recovery Act, the U.S. Supreme Court struck it down as unconstitutional. That summer began the longest sustained recovery of the 1930s, as entrepreneurs were freed from monstrous NIRA regulations. Nondurable goods production increased more than 25% from May 1935 to May 1937. Durable goods production was up 55%, and the stock market was up 60%. Unemployment fell to 14.1%, the best FDR ever did before the government began conscripting millions of young men for World War II.

What did FDR do when faced with economic recovery? He signed the Banking Act (1935), centralizing power at the Federal Reserve in the Federal Reserve Board, thereby increasing the risks that inevitable human errors by a small number of people would harm not just a city or a region but the entire country. Their first bad call came in 1936 when they hiked the Fed discount rate 50%, triggering a monetary contraction. FDR also secured passage of the Social Security Act (1935) that established excise taxes on payrolls as well as excise taxes on individual compensation – making it more expensive for employers to hire people, thereby discouraging hiring. Moreover, FDR signed the National Labor Relations Act (1935) that promoted compulsory unionism, and the Supreme Court's decision upholding the NLRA unleashed a campaign to unionize mass production industries. The cost of hiring jumped 11% in a single year – 1937 – leading to massive layoffs. Finally, FDR secured passage of "soak the rich" taxes including an undistributed profits tax, making it harder for employers to accumulate capital. Result: FDR's depression of 1938, a unique depression within a depression. FDR tried to revive the failed National Industrial Recovery Act, and when this effort didn't go anywhere, he launched an unprecedented barrage of antitrust lawsuits against about 150 large employers and industries, keeping businessmen tied up in court, rather than focusing on growth and jobs.

I've cited only a few of FDR's policies that prolonged the Great Depression, all covered in FDR's Folly. Here are some others:

  • FDR tripled federal taxes from 1933 to 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, dividend taxes, holding company taxes, everything went up.

  • FDR discouraged private investment with his frequent tax hikes (1933, 1934, 1935, 1936) and with his denunciations of investors and employers ("economic royalists").

  • FDR channeled government spending and loan programs AWAY from the poorest people (who lived in the South), thereby undermining claims that the New Deal was compassionate. The bulk of New Deal spending and loan programs went to political “swing” states in the west and east, where previous election returns had been close. From FDR’s standpoint as an incumbent, there wasn’t any point giving a lot of money to the South, even though it was the poorest region, since voters there were already solidly Democratic.

  • FDR forced food prices, as well as the prices of manufactured goods and services, above market levels and outlawed discounting. People were fined and even jailed for cutting prices during the New Deal. Such policies penalized over 100 million American consumers and discouraged buying.

  • FDR promoted the large-scale destruction of food when millions were hungry, by paying farmers to plow under some 10 million acres of crops and slaughter and discard some 6 million farm animals. This program enriched big farmers who had more food to destroy than small farmers. Black tenant farmers, who depended on work, were devastated.

  • FDR broke up the strongest banks, with the lowest failure rate, namely big city banks like J.P. Morgan that diversified by engaging in both investment banking and commercial banking. FDR didn't do anything about unit banking laws that accounted for 90% of bank failures by preventing small banks from diversifying with branches. Federal deposit insurance failed to stop bank failures – it transferred the cost of bank failures from bank shareholders and depositors to taxpayers.

  • FDR promoted government monopolies, the biggest of which was the Tennessee Valley Authority, subsidized by the 98% of American taxpayers who didn't live in the Tennessee Valley and exempt from state and federal taxes and regulations. Despite such monopoly power, income in the TVA southern states lagged income in the non-TVA southern states (like Georgia, North Carolina and Virginia) by widening margins, and the TVA flooded more land than it saved!

  • Touted as a champion of democracy, FDR amassed vast arbitrary power, and even though the Democratic party controlled the White House and both houses of Congress, FDR issued 3,728 executive orders – more than all his successors combined.

  • From the beginning to the end, the New Deal was an attack on economic liberty, telling businesses how much they could produce, how much they had to pay people, how much they could charge, making it illegal to sell certain products (like milk) across state lines, suspending the rights of creditors, breaking up lawful businesses, dispossessing thousands of people to make way for government TVA dams and other projects, denying workers the right to choose whether to join a union, seizing the gold of peaceful citizens, using the tax code to punish some people and favor others, on and on.

Supreme Court justice Louis Brandeis praised FDR for trying these "experiments," and many commentators now say the same thing. Yet FDR's policies were only experiments to the degree FDR was unaware of what had been tried and failed before. There was a substantial literature about the failure of high taxes, subsidies, regulations and government gold hoarding – Adam Smith's Wealth of Nations was just the best-known work on the subject.

Ironically, the August 2003 publication of a lost manuscript, That Man, An Insider's Portrait of Franklin D. Roosevelt, by FDR's attorney general Robert Jackson, who died in 1954, affirmed the folly of FDR's New Deal. Jackson wrote, "It always seemed to me that the President was at his weakest in dealing with economic or business problems [like the Great Depression!]…The President was not given to thought in economic terms…the President…did not impress me as being grounded in economic theory or practice…economics did not appear to be his long suit…the President's lack of aptitude for economic matters…the economic philosophy of the Administration…was bogged down in conflict and confusion."

Political historians and apparently conservative intellectuals give FDR credit for handling the political crisis of the 1930s, but the most important factor in the crisis was double digit unemployment prolonged by FDR's own New Deal policies.

By embracing FDR's taxes, subsidies, regulations and arbitrary power – never mind his war policies – conservative intellectuals appear to be joining ranks with Democratic presidential candidates Howard Dean, John Kerry, Richard Gephardt and Wesley Clark. What's left, intellectually, of the so-called conservative movement?

November 17, 2003