Jim Powell: FDR Made the Depression Worse

Roundup: Talking About History

Jim Powell, writing forNational Review(Nov. 20, 2003):

It has been 70 years since Franklin Delano Roosevelt launched his New Deal in an effort to banish the Great Depression — perhaps the most important economic event in American history. The New Deal was controversial then, and still is, because it failed to resolve the most important problem of the era: chronic unemployment, which averaged 17 percent throughout the New Deal period.

Newsweek columnist Robert Samuelson acknowledged that if World War II hadn't come along, America might have stumbled through many more years of high unemployment. Samuelson, however, is among those who give FDR high marks for handling the political crisis of the 1930s, the worst this country has faced since the Civil War.

But this crisis was caused by the double-digit unemployment rate, and in my new book, FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression , I report mounting evidence developed by dozens of economists — at Princeton, Yale, Brown, Stanford, the University of Chicago, University of Virginia, University of California (Berkeley), and other universities — that double-digit unemployment was prolonged by FDR's own New Deal strategy.

How can that be? Consider just a few of FDR's policies. The New Deal tripled federal taxes between 1933 and 1940 — excise taxes, personal income taxes, inheritance taxes, corporate income taxes, dividend taxes, and excess profits taxes all went up — and FDR introduced an undistributed profits tax. A number of New Deal laws, including some 700 industrial cartel codes, made it more expensive for employers to hire people, and this fed unemployment. Frequent changes in the tax laws, plus FDR's anti-business rhetoric ("economic royalists"), discouraged people from making investments essential for growth and job creation. New Deal securities laws made it harder for employers to raise capital. FDR issued antitrust lawsuits against some 150 employers and companies, making it harder for them to focus on business. He also signed a law ordering the breakup of America's strongest banks with the lowest failure rates. New Deal farm policies destroyed food — 10 million acres of crops and 6 million farm animals — thereby wiping out farm jobs and forcing food prices above market levels for 100 million American consumers.

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Gary Ostrower - 1/19/2004

Not much new under the sun. Economist Murray Rothbard offered a nearly identical anti-FDR argument over 35 years ago.

Steve - 1/9/2004

Had WWII not happened, the United States very well may have continued through the Depression. It is difficult to discern whether policies being implented at the time would have had any affect without the catalyst of WWII. One must remember, however, that Roosevelt was not alone in his decision-making, nor did he have consensus. We also must remember that the Supreme Court ruled a majority of New Deal programs and laws unconstitutional. Would the Depression have ended in say 1934 or 1935 had the Court not ruled them unconstitutional? Perhaps not, but we will never know. To say Roosevelt was to blame for making things worse is obviously an agenda, rather than objective historical fact.