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President Franklin Roosevelt’s ‘New Deal’

I was recently asked why people believe that Franklin Delano Roosevelt’s ‘New Deal’ saved the United States from the Great Depression.

The answer is that people are told so – by television and radio shows, films, and (of course) at school. A more difficult question would be why do some people not believe this, indeed why are some people anti-statist generally, in spite of the ‘education system’ and the mainstream media.

Perhaps the leftists (using the modern definition of ‘left’ – I know that Bastiat sat on the left hand side of the French Assembly and so on) have some variation of their ‘authoritarian personality’ fraud (the theory that purported to explain away conservative opinions as a personality disorder). to explain away libertarian opinions. Or perhaps there is some genetic characteristic (although leftists prefer environmental explanations) that could be claimed to ‘explain’ why libertarians believe the things we do.

Of course the above ‘explanations’ (as with older Marxist doctrines of ‘class interest’ and ‘ruling class ideology’) are efforts to avoid having to deal with the facts and arguments presented by non-leftists.

As for the ‘New Deal’ itself, some background is in order… Among free market folk there are two conflicting explanations as to why a bust occurs. The view supported by (for example) Milton Friedman is that the government allows the money supply to decline and this causes the great economic decline. Milton Friedman never claimed that preventing the decline of the money supply would prevent recessions – but he did claim that preventing such a decline would prevent a great economic reverse such as the Great Depression, hence his oft repeated claim that as long as the government (or rather the Federal Reserve system) did not allow such a decline of the money supply the United States was “depression proof”.

The competing view goes back to such men as David Hume and many others (see the first volume of Murry Rothbard’s history of economic thought) and is expressed in such works as Ludwig Von Mises’ Theory of Money and Credit and Human Action and Murry Rothbard’s The Panic of 1819 and America’s Great Depression.

This view holds that it is the risein the money supply that creates the conditions for the bust – i.e. that is the credit money ‘boom’ that causes the bust.

The temptation here is to become too technical, to go into a long discussion as to why one is not dealing with “over-investment” but rather with “mal-investment” and what exactly this is. And then to examine whether a credit money bubble needs to be directly related to “investment” (i.e. spending on capital goods) at all – or whether borrowing for consumer consumption can be the cause of some boom-busts.

However, such treatment is not needed here. All that needs to be said is that the ‘Austrian’ view of of the economic cycle holds that it is caused by efforts to finance loans over and above the amount available from real savings.

Real savings are the amount of people’s incomes they do not spend (or hoard) – but loan out (normally via third parties such as banks) instead.

Efforts to lend out more money than has actually been saved (either by printing money, of by the various complicated methods of credit-money expansion) lead (in this view to a boom-bust. Governments may be involved via a central bank (or something like the ‘private’ Federal Reserve System), but there need be no central government institutions. If banks and other financial institutions are led to expand loans over and above real savings (either by such things as the National Banking Act of Lincoln’s time, which dominated banking till 1913, or by the informal understandings of the pre Civil War period) there will be a boom-bust cycle. And government efforts to delay the bust by keeping the credit bubble inflated (as Milton Friedman suggested) will just (in the Austrian view) just make the bust all the worse when it comes.

Whichever of these two sides is correct (leftists, of course, would hold that both sides are wrong), there is no dispute between them over what non-monetary government policy should be in an economic slump.

Government should do what the government of the United States did in every economic slump from 1819 to 1929 – basically nothing at all.

The classic example is the crash of 1921.

During the First World War a great credit money bubble built up and this credit money boom liquidated itself in 1921. There was a major fall in both prices and output and a large rise in unemployment. The United States Administration of President Harding did nothing much, apart from cut government spending,(in spite of all the ideas of Commerce Secretary Herbert Hoover to try and keep up prices and wages and to introduce various statist projects) and the economy was in recovery within six months.

In the late 1920′s another credit money bubble built up – largely because of the efforts of New York Federal Reserve Bank Governor Ben Strong (a hero of Milton Friedman’s) to help the Governor of the Bank of England (M. Norman) maintain the artificially high 1925 exchange rate of the Pound to the Dollar (this was expressed in the language of ‘maintaining the Gold Standard’ although if gold had really been the currency the exchange rate between the Pound and Dollar would have been a matter of how much gold the Pound represented and how much gold the Dollar represented).

When the bubble eventually burst the Federal Reserve system (not Mr Strong himself – he was dead) made efforts to prop up the bubble – not great enough efforts according to Milton Friedman, pointless or damaging efforts according the Austrian school.

More importantly President Herbert “The Forgotten Progressive” Hoover and Congress (contrary to the myth of the inactivity) went into hyper active mode.

Not for them the Taoist idea that to do nothing is often the correct thing for a ruler to do (however hard it may be to resist the endless demands to do various things). Prices and especially wages must be kept up – because if real wages were allowed to fall ‘demand’ would fall and recovery be prevented.

Economic theory that disputed the importance of keeping up demand was (long before Keynes had an impact on the United States) denounced as ‘orthodox’ or ‘reactionary’ (Herbert Hoover denounced it in these terms). As for the fact that in every previous bust (from 1819 to 1921) real wages has fallen and recovery (in output, employment and wages) had taken place after this had occurred, well the self styled ‘empirical’ people of the time (and of our time) choose to ignore this.

President Hoover and Congress also worked out the basic forms of the later ‘New Deal’ public works programs (although on a smaller scale), and in this they were supported by most of the economists of their time (the “what is seen and what is unseen”, showing that every government project must be paid for at the expense of more productive non-government activity, as Bastiat was considered out of date, although he had not actually been effectively refuted). However, most economists of the time did not support the massive increase in import taxes that went into effect in 1931 – President Hoover himself had doubts about this move of Congress but he still signed the bill.

All in all the government price and wage rigging efforts (voluntary’ agreements with various concerns), tax and spend policy (and the trade ‘war’ of beggar-my-neighbour tariffs) managed to turn a credit-money bust into the Great Depression.

“But then F.D.R. saved us from it”.

Errr. no he did not.

Real output (once one has taken account of inflation) was about as low in 1938 as if had been in 1932, and unemployment was almost as high. This simply was no the case in other major countries. For example, in National Socialist Germany unemployment had been eliminated – not by the “build up to war” so much as by the control of real wages as prices rose (as supported, after the fact, by Lord Keynes in the introduction to the German edition of his General Theory of 1936).

For those people (such as myself) who do not support government control of wages, British economic performance is worthy of note. Contrary to the myth, British output and real incomes rose more than German in the 1930′s (and vastly more than American output or real incomes did – indeed American output and real incomes were worse at the end of the 1930′s than they had been and the start) and unemployment fell greatly between 1932 and 1937 (before conscription even started).

There was still large scale unemployment in certain areas of Britain in 1937 as the trade union Acts of 1875 and 1906 were not repealed (restoring the rule of contract was not needed in Germany as they had a more direct approach to dealing with union power – they physically smashed the unions rather than bringing them back under the law of contract), but the British performance in reducing unemployment compares very well with the America – a great contrast to the 1920′s when American unemployment had been greatly lower than British unemployment.

Those interested in the details of President Roosevelt’s polices – for example the subsidy to produce X commodity, together with the government program to destroy the same commodity (various farm products), or the complex efforts to promote cartels (such as the National Industrial Recovery Act) at one point, and the “anti trust” efforts to break cartels at another point, the various public works projects (both corrupt and non corrupt – nothing is simple, indeed their were often different government agencies operating in the same field and operating quite differently)…….. and so on and so on (even as a child studying all the contradictions and absurdities of President Roosevelt’s polices made me feel sick, but other people have different tastes).

Well John T. Flynn may not have been a great economist but his account of the ‘New Deal’ in such works as The Roosevelt Myth” and the earlier When We Go Marching are worth reading.

The articles of Henry Hazlitt and H.L.M. are also worth reading (and Albert J. Nock and all the rest).

However, Bruce Ramsey came out with an edition of Garet Garrent’s articles in 2002 (“Salvos Against the New Deal from the Saturday Evening Post: 1932-1940″) and that is as good a place to start as any.

I will not make many comments of my own.

Firstly the stealing of privately owned gold in 1933 and the voiding of the gold clauses in private contracts is often dismissed as a concern only of ‘gold bugs’, but if government can do this (in defiance of the Constitution’s demand that government uphold contracts and that only gold or silver coin be legal tender in any State) and not even the four ‘reactionaries’ on the Supreme Court really object – well then things are rather bad. Nor was there even the poor excuse of war.

There is also the story (which I will not go into the details of) of how the power to “regulate interstate commerce” got mutated into a power to regulate non interstate commerce. Here the Supreme Court did put up some resistance – and not just on the grounds that someone selling to someone else in the same State is not “interstate commerce” (however much it may affect it), but also on the grounds that the power belongs to Congress not any arbitrary executive agency that may be set up under an enabling act (the 1935 case that struck down the National Industrial Recovery Act was all nine judges, not just the ‘reactionaries’, they were all against the National Recovery Agency being set up as a bunch of God Kings). However, court judgements during World War II basically broke the limits on Federal government regulatory power – and these judgements have not yet been reversed.

Oddly enough it was the war time inflation (at a time of wage controls) that actually broke the real wage rigidity
that had prevented the market clearing and unemployment really coming down in the 1930′s – and the “Do nothing” Congress elected in 1946 refused to go back to the endless regulations and union power of the 1930′s (so mass unemployment and depression did not return after World War II). The New Dealers had a horror of balanced budgets and free markets – and that is (more or less) what the “Do nothing” Republican Congress (Senator Bricker of Ohio and the rest) gave the nation – with the opposite results to what the New Dealers would have predicted.

As for the ‘positive’ aspects of the New Deal.

Yes the Golden Gate Bridge in San Francisco looks good – and this project (like others controlled by the same agency – very unlike other New Deal agencies) was fairly honest, but this is covered by Bastiat’s what is seen and what is unseen. Any government project, no matter how nice looking and however honestly managed can only be finance at the opportunity cost of a more productive private activity.

Also (Senator James Webb please note) for all the stress on such things as the TVA the South tended to get less money per head of population than other areas of the country – in spite of its greater poverty (the area voted Democrat anyway, so why bother to spend money on the locals).

True Virginia was not hit as hard by the Great Depression as many States (although that alone may come as a bit of a shock to Senator of Virginia J. Webb), but New Deal money was not exactly think on the ground in States like Texas either, and these States were (in those days) very poor indeed.

Also perhaps the most important long term project of the FDR Administration was, at the time, of small importance.

Things like the fairly honest PWA and the corrupt WPA are long gone, the farm subsidies are still with us (indeed bigger than ever – and just like in the 1930′s they are justified by talk of poor family farms and in fact tend to go to the biggest farmers), but they are small compared to another New Deal project – Social Security.

This program was passed in 1935 (although the tax did not hit till 1937). The government ‘pension’ Ponzi scheme was small at first but is vast now -it (along with Medicare and Medicaid) dwarfs the rest of the Federal government.

Such programs are justified as being for the ‘general welfare’ of the United States. That the ‘common defence and general welfare’ was the purpose of the powers granted to Congress by the Constitution, not a power in its self is ignored – the ever increasing burden of this final gift of the New Deal will be harder and harder to ignore over the coming years.

66 comments to President Franklin Roosevelt’s ‘New Deal’

  • Jake

    Nice writeup. I will also add that Roosevelt greatly increased income taxes as soon as he was elected. The top rate went from 25% to 63%. It sucked all of the investment money out of the economy. He kept the rates high all during the depression. Hence the US had these unemployment rates:

    1931 15.9
    1932 23.6
    1933 24.9
    1934 21.7
    1935 20.1
    1936 16.9
    1937 14.3
    1938 19.0
    1939 17.2

    Although public works projects during his administration received a great deal of favorable publicity, it did very little to reduce unemployment.

  • RKV

    Pretty sad state of affairs when our knowledge of history and economics is so poor that we can’t correllate a legislative increase in the price of labor (minimum wage laws and social security taxes ) with a decrease in the use of labor as a resource (unemployment). I was in college getting a double major in History and in Economics in the early 1970′s. The economists were beginning to figure out that Friedman had something going with his “Monetary History of the United States” while the historians were still spouting the Keynesian conventional claptrap. It made for some interesting discussions when we really got down to cases on what the Fed did wrong and why it took so long to get the Depression over with. Of course the historians still idolized FDR.

  • Not entirely on topic, but I find myself often doing what Paul did in his post… stopping to clarify what I mean when I say “liberal” or “leftist” because the terms have been so thoroughly mangled and misused as to obscure their original meaning. Does anyone use or know of an accurate descriptor for “leftists” that avoids this problem?

  • The public works program brings to mind a segment of an episode of Steve Allen’s Meeting of Minds, a series in which Allen moderated round-table discussions between various historical personages. I believe it was Cleopatra (portrayed by Allen’s wife) who said that the great monuments of antiquity would never have been build without slave labor. Slavery is gone, but governments find other ways of conscripting people into building large-scale projects…

  • guy herbert

    I’m fairly convinced that politics are informed by personality, and that authoritarian personality does exist. But it is found quite as often on the nominal left as well as the right.

    The assertion that it is a personality disorder, which I’ve never heard made directly, is more of a piece with the modern labeling of all undesired behaviour as disorder – which sidesteps the need to make moral claims. (Cf. Functionalist sociology’s undermining its own plausible axioms by the arbitrary labelling of unpleasant social phenomena as “dysfunctional”, a usage that has stuck long after functionalism is forgotten.)

  • Johnathan Pearce

    Nice piece, Paul.

  • MarkE

    Interesting piece Paul, thanx.

    On the left/right thing, I remember a thread a long time ago (almost back to when I had hair and a defined waistline) which tried to go beyond one dimension. IIRC authoritarian/libertarian was given as up/down and there were further distinctions included. I may have defined myself as a “Right, Down and Out” (or maybe not). Was that thread here?

  • I think politics… in any political system… attracts a disproportionate number of people motivated by what I think can only be described as a personality disorder: the compulsion to use force to control others as an end in and of itself.

  • BCN

    No, No, No, your are absolutely wrong. As Keynes would have said.
    The great depression of the 1930′s was a social catastrophe that had no historical precedents.
    The stock market crash was so spectacular that It’s rarely mentioned that the Banking system also collapsed and wiped-out the savings of the lower and middle classes. And put a serious dent into the upper classes as well. Consumption and prices and investment fell in a deadly spiral until a bottom was reached that left millions of people unemployed.

    Keynes simply pointed out that there was plenty of cash around that Government could command by raising taxes, floating bonds and supporting investment that would increase employment. This was viewed as revolutionary and was widely resisted.

    So the “New Deal” policies never reached the levels of investment required to promote steady growth.

    The Keynsian approach was vindicated with the onset of WW2. Government then raised taxes, floated bonds, partnered with Industry (sound familiar?) to produce war materials and went much further in terms of rationing and wage and price controls. The net effect of these “Keynsian” wartime policies was full employment, big savings and economic growth.

    Unfortunately, many post war Governments misread Keynes and increasingly saw their new role as managers rather than custodians of a free economy.
    In my view, a sad legacy for a brilliant economist.

  • RAB

    Here’s one for the Christmas quiz, seeing as Keynes and Roosvelt is the theme here.

    What song in Gold Diggers of 1933
    was specifically written to illustrate
    Keynsean economics?

    We’re in the Money

    We’re in the money, come on my honey,
    Let’s spend it, lend it, send it rolling along!

  • I always thought a contributing factor to the stockmarket bubble (and thus crash) was the Fed allowing retail loans for margin/option trading.

    When the crash happened, I always took it to be that wealth did not disappear, it just moved faster from the many to the few.

    How this links in with the depression in general is another matter.

  • Michael Stone

    Dude! Please stop with all the parenthetical statements. It makes reading your ideas very difficult.

    Otherwise, it’s good to see the worst president of the 20th century trashed for a change. It always makes me sad and angry when I see his likeness on the worthless coins he helped devalue.

  • BuckyDent

    FDR and the New Deal are literally objects of veneration in the US school system. He is credited with literally saving the US, both economically and militarily. An American can go through life easily without ever hearing a negative thing about “that man”.

  • John_R

    UH, you’re going to have to come up with some proof that the Golden Gate was a New Deal Project, considering it was financed by the sale of $35 million worth of bonds, which were finally retired in 1971(Link), and the Golden Gate Bridge and Highway District was incorporated in 1923. This project was already well in the works before the Great Depression. LINK(Link)

    The Grand Coulee Dam(Link), OTH, was a PWA project

  • jmc

    You piece perfectly illustrates how an intelligent person uses impeccable arguments to prove that they have not the slightest idea how the real world works.

    The New Deal most definitely saved democracy in the US. This is a matter of national politics, not theoretical economic nit-picking.

    The choices in 1932 were between the New Deal developed by Tugwell and championed by FDR, Hoovers more of the same too-little-too-late interventionist policies , and General MacArthur and his backers of the strong-man solution to the crises.

    In 1932 it was a battle between FDR and MacArthur as to who would get the political support of the very frightened middle classes. Hoover by this stage being totally discredited. And just like the middle class in Germany at the time, the middle-folk in the US were looking for someone to give them hope, and to give them a plausible policy that looked like it would save the country from despair, collapse and revolution.

    Unlike the SPD, the one party in Germany that could have reached out to the middle folk and did not, the Democratic Party and FDR despite huge internal resistance agreed on the New Deal as the corner stone of their political platform for the 1932 elections. The New Deal was far from perfect, but hey, that’s the real world for you, messy and untidy, but it worked as a *political* policy. It started to restore the confidence of the middle classes in the institutions of the state, and more importantly, politically declawed MacArthur and the very sinister people who surrounded him.

  • dearieme

    FDR was a bloody menace, but it’s surely fair to allow him his one big success – stopping the run on the banks when he first took office.

  • Sigivald

    Constitutional nitpick, but relevant:

    The Constitution does not say that only gold and silver shall be legal tender in the states. It says that the States cannot make anything else legal tender, in the section dealing with things the individual States cannot do.

    There’s no prohibition at the Federal level; Congress agreed as early as 1791 with the First Bank, and by the second decade of the 19th century the Supreme Court had agreed that paper money was constitutionally permissible, at the Federal level.

    (Of course, they could both be wrong, but it doesn’t look like they are, from a plain reading of the Constitution. Given the controversies of the time of Ratification, and the debates in the Federalist papers, I feel secure in believing that if the Founders had meant to ban paper money at the Federal level, they could and would have done so explicitly in Article I, Section 9 – rather than simply not listing it explicitly as a power in Section 8.)

  • Roy Lofquist

    Dear Sirs,

    Might I suggest that the proximate cause of the Great Depression was the creation of the Federal Reserve system. All the rules changed and the financial people had to make it up as they went. The wisdom of the market, the accumulated experience of the winners, was wiped out. This led to a whole new bunch of schemes which did not have the time to fail as in a stable market.

    A similar analysis is relevant to the more recent financial disruptions in the United States: the “stagflation” of the 70′s and the “S&L debacle”.

    When Nixon closed the gold window, necessitated by our “allies” run on our reserves, it effectively devalued the dollar. The result was virulent inflation. Carter caught the blame but remember the WIN (Whip Inflation Now) buttons of the Ford administration. There are more than ample reasons to excoriate Carter, but the economic difficulties were not his fault.

    The Savings and Loan crisis was similarly caused by government actions. The repeal of Regulation Q, which had given S&L’s a 1% competitive edge on passbook savings, forced them into a lend long borrow short situation which was a recipe for disaster. That and the restructuring of the depreciation schedules again led to entirely new rules which didn’t have a long enough time to choose winners and losers.

    If there is are lessons to be learned from these and other disasters it is taht radical change in policies are usually going to bite you in the nether regions and those responsible will hang the innocent bystanders in the public square.

    Regards,
    Roy

  • Jack Olson

    Most people do not realize how much freedom the American people lost under Franklin Roosevelt. He seized wartime powers when we weren’t at war, on the basis of a war which had ended eleven years before, against a country with whom the USA had concluded a peace treaty eight years ago.

    He used these wartime powers to declare a state of national emergency, under which the President can do things like suspend the Bill of Rights. He confiscated citizens’ gold and repudiated the gold backing of Treasury bonds. He ordered the closing of state-chartered banks over which the federal government has no jurisdiction. His basic plan was to cartelize agriculture and industry with the federal government sponsoring and enforcing price-fixing. Rebuffed in this attempt by the Supreme Court, he attempted his “court-packing” plan to add many more Justices to the Court–justices nominated by himself. Roosevelt signed into law the first peacetime military draft in American history and the compulsory chain letter known as Social Security. His four consecutive terms as President made him the nearest thing the United States has ever had to a President-for-life, a feature you generally find only in dictatorships masquerading as republics.

    While FDR was doing all this, a young New Deal Democrat who held a degrees in economics and sociology noticed the resemblance between Roosevelt’s program and Mussolini’s. He began to question the long term economic and social effects of FDR’s policies. He was swept into the Presidency in 1980 when the bad effects of decades of New Deal policies had become obvious to the voters but it was Reagan who had correctly predicted the bad effects when the policies became law.

  • Jacob

    Paul is right in stating that the Ponzi scheme that is Social Security is the biggest legacy of FDR, and it is still with us, and it is impossible to get rid of it.
    That and the idea that Government can do anything – that is: the abolition or obliterating of all limits (ideological, or constitutional) to government power.

    Just for the record I would like to mention that the Ponzi pension scheme was invented (or first adopted) by Bismark in Germany – it was not invented by FDR.

  • K

    JMC is correct. Roosevelt did a great job in the crisis of the great depression.

    But the real job was not economic. It was to steady nerves, prevent social disintegration, and baffle the real crazies. Roosevelt was wise enough to see it. Hoover was not, or at least did not appear to see.

    Hoover and Roosevelt did not differ tremendously on policies. Both were willing to apply Keynesian ideas. In his way Hoover had more confidence in our nation, captialism, and the intelligence of the population.

    Roosevelt sensed the great danger was the authoritarians that had taken over Germany, Italy, Japan, and Russia as well as a host ofl lesser nations.

    Similar movements were present in the US, Britain, France, and no one quite knew their strengths. Yet during the thirties each was defused by convincing people that the present government would be as good at solving the economic problems and superior at respecting civil liberties.

  • Eric Sivula Jr.

    So K, depriving the citizens of his country of their property (seizing gold), curtailing their rights (1934 NFA), and threatening the judiciary (FDR’s two term VP – John Garner opposed his court packing attempts) was “steady nerves”?

    Roosevelt did not “sense” the great danger of the authoritarians when took office in 1932 – He recognized the Soviet Union, which 15 years of presidents had refused to do so. Hell FDR’s third term VP, Henry Wallace(Link), ran in 1948 on a pro-Soviet platform for President. Hitler was not in power when FDR took office. He became Chancellor of Germany nearly a year after FDR took office. And FDR’s “concerns” about Japan’s attacks on China did not lead to any action until after Japan had been in China for more than 5 years.

    And what ever appropriate action FDR might have taken on a foreign policy level, it does not excuse his actions inside the borders of America. And those foreign policy decisions, made by another President with an R by his name, would make Leftists scream bloody murder. Like ordering US ships to fire on U-boats in the Summer of 1941, 6 months bfore Pearl Harbor.

    Roosevelt was a power-hungry Leftist with more than a little authoritarian in him.

  • Jacob

    “His four consecutive terms as President made him the nearest thing the United States has ever had to a President-for-life, a feature you generally find only in dictatorships masquerading as republics.”

    “It started to restore the confidence of the middle classes in the institutions of the state, and more importantly, politically declawed MacArthur and the very sinister people who surrounded him.”

    Here are two comments diametrically opposed. One says Roosevelt saved America from dictatorship, the other that he was the dictator !

    To me this “declawed MacArthur” seems total nonesense ! I don’t think the US could ever get any nearer to dictatorship than it did under Roosevelt.

    Anyhow, what matters most in assessing the image of Roosevelt is not what he actually did but the symbolic part – what idea he stood for. The Idea he stood for is the one dear to all lefties: that government saves the people, that government, the benevolent, run by good people (i.e. – by us – the lefties) is a force for the good, an indispensable one, and it’s power should not be limited, especially not by considerations of individual rights and property rights.

    In contrast the (classic) liberals’ main idea is that government is dangerous, and might become despotic, and therefore it’s powers must be severely restricted.

    Roosevelt is adored for the idea he stood for, not so much for the things he did.

  • jmc

    Jacob

    FDR gained his reputation for what he did, not what he said. Hence the landslide in 1936..

    Hoover lost his reputation for what he did, not what he said. Hence the debacle of 1932 and histories rather brutal treatment of his legacy especially as Sec. of Commerce under Coolidge. The man most responsible for the Crash etc, etc.

    My main source for the threat of MacArthur to democracy, and most importantly it impact on exactly what FDR said and did during period 1932 – 1934 was not exactly unbiased but had the huge advantage of having actually being there at the center of the political maelstrom in D.C in the early 1930′s. When I lived in Santa Barbara in the 1980′s I became good friends with Bob Strauss who had acted as the secretary to the Tugwells Brains Trust in 1932 when the New Deal was put together and then served as assistant undersecretary of agriculture during the first FDR administration. I spent many wonderful lunchtime hours discussing the politics and history of the thirties with someone who knew all the main players and who had been at the center of American political life from the late twenties to the early fifties.

    Maybe MacArthur was just full of bluster but the Bonus Army incident definitely convinced a lot of waverers that the threat was real and serious. MacArthur’s backers were very nasty people and the threat was consider very real at the time by those with many many years experience of US politics at the highest level.

    The New Deal and the motivation behind it had far more in common with the One Nation Conservatism of Beverage and Macmillan in the UK than even with the soft-left Fabianism of the Attlee Government of 1945. It was WW 2 and the command economy it spawned and then the Great Society programs of 1965 that turned the legacy of the New Deal onto the road of the invasive overweening dead-handed bureaucracy of the late 70′s.

    That is why so many New Deal Democrats voted for RR in 1980 and 1984. The New Deal was created to save and strengthen liberal democracy in the US and not to enforce intrusive social democracy policies which is what it had be hijacked into doing by the Great Society programs and their ilk.

  • K

    Everyone has a different view about any active leader. And Roosevelt was certainly active.

    Several recent commentators have seen through the silly hate and agreed that Roosevelt faced a morale problem not an economic problem.

    The US at the time was by far the most self sustaining nation on earth. We had abundant energy, industry, farm lands, skilled people, and the strongest currency.

    It was Fear Itself that had paralyzed banking and industry. And people had to be convinced it would corrected else they might foolishly bolt to dictatorship.

    Part of the hatred of Roosevelt became personal because of his calculated optimism. He was never shaken by the dire warnings of his opponents. He refused to kowtow to those dignified and serious men of money who understood all things. He laughed at many serious doomsayers. Doomsayers are not forgiving people.

    Consider what he did not do. He didn’t sieze the banks. He offered them insurance and they grabbed it. He tried the NRA but obeyed the courts who negated it. He made a legal proposal to change the Supreme Court, it was disliked, and he didn’t pout or grab power. He took gold out of circulation, by laws passed in Congress and ruled contitutional by the courts.

    His public works programs were consistently upheld by the courts. He steadily opposed dictators abroad but didn’t attack them. Indeed this ‘dictator’ did not build up the military until most of the world was at war and the dictators were winning.

    I certainly agree that the power-mad leftist did not attack all those communist submarines that were sinking shippin within sight of our shores. That proves he loved Stalin. And discarding VP Wallace when he became increasingly Pro-Soviet proves the same thing.

    Yes he started Social Security and warned that it would need fixes later. It has only worked well for sixty years or so. The man was a dunce.

    It’s a pity that people who think Roosevelt was a dictator don’t read more about Wilson. He had and used more power during WWI than Roosevelt ever thought of.

  • Jack Olson

    The worst thing about the New Deal is that it never ended. Every time FDR and his rubber stamp Congress created a program, they created a constituency to lobby for the perpetuation of that program. For example, the Rural Electrification Administration offered subsidized loans to create rural power authorities to electrify American farms. That electrification was one of the reasons American farms are so productive. Yet, now that 99% of American farms are already electrified, why do we still have the REA? Today, its main business is to get federally subsidized electric and telephone lines to suburbs which could well afford to pay for their own.

    The second worst feature of the New Deal was that future Democratic administrations kept bringing out sequels. Truman offered the Fair Deal. Kennedy offered the New Frontier. Johnson created the Great Society. Carter called his policies New Foundations. All of these were basically warmed-over New Deal policies to redistribute income to favored groups while granting more and more power to government, especially the executive branch. By now, it costs the American citizen more to comply with all the rules, laws, policies, requirements, standards, directives and whims coming from unelected government than he pays directly in taxes.

  • Johnathan Pearce

    I agree with JMC and others who stress the political, not economic, scale of the FDR achievement. He was a terrific morale-booster. His fireside chats, etc, all conveyed the idea, however, bogus, that he the ideas to set the US straight. And so he may have helped to strengthen the resilience of American democracy. But I have my doubts whether this achievement went all that far. Unemployment as a share of the total work-age population actually went up during the 30s and only came down when America entered WW2. Roosevelt presided over a massive expansion of the public sector, the tax code, and all the rest. And the central power of the Federal govt. was greatly increased.

    Roosevelt was smart enough to create his own myth and have people around him who would spread it as well. Hoover, his GOP opponent, was in some ways just as big a statist as Roosevelt, and his policies while Commerce Sec. during the 1920s played a part in creating the disaster of the Depression (Smoot-Hawley tarriff act being the killer blow). But Hoover was not good at portraying himself as a sympathetic guy.

    When I studed FDR for my O-levels at school we got the “good guy” hard sell on FDR and something very different on the likes of Harding, Coolidge and FDR. I wonder whether much has changed on school papers since. I probably doubt it.

  • Johnathan Pearce

    Sorry, my last paragraph should have read “something very different on the likes of Harding, Coolidge and Hoover”. doh.

  • Jacob

    “FDR gained his reputation for what he did, not what he said.”

    Not true. His undeniable popularity owes more to his powerful rhetoric which inspired confidence and optimism.
    What he did was a very mixed and poor assortment of measures, as Paul Marks detailed, and they didn’t help much (understatement) as the depression didn’t end at least until the start of WW2.
    All people stress his symbolic side – the “nothing to fear but fear” side – the pure rhetoric. While I won’t deny the importance of symbolism, I just pointed out that it wasn’t only a confidence-building rhetoric, it was a state power glorifying rhetoric, and as such – gained the applause of those who believe a-priori, ideologically, in state power – namely – the lefties.

    “The New Deal was created to save and strengthen liberal democracy in the US and not to enforce intrusive social democracy policies which is what it had be hijacked into doing by the Great Society programs and their ilk.”

    Hijacked ?? No.
    The “Great Society programs and their ilk” are a logical and ideological continuation of the principles first applied and popularized by FDR – namely: using coercive state power to try to cure all ills. They are therefore the direct children of FDR, and, in judging his legacy, we must include them in the balance. Of course, for lefties, this is one more reason to adore FDR.

    I’ll also admit that FDR was very popular, and therefore, not much of a dictator, and his disregard for some of the Constitution wasn’t worse than what many other Presidents did. As to the “threat of MacArthur to democracy” – I never heard of it before…. I don’t think there was such a threat, it seems pure leftist hyperbole; but I can’t claim any personal knowledge (like JMC) or expertise in the matter.

  • “The New Deal most definitely saved democracy in the US.”

    Precisely.

    Can you, then, see the dimensions of the disaster?

  • Paul Marks

    First I will deal with an attack that I expected to get (but did not) “you just want to cut wages” – I love the idea of real wages going up and greatly welcome the fact that real wages dramatically rose from the start of American history (remember, for most of that history unions were of little importance).

    My point (it is not really “my point” of course, it was standard political economy before the sillyness hit) is that at a time of bust a lot of people are going to have to have cuts in real wages (for awhile) in order to prevent mass unemployment (trying to keep up wages does not “keep up demand” it just tosses a lot of people on the street) – the 1921 experience shows how a bust should be dealt with (i.e. the government should keep its nose out).

    Want to prevent the bust itself? Then prevent the credit money boom – it is not the case that credit money expansion is needed for economic development. In fact efforts to fund investment (or fund consumption) by other means that real savings (i.e. people somewhere not consuming all their income) lead to nasty consequences (this is hardly original either – it was common place of economic thought even in the 1700′s).

    Now for some of the points I actually did get:

    Sigixald agrees that no State can make anything other gold or silver coin legal tender – but claims that the Congress can do so.

    The Congress has (under Article One, Section Eight) the power to “coin money” but it is not given the power to print money anywhere and this is not an accident – during the war with Britian the Continental Congress had printed a lot of “Continental” notes (hense the words that every school boy used to know “not worth a Continental”) – so the new Congress set up under the Constitution of the United States was not given the power to print money.

    “Ah but they could mint base metal coins” I suppose they could, if they are such a bunch of crooks that they are looking for any loophole to play games (which they most likely are).

    As for printing money (either directly or via the dodge of the 1913 Federal Reserve System) the Supreme Court actually ruled correctly on this the first time (odd for a court whose members are appointed by the government). Indeed the Chief Justice Salmon P. Chase actually declared (in the first “Greenback” case) that his own action in issuing paper money (as Treasury Secretary in war of 1861 to 1865) had been unconstitutional.

    Of course the government did add a few judges and run the issue again (the second Greenback case) and got the result they wanted (Salmon P. Chase dissenting), but the government did not rush to repeat its actions – indeed it was not till the Federal Reserve system dodge of 1913 that such actions became normal (although there was credit money expansion and booms and busts under the National Banking Act of the early 1860′s – which remained in force, indeed there had been credit money bubbles [supported either by first or second Bank of the United States or in informal ways] since the start of the Republic).

    “But the bust of 1929 was special – it led to the Great Depression”.

    Well BCN, K, and JMC – I said that, I also said WHY it led to the Great Depression.

    The interventionism of President Hoover and Congress was not “too little too late” it was the factor that turned the bust of 1929 (with the banking collapse – that had happened so many times in American history going right back to 1819 and indeed before) into the Great Depression.

    The support shown for F.D.R. by the above three writers is not supported by any evidence or argument indeed it could not be – because as well as being widely wrong headed the polices of the second President Roosevelt often contradicted themselves (one intervention to get people to grow more of a crop, another intervention to destroy some of the same crop – and so and so on).

    I oppose government interventionism, but even I admit that government can at least be consistent. But F.D.R. was not – one minute it was the N.I.R.A. trying to create cartels all over the place, then it was “antitrust” (just like his cos Teddy) trying to smash cartels.

    To claim that this Administration helped the economy is absurd (to put it mildly).

    As for “saved democracy” – well let us leave aside that the fact the United States is supposed to be a Constitutional Republic (not a democracy) anyway (after all President Bush makes the same mistake in almost every speech – as well as confusing democracy with “liberty” and talking of the “ideology of liberty” just after signing yet another crazy spending scheme).

    In 1932 General D.M. was not even on the ballot (there was talk of him running in 1952). True he had just broken up the “bonus march” (without killing a single person – rather unlike the fight the previous day when the police in D.C. had been in charge), but as for the Communists being a great threat in 1932 America – not in terms of elections (which may have frightened the “middle class” in Gemany although German politics was a lot more complicated than that).

    The real threat was two fold – via the influence of various forms of socialist in the universities and the media (although I may be compared to a Wisconsin Senator with a drink problem I am afraid there were quite a lot of Reds in Hollywood), and (of course) the threat of acts of violence. One of my favourate might-have-beens is the effort by that Dutch communist to shoot President Elect Roosevelt in Florida (he missed and killed the Mayor of Chicago).

    Not that this would have led to rule of “strongman” General D.M. of course – it would have led to Administration of President Jack Nance Garner (who might well have made a good President – i.e. the mass unemployment of 1932 would not still have been around in 1938).

    Even the Socialists only got 2% of the vote in the 1932 – and remember that F.D.R. ran on a platform that demanded tax and spending cuts.

    The American people were not in a collectivist mood in 1932 (the way they voted proves that, the collectivists got their arses handed to them at the polls – rather different from Germany). It was the ELITE who were collectivists (the “Brains Trust” and other such people) – it took years of “education” (via the radio and so on) to PARTLY convince the majority of the American people of their case (I say “partly” because although 60% of the voters supported F.D.R. in 1936 this was NOT a vote for the Brains Trust and the rest of the people who could not make up their minds whether they liked Fascist Italy or Stalin’s Russia best).

    I say again FOLLOWING POLICIES THAT HELD UP RECOVERY WAS NOT A GOOD THING.

    First it was Herbert Hoover (and Congress) who prevented recovery and then it was F.D.R.

    Undermining recovery is not “saving the economy”, “saving democracy” or saving anything else. More government regulations and government spending are not good for the economy, they are bad for the economy. Nor do they make unemployment lower than it otherwise would have been (have a look at Bastiat’s what is seen and what is unseen – or just the “Fallacy of the Broken Window”).

    Government support for labor union power, governent support for minimum wage laws – sound like policies to REDUCE unemployment?

    I do not think I will have any effect on BCN, K, or jmc – they produced no evidence and no arguments, but that does not really matter.

    What matters is their faith in F.D.R. and in government in general. A man has to believe in something.

    I can not really think badly about them having strong beliefs – after all I have some of my own. And whilst I am happy to use reasoned arguments and facts and stats to support my beliefs I doubt I would pass a lie detector test if I ever said “my beliefs are based upon these arguments” or “my beliefs are based upon these historical facts”.

    On Social Security: Yes Jacob, Otto Von Bismark (I think the Libertarian Alliance put some of my writings about him “on line”).

    Of course it was a very small program in F.D.R.’s day (came in 1935, tax in 1937), but it has grown like a cancer since (just as Medicare and Medicaid have – only five billion Dollars in 1965, HUNDRENDS OF BILLIONS of Dollars now).

    Can the “entitlement programs” (justified under the claim that the PURPOSE of the powers granted to Congress “the common defence and general welfare” is somehow a “general welfare power” in-its-self) not be rolled back (not even by gradual reform)?

    You may be right Jacob – but then the West (not just the United States) is finished.

    Oddly enough about the only good thing about President Hoover compared to President Roosevelt (other than personal honesty and other such) is that he opposed the entitlement type of program – nothing to do with creating the Depression or even keeping the economy depressed (although the tax of 1937 did not help things) – but an important difference in the long run.

    Unconstitutional actions?

    Simply have the Supreme Court declare them Constitutional.

    Even the case that Struck down the National Recovery Agency in 1935 (with all nice members of the Supreme Court declaring that Congress could not just hand over the power to make regulations with the force of law to some unelected agancy) was de facto reversed by World War II judgements.

    Indeed “interstate commerce” got mutated to cover any commerce at all “well you see, selling this means that the interstate price will be effected and ……”

    Of course the first shock was in 1933 – the confiscation of private gold and the voiding of gold clauses in private contracts (in direct violation of the Constitutional duty to uphold these contracts – not to be fraud that breaks them).

    As for the gold. Of course a Senator from Tennessee did say “but Mr President is that not stealing the money?” but the Supreme Court (including the four “reactionaries” on the Court) did not do a thing.

    There was a time when Americans (and British people to) would not have had to ask things like “is that not stealing the money”, and would have known what to do if a Court was too corrupt (or too gutless) to uphold their liberty.

    Perhaps it was “public” (government) education that made so many citizens submissive to government. After all that was the intention of the people who took the few government schools that existed in the 1820′s and slowly turned them into vast systems. H. Mann and the rest of them did not pretend that people who did not go to government schools could not read, write and do math, (it was not the casr in Britain either – see E.G. West’s “Education and the State” 1965) their aim was to make a new type of citizen – someone who would feel part of the government (not hold the government to be a group of people who like stealing other folks money and ordering them about).

    VERY SLOWLY (it is a long way from one room school houses under the control of tens of thousands of locally elected School Boards to the more distant Boards and the State and Federal funding of today) the reformers have PARTLY achieved their aim.

    The public are still not selfless citizens of the New Jerusalem (who make helping other, via the government, the purpose of their lives), but they are not battle of King’s Mountain types either. Many people rather like government regulations when they are convinced that they only hurt other people (particularly people they do not like) and they quite like government spending schemes (if they think they are going to get some of the money).

    And even when the public do not like some aspect of statism they tend to grumble but do not anything (in Britain this process happened long before the 1930′s). As for something being Constitutional – “that is for the courts to decide”.

    Jury nulification? “whats that?” (all the Founding Fathers, even Hamilton, knew). Presidents vetoing spending bills and regulations on the grounds they were unconsitutional “what?”

    David Crockett voting against earthquake relief on the ground that the Congress had no constitutional power to spend money on this? “Davy, he had a cute hat” or “he must have been a mean man who hated the poor earthquake victims”.

    No public education has not created the nation of saints (although of the Heaven on Earth variety) it was intended to – but it may have had an effect (as it has in in the rest of the West – as it was intended to).

    Still F.D.R. went to Groton (spelling) so I can not blame it for him.

  • “My main source for the threat of MacArthur to democracy, and most importantly it impact on exactly what FDR said and did during period 1932 – 1934 was not exactly unbiased but had the huge advantage of having actually being there at the center of the political maelstrom in D.C in the early 1930′s.”

    Well, it’s bloody nonsense. Let me point out to you that Roosevelt and many of the people around him were magpie gossips with all the constancy of oil and water. On page 417 of his love-letter, “The Crisis Of The Old Order”, Arthur Schlesinger, Jr. reports that Roosevelt tagged Huey Long as one of the two most dangerous men in the United States. He cites Tugwell — allegedly present to hear the remark — as asking who was the other one and reporting that Roosevelt answered, “Douglas MacArthur”.

    It should be instructive to note that Roosevelt summarily reappointed MacArthur as U.S. Army Chief of Staff in 1933.

  • Paul Marks

    Quite so Billy Beck.

    The “threat of MacArthur to democracy” indeed. The same sort of fellow traveller clap trap as the agit prop plays that were put on in the 1930′s showing MacArthur murdering people.

    Of course if he was such a “threat”, following policies that kept the economy from really recovering and prevented the ending of mass unemployment (which is what President Roosevelt did) is hardly “dealing with the threat”.

    As for Arthur Schlesinger Jr:

    The historian who tries to lump F.D.R. with Jefferson and Andrew Jackson – two Presidents who spent their time trying to reduce (rather than increase) the size and scope of government. With Jefferson getting rid of all internal taxation by the Federal government (not that he liked the taxes on imports either) and Andrew Jackson paying of the national debt, opposing government “internal improvement” projects and getting rid of the Central Bank.

    The historian’s “argument” being something on the lines of “rich businesmen and corporations benefitted from some of the government interventions that Jefferson and Jackson opposed, F.D.R. opposed rich businessmen and corporations therefore he is in their tradition”.

    Which is the same sort of thinking as “great heat hurts and great cold hurts – therefore great heat and great cold are the same thing”.

    Opposites become “part of the same tradition”

    Although it is a insult to the two men I am about to mention to lump them in with F.D.R. (because neither was bad or as inconsistant) it would make much more sense for the modern Democratic party to have a “Hamilton-Clay dinner” than a “Jefferson-Jackson” one.

    I forgot to reply to Guy Herbert’s point.

    Yes I accept that character matters in politics. And that some people like ordering other people about more than other people do.

    However, by “authoritarian personality” I was thinking of a specific smear job done against American conservatives by a Marxist (by the name of Andoro or something like that) just after World War II.

    No doubt this stuff is still being taught in universities. Just as Kinsey’s stuff on sex is still being cited (although he made up some of his stats, and got the rest from unrepresentative sources such as his friends and the inmates of prisons).

  • Jacob

    Why did FDR start Social Security ? Did it help the economy in any way, did it help end the depression ? Was it meant to ? Of course not. He adopted it because of ideological resons: because he believed that government should “help” people, by forceful intervention.

    Why do people like K (above) make statements like this: “It has only worked well for sixty years or so. “ ? Do they believe that government taking money by force from people during most of their lives and returning a small part of it when they are old is such a wonderful deal ?
    Or is it that they have no idea what Social Security actually does, but they somehow feel “it works well”, as it states in the law itself that it is meant to “help people”, and if it says so, it must be so….

    This is why FDR started SS, this is why people like it: ideology, not facts.

  • Jack Olson

    Jacob, FDR started Social Security, which nationalized the state old age relief programs already in place, to get older workers out of the work force at a time of high unemployment. Until recently, Social Security pensioners between 65 and 70 who were still working would have their benefits reduced by one dollar out of three, or out of two, depending on how much they earned.

    That has been repealed for those on full benefits but the earnings limitation still exists for those who take a partial benefit between 62 and full benefit age, the majority of pensioners.

    Similarly, the New Dealers introduced the federal minimum wage fully aware that this discouraged the employment of young, inexperienced workers trying to enter the work force. The effect was to take jobs away from workers below 21, who were too young to vote, to benefit those above 21, old enough to vote.

  • RKV

    Jacob, When evaluating Social Security, one must consider the alternatives.

    In this specific case, you can give your money to the government, with no legal claim of repayment of your contributions (court case already decided) and trust that your fellow citizens will work hard enough and long enough to pay you back (aka our current state).

    OR, you can save for your own retirement, take the market risk associated with investing and live with the consequences of your decisions regarding your assets.

    Given the internal rate of return on Social Security as an “investment” is so low (about 1% for a typical family of 4, and MUCH worse than that for a low income male) we would all be ahead if we put the money in a bank. http://www.heritage.org/Research/SocialSecurity/CDA98-01.cfm We would be much better off than that if we made long term investments in the stock market. Bottom line right hand corner, Social Security is unconstitutional, a bad investment and worse policy.

    So, for those of you touting FDR’s Social Security as a “great accomplishment” about all I can say is that you are clueless.

  • jmc

    You know, Paul, it is obvious that you have not spent too much time talking to people who have actually played the game inside the Beltway. If you had you would know that in politics perception is more important that facts, and when push comes to shove, politics and public sentiment trumps tidy economics theories and explanations every time. Happened in the 1920′s one way, then happened again the the 1930′s the other way. Maybe you are too young to remember the last time in happened back in the 80s’ under Regan.

    In fact your piece reminded me of a wonderful economic polemic written in the early 80′s called Greed is Not Enough by Lekackman. This book was a tightly argued demolition job of Reganomics. The theoretical economic arguments used were impeccable, the logic used was irrefutable, and the conclusions drawn were proved completely wrong by subsequent event. Because what the authour forgot is that at some point the nice tidy rational world of macroeconomics becomes the messy irrational world of political economics, which is often little more than post-facto rationalizations of events in a very large variable stochastic system. And you cannot get more stochastic than politics in D.C, especially during a crises..

    I found your reference to a President Garner very amusing. The idea itself is enough to bring a smile to the face of anyone with even a basic familiarity with Garner and his background. Unlike Chester Arthur I dont think he would have “found God” if he had become president. Quite the opposite, he would have picked up where ‘Wurrens’ boys had left off in ’23. A President Garners fate in 1936 would have been the same as President Arthur’s at the end of his first term, ignominious deselection as party candidate for president. After all, Garner was only on the ticket in ’32 as a sop to the southern Democrates who were still very sore about the Al Smith debacle in ’28.

  • K

    “I do not think I will have any effect on BCN, K, or jmc – they produced no evidence and no arguments, but that does not really matter.”

    To Paul Marks: Your remarks about me are subtle distortions. I don’t think you considered them well before lumping me with others.

    Where have I said that FDR saved democracy or fixed the economic troubles of the depression or that I support collectivism or socialism?

    What I did say is that FDR regarded the rise of dictatorships and authoritarian governments as more of a threat than economic problems. And that it was most important to frustrate that in America.

    To repeat: FDR was a political president and not overly interested in economics or world systems (e.g. such as Marxism.) He believed it tactically shrewd, that during the crisis of the times, the government should be activist enough to forestall extremes – left and right.

    (Today what was then seen as left or right is regarded more as a single movement for unlimited government.)

    Consistent? Not at all. FDR explicitly said he would try one thing or another and what failed should be discarded. But that he wasn’t going to not try.

    He also said government programs of the thirties should not be tenets of subsequent decades. But, like many words, those inconvenient ones are forgotten.

    You may have a quarrel with others about FDR and economics or whether he was a fascist, communist, evil or swell. I do not argue any of that., or that his was the best way or that he was a savior.

    End of remarks to Paul.

    FDR was pragmatic and sometimes devious (hardly a quality confined to the left). He thought the stresses of the time were too high to be ignored. Therefore activism was better than not. At another time he would have acted otherwise.

    Perhaps I should have written ‘skillfully used a somewhat cynical strategy’ rather than ‘did a great job’. It comes out about the same if you argue, as I do, that the great problem of the time was not the economy but fright.

    I’ll go along with Jack. The problem with the New Deal was that it never ended. Of course a useful action in 1937 might lead to disaster if continued and expanded until 2007. If roads were built as government is the Golden Gate would have been followed by a bridge to Hawaii.

    I look upon what followed the New Deal much as I regard our domestic automakers – their methods worked so well for so long that they ar almost impossible to change when they stop working.

    Are we babies? Did the bad teacher praise FDR? Courage, we can survive that! In my life Washington, once a saint, became a despised slave holder. Jefferson has fared worse and Lincoln gets his lumps.

    The only certainly is that each generation of a progressing society must think it has discovered truth and decency. Societies who believe it was all settled beforehand stagnate.

  • Paul Marks

    “Social Security” is a Ponzi scheme. The only thing in the “trust fund” is government I.O.U.s – there are no productive investments, and government is about last thing on Earth to be trusted with such things anyway.

    The “alternative” to social security: There are many, work, families, mutual aid (what used to be called “friendly societies” in Britain and in the United States “fraternities” – before this meant “group of drunk students”), private investments, pension funds …..

    In short civilization is the alternative to “social security”. Government can not put itself in the place of civilization – at least not for ever. Sooner or later the whole rotten, corrupt structure comes crushing down.

    And what happens to the old then – if all the real institutions of society (civil society – not government) have been allowed to decay?

    The real alternatives are either the reform of social security (trying to get the government confidence trick out of provision for old age) or waiting around for the system to collapse. The United States seems to have choosen (by default) option two – this is not a good thing.

    And (of course) with every passing year, the possible reform of social security becomes more expensive.

    Long term unsustainability is also true of the other “entitlement programs” such as Medicare and Medicaid. But then “in the long run we are all dead” (Lord Keynes – the classic “Beltway” thinker). The programs will have surved their purpose of making politicians look “compassionate”, so who cares about all the harm they do.

    Turning to other matters:

    Any discussion of the Great Depression is pointles without knowing what caused it – first the bust of the credit money bubble, and then the government measures that turned that bust (of which there had been many in American history) into the Great Depression.

    Reading (for example) Murry Rothbard’s “America’s great Depression” is of much more use for this task than learning “how things are done in the Beltway”.

    There is (of course) no such economic school of thought as “Reaganomics” (that was a term from politics and media land) and, therefore, there can be no refutation of this non existant school of economic thought. If you have come upon a refutation of (for example) the Austrian school of economics then let me know. I find that claimed “refutations” are rather thin on such things as knowledge of the works of economists of the school they claim to be refuting. For example, the media darling Paul Krugman (busy writing for the New York Times – just as Lord Keynes did) does not seem to have read a word of the “depression economics” he attacks.

    As for President Reagan, he did some things that were economically good, such as reduce top tax rates, and some things that were economically bad – such as increase defense spending (although there was a non economic justification for this).

    As for whether a “President Garner” had been relected in 1936 – this is of no interest to me.

    What matters is whether he would have carried on the interventionism of Herbert Hoover and F.D.R. – I doubt he would have done (although it is impossible to know).

    You see my concern is whether the government would have allowed the economy to recover and mass unemployment to end – or whether it would have continued to (unintentionally) sabotage things (as both Herber Hoover and Franklin Roosevelt did).

    As for Jack Nance Garner, I know well of his support for such things as the 1913 Income Tax (I was not claiming he was something special – just that he was not as bad as F.D.R., which is hardly a difficult thing to be) – perhaps he would have more content “west of the Pecos” (at least he always claimed to be).

    I seem to recall that (inspite of, or because of, drinking during Prohibition) Garner lived to his upper 90′s.

  • Paul Marks

    If K is saying that he opposes the economic actions of President Roosevelt then I formally apologize to him.

    I must confess that he is correct in his suspicions that I did not read his comment with care. I quickly looked at the 30 or so comments, a few names stuck in my old head as pro F.D.R. – so these names got used in my reply.

    Again I apologize for lumping someone with people he does not want to be lumped with.

  • Jacob

    K,
    To clear up some confusion: you did state above:
    “It has only worked well for sixty years or so. ” ?” (referring to Social Security)
    I understood this as an endorsement of SS. Maybe what you meant is: “It worked well for 60 years, but now it’s time to close it down….”
    You see, even a Ponzi scheme works well for a while… that being it’s main point… but this doesn’t make it any less of a fraud.

  • Vanya

    As someone above pointed out, the Golden Gate Bridge was not a New Deal project. In fact it’s a marvelous example of public/private cooperation.

  • K

    Paul: I was pro-FDR in the comments. I admire for personal steadiness in horrible times not his economic ideas. And big government is a plague – one that isn’t going to get better.

    Yet unless one advocates zero government it is logical to argue some levels (size, power, whatever you want to call it) are better than others.

    So my contention is that Roosevelt searched for the best level for the times. Anyone can say he did a crappy job in the search. And maybe so. Comparing where we were at his death tp where most other nations were I don’t see him as a devil.

    Mostly we are talking past each other. Your thrust is economic – employment levels, Ponzi Scheme, etc. My argument is that economics was not what he regarded as the big danger. And he therefore did not stick close to sound economics in dealing with it.

    He was hardly the guy who was going to say that. Alll sorts of spin was used to portrary his programs as sound economics.

    The other part of my comments about FDR is related to not jumping too far to a conclusion. Some said, more or less, that he was a dictator, a communist/socialist, an idiot who did precisely the wrong things. Those statements seem beyond good thought to me. Some thought Eisenhower a communist too.

    The remark about SS working sixty years? Well first the facts are on my side. The people got their checks. But that is evasion and not why SS critics condemn it.

    Ponzi schemes rely upon an endlessly growing supply of funds. The SS program relies upon enough funds; rather a different situation. The fund flow does not need to grow beyond possiblity.

    Even so, we are looking at SS disaster, one with several causes. First the government itself ‘borrowed’ the money at a low rate. The fund gets little investment income. And the withholding rate has been kept too low for political reasons. People are living too long. Much, much too long for the funds design. And the lowest paid get a ‘floor’ benefit far above contributions.

    I think privatization is best. Won’t happen. The operational phrase is ‘apres moi’.

    My analogy involving the Golden Gate Bridge was not very good. Also I mixed up roads and bridges – embarassing. I was referring to the very dangerous and human tendency to think what works today can be scaled to improve things even more, and forever.

    Government will grow like that if permitted, both in scale and power. Well, arsenic was an early treatment for syphilis but forever increasing the dose didn’t work out at all.

  • Jacob

    K,
    “Ponzi schemes rely upon an endlessly growing supply of funds.”
    And Social Security relies on an endless supply of babies, which, when reaching working age can be taxed to provide SS funds for the old, and the supply of babies has declined….

    You can always transfer money from the working people to the retired people, that is: have a “pay as you go” system, always balanced and sustainable. The trick is not to pay out more money than you get in taxes – then SS could “work” (without referring to the justice or fairness of it).

    But that is not what SS does – it promises defined benefits that are not sustainable, therefore it is a fraud, just like a Ponzi scheme. Did Roosevelt know that SS is a fraud ? He wasn’t dumb, he surely did, but – “apres moi…”

    I tend to agree that FDR did not care too much for the actual details of his plans (maybe he even did not know the details). Politicians are not engineer types, they deal in rhetoric, make-believe, PR, morale, speeches i.e. hot air. They leave implementation details to others. They don’t care if the depression actually ends or not, they only care for their popularity ratings.

  • Johnathan Pearce

    My argument is that economics was not what he regarded as the big danger. And he therefore did not stick close to sound economics in dealing with it.

    Unemployment went up, not down, during the 1930s. The New Deal was, as a group of measures to cut poverty and joblessness, a total failure. But it was a great political sense, apparently.

    Go figure.

  • K

    Jacob: SS does not rely upon an endless supply of babies, etc. The government can run SS honestly or deceptively. Nothing requires deception per se.

    About the babies. Consider this situation. A man grows rich and leaves his estate in trust. The instuctions are to give each child a pension of X amount at age 65. Until then the estate is invested. If the full pension cannot be prudently paid the trustee can reduce it as needed.

    What happens?

    Well, if the man has made a reasonable calculation and the trustees do their job then the pensions will be almost certainly be paid. No babies are involved. But if the trustees make unrealistic payouts or steal the money then the plan fails.

    Back to our SS. The SS ‘estate’ draws income from a employment tax and from investments. It pays out based upon government instructions.

    That employment tax could just as easily been a higher tax on gasoline. Babies need not be involved.

    By now you probably see why many decide SS is fraudulent. It is because the SS taxes paid are mistakenly regarded as a personal retirement fund.

    But SS taxes nothing of the sort. They are taxes pure and simple. And like all tax money it will be spent by the government and not the individual.

    What we really have with SS is governent taxing one group of people and giving the money to another.

    We could say exactly the same about foreign aid. But we do not say foreign aid is a Ponzi Scheme,. We say it is good policy or bad depending upon our opinion. And pretty damn foolish when we are in deficit.

    But telling the truth is not a good way to be elected. So politicans call SS an unbreakable promise now and forever. Utter nonsense. It is a tax.

    Ponzi was acting more or less as a credit union. Your investment with him was not a tax. It was your share of the institution.

    Ponzi simply sent back some of the money to investors and told them it was earnings, astonishingly high earnings. Naturally they invested more and he sent back more as ‘earnings’. Since the money he kept sending back was capital and not earnings Ponzi had to run out of captial. And that was not good.

    But Ponzi saw that sol long as enough new investment money was coming in he could cover up. The problem was that money must come in faster and faster… an endless process eventually requiring all the money in this universe and any others. Thus it was impossible.

    The law was/is pretty clear. Accepting investments for something that is impossible is illegal. (oh, Ponzi also had taken a lot of the money for himself, also illegal).

    Think again about SS and Ponzi. SS will always have only a finite payout. So it does not require inputs growing to infinity. It just requires enough.

    Ponzi’s activity was quite similar to Pyramid Plans and the two are often confused. Chain letters are one way of implementing a pyramid plan. I think the two may mathematicly be equivalent. It doesn’t matter all that much.

    SS is in trouble because of management not because of inherent defects.

  • Johnathan Pearce

    K has some interesting things to say about Social Security systems and the Ponzi pyramid selling scam, but it seems to me that in looking at this issue, one has to remember that taxing one set of folk in order to pay for the pensions of another group does require one to have a relatively stable proportion of working-age folk/retirees. Even a slight shift in that balance (caused by longevity shifts, falling/rising birthrates, etc) will shift that balance quite severely, and require one group to make quite a sharp adjustment vis a vis the other.

    To a certain extent, under a fully-funded pension system, the retirees are dependent on the vigour of an economy to ensure their investment funds keep on growing. One of the benefits of this, then, is that it might act as an incentive to encourage people to own shares and bonds, support pro-enterprise policies and views, etc.

    Great discussion about FDR, by the way. I have recently read a bit about him as a domestic politician and he is one of the most over-rated presidents of all time. I have a bit more time for him as a war leader, though, although he made serious errors and misread Stalin completely, much to Churchill’s despair at the time of Yalta.

    But that is a whole subject on its own.

  • “SS is in trouble because of management not because of inherent defects.”

    Social security is wrong because of the element of force.

    Do you understand? What’s wrong with you people? There is no point in sitting around discussing how to tweak an immoral thing in order to find ways to make it “work”. Stop it. Get to the root of thing thing and condemn it because it’s wrong.

  • Jacob

    “By now you probably see why many decide SS is fraudulent. It is because the SS taxes paid are mistakenly regarded as a personal retirement fund. ”

    They are not “mistakenly” regarded – they were justified by the plan’s authors as such – they said: “we are not taxing you, we are just taking your money to invest in your own retirement”. This is how SS was intodruced and justified. This is a BIG lie.

    This is also how we must judge Social Security. It is either/or: either we save our own money for our own retirement, or we have our money taken away by the state, and the state pays our pensions. Each individual must calculate which of the two plans plans gives a higer benefit. Each individual is a separate entity, and his money is HIS money, and the comparison is valid. By this comparison SS is akin to highway robbery – your money is robbed! (well, a great part thereof).

    As to the babies: in a “pay as you go” scheme (like SS), the money you collect in taxes from the babies is the money you hand over to the retired people. The more babies – the more money the oldies get ! The amount of benefits depends on the ratio workers/retired.
    When the birth rate hits the floor, and the retired refuse to die … there go the benefits….

    SS is a big fraud, in line with the postmodern belief that there are free lunches, and we can tax ourselfes into riches, and everybody can benefit at everyone else’s expense.
    There is no way for SS to produce higher pensions than what we could provide for ourselves. The only thing SS can do is: reduce pensions, or rob (sorry, I meant: tax) our money away.

  • Singapore has a defined-contribution pension scheme that is bound to the individual, but that the employer contributes. It has interest, can be diverted partly to blue chip investments, medical expenses and towards mortgages. In the process it gives the Government access to low interest funding for infrastructure projects.

    To me the issue is how on earth can the UK move towards such a system. The alternative is to be locked into a spiral of tragic proportions.

  • K

    Johnathan: Thanks for the calm tone of your last.

    The babies again! The plan as run may need more babies to keep going. As you saw I was saying that is a tactical matter not inherent in the plan itself. The needed revenue could come from mining minerals on Mars instead of PR taxes and provided it were enough revenue it would be enough. Periiod.

    Aside: Roosevelt should have left after two terms. He wasn’t the type to do that. Wilkie had a lot of ability and sense. By Yalta FDR was too ill and too old. What he would have seen through five years earlier is conjectural. Too bad.

    I’ll repy to Billy and Jacob later…

  • K

    Billy: Calling SS immoral is futile. Others will proclaim it the most moral of government actions.

    Yes, pols have lied about SS. So what? How is that different from lies about other government activities.

    Yes, SS is forced upon people. So what? How is that different from sales tax, real estate taxes, or income taxes? All those are paid only because force will be used if they are not paid. Force is used to imprision evaders. Any and all property can be sold to satisfy the state.

    You can be forced to move merely because some level of government wants your land. You can appeal and go to court about it. But no matter what you do the final decision is made by a government employee. Judges work for the government. If jury decsions are disliked they are negated.

    Yes, SS takes money from one and gives to another. So what? Foreign aid, farm subsidies, and a host of other programs transfer money from some to others. Each transfer will be vigorously defended as worthwhile and a good thing to do. So is SS.

    I see no reason why SS deserves some special ring in Hell. It is a government activity. It is run by taxes. Pols say what they believe it best to say, not what they believe is moral or honest.

    Einstein’s famous definition of insanity ‘doing the same things over and over and expecting a different result’. Well, all government uses force and does things people dislike. Expecting a different result is insanity.

    SS probably will not be fixed. Too many people aren’t going to give up one iota of ease, one vote, or one day in office. Too bad. But failure to maintain your car is not the car’s fault.

  • K

    Jacob: what I wrote to Johnathan and Bill are pretty much what I would say to your last.

    But you present false choices to support your views. The first is the ‘either/or’.

    Funding for retirement does not have to be ‘either/or’. It can be both. Millions of people have pensions from employers plus SS. Millions of others have used IRAs or similar tools to amass considerable wealth. And many have just saved and invested to reach a comfortable retirement.

    Second error. You argue against SS because it cannot match the pension level available with private investing. Maybe so. And it doesn’t matter, that is not the intent. It may be your desire but SS was never intended to match the payout from good private investing.

    You argue for the individual. ‘His money is HIS money’. Actually your money is what the government decides is your money. Government decides ownership of homes, properties, furniture, cars, and every thing else. They decide how much money you are to own by where they set the tax rate and what it applies to.

    About the endless parade of ‘babies’. I refer you to my reply to Johnathan. SS doesn’t need babies. It needs revenue. When there is enough there is enough no matter where it came from.

  • Jacob

    K, you are, generally, perfectly right. Government taxes us and wastes our money. Too true, lamentably. Pols lie. Also true. But surely we are permitted (yet), maybe even obliged, to point out those lies, and those dumb wastes, and speak out against it.

    “Each transfer will be vigorously defended as worthwhile and a good thing to do. So is SS. “ [by the lefties and the pols]

    Surely, and we will as vigorously oppose it. That’s what samizdata exists for.

    “Funding for retirement does not have to be ‘either/or’. It can be both.”
    Of course, you can do what you wish with the portion of your money the government permits you to retain. We aren’t arguing about that, we are arguing what is the best use of the money taken for SS and ostensibly used to fund your pension plan.

    “They decide how much money you are to own by where they set the tax rate and what it applies to.”

    Too true, lamentably. But still, in a relatively free society, we argue openly about which taxes are justified, and what use of tax money is acceptable, and try to influence decisions via parliament… etc. The SS tax is justified (by it’s supporters) claiming that it provides pensions. This is false. We sure must point that out, no matter how futile our protest might be.

  • Jacob

    [Government] ” It needs revenue. When there is enough there is enough no matter where it came from.”

    Oh, but there is never enough, and, as far as promised (by law) SS benefits are concerned – there is no way to get enough revenus for that.

    “no matter where it came from”
    No matter, no matter… but it comes from taxing the babies. There is no other source of government revenue.

  • “Calling SS immoral is futile.”

    It carries the virtue of truth, sir, and your coolly sophisticated resignation to something immoral is just revolting.

  • Jacob

    Returning to the main topic (FDR): if Social Security is FDR’s longest lasting and biggest “achievement” – judging by that I can conclude that he was a catastrophe.
    He deserves credit, though, for not weaseling out of WWII.

  • “He deserves credit, though, for not weaseling out of WWII.”

    He was only half-right.

    Patton was right all the way.

  • Paul Marks

    Patton and MacArthur were (in my opinion) the two outstanding American Generals of World War II.

    Patton was underestimated by people who thought he was all bluster and no brain (quite wrong).

    And MacArthur has been slandered and libeled for many decades, first with lies about how he defeated the bonus march in 1932, and then about the Philippines – and, worst of all, about Korea where very people who forbad him to bomb the Chinese airbases and transport lines (even bridges) blamed him for the Chinese push back of U.N. forces in Korea.

    On Social Security:

    I repeat what others have said.

    There are no “investments”, the only thing is the “trustfund” is government I.O.U.s – and government is the last group to be fit to invest people’s money even if they were trying to (which they are not – the scheme IS a fraud).

    On the Great Depression:

    The interventionism of Herbert Hoover and Congress did not cause the bust (that was caused by the credit money boom of the late 1920′s – which was the fault of the Fed), but they did turn the bust of 1929 into the Great Depression.

    First the interventionism of President Hoover and then the interventionsim of President Roosevelt prevented the economy from recovering.

    If President Hoover deserves no credit for keeping tens of millions of people unemployed then neither does President Roosevelt.

    Further President Roosevelt created such programs as Social Security which, whilst tiny in his day, has grown like a cancer to threaten the life of the Republic.

  • K

    It has been nice to be in a civil discussion with people who read carefully. I try to indicate who I am replying to and which statement.

    THe thrust of my remarks about SS has been to show why I cannot regard it as a moral evil of somewhat higher rank than other government acts. I do regard it as a problem that is getting worse.

    SS is so big it can totally wreck the national and probably the world economy. If it is allowed.

    So while this aging elephant grows senile and wrecks the village we, collectively, don’t tame, confine, or kill it. Perhaps harsh medicine would work, but, ‘oh, that is harsh, we can’t try that’.

    If there is a moral failure to the SS financial threat I think the failure may be ours.

    Blaming the long dead FDR seems a little sleezy to me.

    About MacArthur. My take. He was the supreme egotist. He believed a man could be perfect and he was to be the demo.

    Egotism is an odd trait because it refers to itself. The purist must believe in himself over all others. And confidence, determination, and talent often takes a person up fast. Mac went up fast.

    But the egotist’s belief in himself becomes belief in what he already believes. A very natural progression – your thoughts are best why not listen to them.

    Thus the arc of egotism is often early success and later failure. Staying to long near the top means the challenges change with the times. But the ego cannot because it is listening to what it already believes. It ‘knows’.

    For these new ills the egotist prescribes old potions.

    Now 1933. Mac was always so-so rich. And he liked nice things and places. He undoubtedly heard disgruntled old money men bitch about FDR and what coud stop the bastard. Mac may even have humored a few.

    But think about this: Mac figured he was going to the top anyway. His obvious virtues made it certain. He didn’t need no stinking coup. In 1936, or 40, or 44 – it didn’t really matter – he would be elected and fix whatever was wrong. It was ordained.

  • Jacob

    K
    Your interpretation of MacArthur is somewhat dubious. I don’t think there was even one man in the US who ever dreamt of a military coup. Why attribute to MacArthur such thoughts? It’s all the sick propaganda of lefties.

    MacArthur, after finishing his stint as Chief of staf of the Army in 1935, went to live in his beloved Philippines. A man harbouring political ambitions would stay in Washington…..

    MacArthur’s biggest achievement, by far, was governing Japan, giving it the splendid, democratic constitution it has, and putting it firmly on the path of success.

  • K

    Jacob: can’t you read? of course its dubious! you do the best you can at playing mind-reader. that’s my guess.

    futher. if my measure of his ego is right he wouldn’t have considered it because it would mar his persona and be demeaning to just grab power rather than be chosen.

    under my premise he would have thought anyone urging it was both a fool and traitor.

    i rather suspect he never actually heard enough – he wasn’t the guy to break his oath, he may have sensed feelers and just ignored them, scoffed, or joked, because he didn’t have enough evidence to turn the bums in.

    here is another way he might have worked. he was smart. if he sensed feelers about a coup a man of his intelligence would figure others had also been approached, aso a plot might actually be in progress. with so little evidence perhaps he awaited events that never happened.

    as far as ‘sick propaganda of lefties.’ unless you are an utter idiot you don’t see leftie propaganda in my writing. but after your last i will leave the idiot question open.

    very few facts are available about any thoughts of coup around that time. it is known that a cabal of rich men was at least exploring along those lines. i believe it actually led to a criminal indictment. but i’m too lazy to look it up – wikipedia undoubtedly covers it.

    and if my memory is right Mac was historically not even mentioned asa plotter. in fact i was rather astonished to see his name in the blog at all. but after wrapping up what i had to say about SS i thought i would toss in idle thougts about why Mac WOULDN’T.

    Mac probably would have known the plotters. two reasons. his taste for living well and knowing prominent people. and because any plotters would have to recruit him or somehow neutralize him.

    today most have forgotten the enormous prestige Mac had at the time. Not a soldier in America would have considered a coup without him in it. he was the sine qua non.

    but plotters, if any, would know nothing would work without Mac so they certainly would have tried to infer that ‘the big guy is with us’ when recruiting, even if he was not.

    Pershing was the other big Army guy. And I think he was still alive, retired, but very influential. He would never have plotted. And Mac was Pershing’s guy. Pershing had mentored him, moved him up, and Mac wouldn’t have made so serious a move against his advice.

    i have heard that Mac went to the Phillippines because he was caught in adultery traded a few years of quasi-exile for silence. Even today sexual misbehavior is absolutely career ending for senior military officers, and very serious for any rank.

    do i believe the sexual angle. no. it would have made too big a story. Mac’s father had been Governor of the Phillippines. And Mac has served there and liked it.

    if Mac wanted to be President such an offer was God sent. he could live luxuriously, avoid scrutiny, and stay in the newsreels training his stout little soldiers prior to their independence. talk about great PR.

    no. i think he was smart and had a big ego. he wasn’t inclined to be a traitor, would have thought it mad and unneeded anyway. an uncanny talent for administration served him well in the Phillippines and later in Japan.

    i think the Mac plot stuff may be spin from a novel ‘It Can’t Happen Here’ by Sinclair Lewis. the people in the novel and the plot are a lot like a coup led by Mac might have been. but it was a novel, fiction, not real, didn’t happen. get it!

  • Paul Marks

    K’s way of writing about General MacArthur is to say various nasty things about him – and then say he is simply pointing out what other people have said, and does not agree with them.

    If K. has not done so I would advise reading MacArthur’s autobiography (ghosted, as most such books are, but fully approved by MacArthur). This work is rather closer to the truth than the works K. says he has read.

    As for a “few rich men” talking against F.D.R.:

    F.D.R. was backed by some very rich men indeed (although others opposed him). As for the implication that only rich men supported defending the principles of the Republic, that is an insult to the poor and to people who were neither rich or poor.

    Most members of the Liberty League (to take just one example) were not rich.

    However, it is possible that the majority of rich people were hostile to F.D.R. and the majority of the non rich (to judge by the election of 1936) were not. So there is a point to what K. is implying – but not if one takes it too far.

    These days (oddly enough) most billionaires (as a percentage of the population about the same as millionaires in the 1930′s) are on the left politically.

    John Edwards (himself only a millionaire) had to be restrained in his class war tactics in 2004, because (it was pointed out to him) not only was Mrs Kerry in the billionaire class – but that there were many other billionaires (not just Mr Soros) connected to the Kerry camp.

  • doodaly doo

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  • doodaly doo

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  • Greg Newhouse

    In regard to gold, FDR, and his policies, a gold certificate stated that the treasury would redeem the certificate in gold. NO exceptions were made. For example, a $50 Gold Certificate stated: This certifies that there have been deposited in the treasury of The United States of America Fifty Dollars in gold coin payable to the bearer on demand. As I said, NO EXCEPTIONS WERE MADE IN THE STATEMENT ! To not redeem the note was a lie. Roosevelt`s administration was one made up of lies and repudiation. And who was FDR to think he had the right to steal the citizen`s property ? Even the Federal Reserve Notes of the time indicated that they were redeemable in gold or lawful money. FDR took gold away from the citizen and replaced it with near worthless paper. How the American public could elect and then re-elect him four times is beyond me. And how he is regarded as one of the greatest Presidents in our history is a travisty.