Taxes & Spending

Does Obama Have Any Idea Why New Deal Failed?

The Great Depression dominated the 1930s, in large part because President Franklin D. Roosevelt’s New Deal programs failed to create jobs.  In May 1939, shortly after learning that unemployment stood at 20.7%, Henry Morgenthau, the secretary of the Treasury, exploded:  “We have tried spending money.  We are spending more than we have ever spent before and it does not work.”  Morgenthau concluded, “I say after eight years of this administration we have just as much unemployment as when we started.  . . .  And an enormous debt to boot!”
 
Why did Roosevelt’s New Deal fail so miserably?  The larger problem is that federal spending can’t create jobs.  It merely transfers wealth from taxpayers to central planners.  But worse than that, most of FDR’s New Deal was driven by politics.  It was economically unsound.
 
Take the National Recovery Act (NRA), for example, which was FDR’s program for industry.  The NRA set the prices of thousands of products.  Merchants who gave discounts to customers were subject to fines and imprisonment.  For example, the fixed price to press a pair of pants was 40 cents.  Jacob Maged of Jersey City, N.J., gave a 5-cent discount because his shop was far from the main shopping area.  He needed to give discounts to attract customers and stay in business.  “You can’t tell me how to run my business,” Maged insisted.  Yes, they could, Maged discovered when he went to jail for charging his customers a nickel less.  Neither FDR nor any of his New Dealers, however, could clearly explain why jailing merchants for giving discounts created jobs or made American industry more competitive.
 
FDR also supported the Agricultural Adjustment Act (AAA) for farmers.  Granted, farmers suffered from low prices, but the AAA solution was preposterous—pay farmers not to produce on up to one-fourth of their land.  Farmers would get instant cash, and also, because less land was being cultivated, prices for crops would go up.  But of course those rising prices would make it harder for city dwellers to put food on the table.  The farmer’s gain was the city dweller’s loss, and the AAA may have destroyed more jobs than it created.
 
Many New Deal programs were pure politics—targeting federal money to lure specific voting groups into the Democratic Party.  For example, Social Security taxes, FDR confessed, “were never a problem of economics.  They are politics all the way through.”  Tie older voters to the Democratic Party. 
 
In a similar vein, FDR funded the Works Progress Administration (WPA) with $4.8 billion to build roads, bridges and other infrastructure projects.  But he targeted most of the road-building to favored Democratic congressmen.  James Doherty, a New Hampshire Democrat, agreed with the President:  “It is my personal belief,” Doherty announced, “that to the victor belongs the spoils and that Democrats should be holding most of these [WPA] positions.”  After FDR and the Democrats trounced the Republicans in the 1936 presidential election, Sen. Carter Glass of Virginia said, “The 1936 elections would have been much closer had my party not had a four billion, eight hundred million dollar relief bill as campaign fodder.”
 
Republican Sen. Hiram Johnson of California, who voted for FDR in 1936, nonetheless agreed with Glass.  He described FDR as going around the country saying, “I will allot a few million dollars to this particular place, and a few million dollars to some other.”  Johnson concluded, “He starts with probably 8 million votes bought.  The other side has to buy them one by one, and they cannot hope to match his money.”
 
Who paid for FDR’s federal campaign fund?  The taxpayers.  FDR gained revenue from taxes on cigarettes, alcohol, telephone calls, telegrams, cars, tires and bank checks.  He also increased taxes on corporations and incomes.  In 1932, the year FDR was elected, only one in 20 American families paid the income tax and the top rate was 25%.  By FDR’s death in 1945, almost two in three American families paid income taxes and the top rate was 94% on all income over $200,000. 
 
No wonder the Great Depression persisted.  Entrepreneurs and businessmen had no incentives to create businesses or expand existing ones.
 
President Obama publicly admires and tries to emulate FDR.  And Obama is experiencing two of FDR’s problems: expensive new programs that don’t work, and discouraged entrepreneurs who are saddled with much of the bill for taxes and new regulations.

Sign Up
  • Christopher Paul Condon

    Fine article by Folsom. But there is one big difference between FDR and Obama. When FDR entered the White House, he was able to tap a large amount of wealth accumulated over a long period of time to finance his schemes. When Obama entered the White House, all that wealth was pretty much tapped out. There is no more ice cream at the bottom of the dish. That’s why Obama, who thinks he  is going to go down in history as another FDR, will wind up as another Gorbachev.

  • Rocco11

    Maybe I’m missing something, but what gives anybody the impression Obama is remotely interested in solving the problem?  As an anti-colonialist, confiscatory socialist, I imagine he’s disappointed gas isn’t $8 a gallon, and unemployment isn’t 13%, but as he indicated with single-payer healthcare, “it may take 20 years, but we’ll get there.”

  • Duncan Jones

    We’ll have our own version of Planet of the Apes, except we “liberal” humans will prevail.  In fact, we’ll confiscate your wealth and give it to PETA. We will use whatever level of coercion is required.

  • Duncan Jones

    I didn’t realize Any Rand was so popular among gorillas.  LOL.  By the way, I suppose you count yourself among the “productive” people!  LOL!  You’re nothing but a bitter, superannuated has-been who can’t accept his/its own irrelevance.  You’re most likely a social security and Medicare sucking parasite yourself, and are merely projecting your justified feelings of inferiority onto your betters.  

  • Duncan Jones

    Yes.  WWII was a classic case of Keynesian demand-pull in operation.  

  • Duncan Jones

    Bull.

  • Duncan Jones

    BS.

  • Leroy_Whitby

    The Democrats have always been like this about Roosevelt. The Marxist propaganda was so complete I didn’t know the details of Roosevelt’s failure until the internet. We didn’t used to be able to just search for unemployment rates across time. Remember when we would have to go to a library and often request interlibrary loan on a book that MIGHT have the information

  • http://pulse.yahoo.com/_VJQMCEZVOMFGKC3AE4SJJHMW6Y J

    If we really want to avoid repeating the mistakes of the New Deal, we must reverse the
    New Deal Supreme Court’s elimination of the Constitution’s restraints on federal
    power.  The original constitutional
    meanings have been so misconstrued and abused by over 70 years of progressive
    control of the Supreme Court and other branches of the federal government that
    simple legislative action is not enough. 
    We need to promote amendments to the Constitution to restore its
    original meaning and structure.

    The first step is to put through
    an amendment to the amendment process itself which will eliminate the
    unnecessary convention now required by Article V and permit States to directly
    initiate amendment proposals.  This will
    break the current de facto federal congressional and judicial monopoly on
    interpreting the Constitution, and permit grassroots patriots on the state
    level to restore the Constitution’s original meaning by amendment.  Only this will permanently constrain the current and future
    federal overreach rejected by the people last year. See http://www.timelyrenewed.com

     

  • Leroy_Whitby

    WWII was  a command economy with severe rationing and deprivation.  Eventually that would have deteriorated into a recognized failure as all command economies do. All command economies end up with lines and rationing to limit the goods available to the public, since not enough is produced and the price mechanism is destroyed by government . . . and the WWII economy had that completely. Car tires, eggs, meat, clothes, everything was rationed.

    http://www.ameshistoricalsociety.org/exhibits/events/rationing.htm

    The real trick was after the full employment of the command economy, Truman cut spending massively, cut the deficit massively, and cut taxes when the war ended and the wartime spending ended. As always, with those policies the economy boomed and we had the idylllic 50′s.

    Here is the take of an economist writing in the Wall Street Journal on the subject. http://online.wsj.com/article/SB10001424053111903554904576458413656841844.html

    Here is another take:

    He neglects to mention that during the five years from 1945 to 1949, federal spending dropped by 58% and taxes fell by 12%. Meanwhile, the budget deficit fell by 66% in 1946 and was in surplus from 1947 to 1949. In other words, although we did not pay down our nominal debt in the decade after the war, we did succeed in massively shrinking government and the burden that it places on society.

    http://www.lewrockwell.com/schiff/schiff85.1.html

  • http://pulse.yahoo.com/_3JKYECDK63I2B3CFZHKW2VRAAA Richard

    You already do with the chief Ape in the WH and his marxist re-distributive policies.

  • http://pulse.yahoo.com/_3JKYECDK63I2B3CFZHKW2VRAAA Richard

    You can not argue with a fool….just slap ‘em silly. At least you’ll feel better….it worked for me.

  • http://pulse.yahoo.com/_3JKYECDK63I2B3CFZHKW2VRAAA Richard

    I believe self-reliance and self-sufficiency were the “coin of the realm” from the nation’s founding until FDR’s New Deal and subsequently LBJ’s Great Society.
    Shameless are the American Grifters.  How can someone appreciate something they didn’t earn with their own hard work?  “If you want something, you HAVE to work for it.”  Dad never got tired of saying that to us kids in the 40′s and 50′s….besides telling us, “NEVER vote for a democrat.”  He was very wise for a man who never got past sixth grade.  He was over brimming with common sense.

  • Paulmtmorris

    Obama knows gov spending doesn’t work. His is doing it to destroy the semi-free market economy.

  • John David Galt

    What you mean “we,” paleface?  I never voted for any of it.  Let those who did pay the piper.

  • John1966

    What kind of totalitarian tyrant would support a 94% tax rate?  Heck, any time the government takes a larger share of your earnings than you do, that makes you, by definition, a slave of the government.

  • Michael T Lyster

    The war took MILLIONS of unemployed men out of the labor market and sent them to war. Oh, and it killed 500,000 of them, while reducing birth rates dramatically. 
    At the end of WW2, half the industrial production capacity in the WORLD was in the US; partly because everyone else’s was destroyed. We proceeded to rebuild the European continent; those who had been in debt had erased them, as incomes during the war were necessarily devoted to savings or debt amelioration given the limited consumer options and rationing.Your economic analogy fails. 

  • RenegadeScholar

    The truth is difficult to handle, ain’t it?

  • RenegadeScholar

    The “nuanced,” “intellectual” left shows its stuff!

  • RenegadeScholar

    If there is ANY argument to be made that WWII “helped the economy,” (and the evidence against that is OVERWHELMING), then it would be that the government created jobs by BUYING MANUFACTURED THINGS like tanks, airplanes, and artillery from the PRIVATE SECTOR

    It was NOT by ladling out tax money to public sector unions and hiring public employees at twice the price of private sector employees. It was not with imaginary “Green Jobs” that all turn out to be money pits where the “stimulus” goes to green CEOs and then disappears.

  • Food Urchin

    The author has no idea what he is talking about; it worries me that he is a professor at a liberal arts college. I see also a frantic publishing record that is cashing in on Tea Party simple mindedness. Well done on that account, I suppose.  Alas, the partisan hackery runs chin-deep through the trough of the commentary, as well. You people would do well by reading something that didn’t tell you what you already thought you knew, which is very little. 

  • flmom0f4

    Interesting counter factual argument you have there. 

  • WranglerRob

    No world war on the horizon?  Surely you have not noticed Islamic colonization of Europe and the Americas?  How about the UN’s insane pending vote to establish an autonomous “Palestinian” state in Israel with Jerusalem as its capitol?  If it will take a world war to pull us out of Obama’s and his Marxist cronies’ efforts to destroy the US economy, relax.  There is a war right around the corner.

  • WranglerRob

    Great insight!  We have lots of jobs.  The “American Farmer” reported over 10 years ago that farmers were being forced to purchase newer higher tech equipment NOT to avoid hiring help BUT because there is not enough help to hire.  We have planted the seeds of our own declining work ethic when government benefits pay more than one can earn in agriculture.  I have worked with many cowboys – they are the most highly skilled and lowest paid workers in the USA.  They don’t work for money – they work for their love of the land and the work.  Can’t say that I have met very many urbanites who love their work as much.

  • WranglerRob

    Electric cattle prods work well, too.  Wakes’em up right up.  You don’t feel better, you just did what was necessary to move the herd.

  • WranglerRob

    Yer being too nice.  Marxist is the word that describes his goals and politics.  Remember Michelle said she had never been proud of America before her husband was nominated to run for president.  He was an “urban organizer” and attended a Liberation Theology church.  The guy is a communist who hates America.

    His goal, and the goal of his core supporters, is the destruction of the United States. Just like Ronald Reagan bankrupted the Soviet Union, they are bankrupting the US to bring us down.

    I think he should be tried for treason. Wonder how we can do that without getting Biden as POTUS. Sigh – such a pithy problem. We can solve it in 2012!

  • WranglerRob

    The government became a consumer of American industrial output.  Businesses suddenly had a customer and were able to hire, manufacture, and sell.  There is a big difference between paying a civil servant to move widgets on a board versus paying an industrialist to manufacture weapons and munitions.

    Then, as the war ended, we softened the blow of putting millions into the job market with the GI Bill so over a 4-6 year period veterans went to trade schools and colleges.  They prepared to be productive citizens.

    Also at the end of the war, government spending was reduced.  This freed up capital for business and entrepreneurs responded with jobs.

    The government (gummit) does not create jobs or wealth, it just rearranges them.

  • WranglerRob

    A tip of the cowboy hat to you for a brilliant and concise assessment.  Now how to get the voters to understand.  Cowboy wisdom says “good judgement is the result of a lot of bad judgement.”  So I hope the average American has seen enough of Obama’s and Democratz socialism/Marxism to vote him/them out.

    Oh, yeah, and classical economic theory indicates we will have trouble regaining jobs in the US until the US workers realize they have to be competitive with Asian workers.

    The whistling sound you hear is the sound of our wages dropping. Only an ignoramus, or a union member, thinks the Gummit can keep their wages up.

  • flmom0f4
  • John David Galt

    Its a sad fact that “increased” consumer demand, is largely going to mean more jobs for asian exporters..

    Nothing sad about that at all.  The entire world deserves to be as rich as we, and it’s an eco-nut myth that the earth can’t sustain everybody doing so.  In fact, rich countries are the ones who clean up their air and water, protect their wildlife, and even reduce their birth rates.  Those things become much lower priorities when you’re not getting enough to eat.

    The reasons poor countries can out-compete us are over-regulation here, and simple greed on the part of union workers in rich countries.  If it stays that way, maybe you and I both should consider moving to some up-and-coming land with a lower cost of living.

  • John David Galt

    Federalist #41, #44, and #45 tell us perfectly well what the “necessary and proper” and “general welfare” clauses mean, and what is and is not “interstate commerce.”  The 8 “justices” who don’t follow them are liars and oath-breakers and need to be impeached yesterday.

  • Michael T Lyster

    Yes., but: if only all those tanks and battleships had been SOLAR and WIND powered, and the uniforms made out of recycled bottles (sprinkled with Pixie dust), we wouldn’t be in the fix we’re in now!
    Oh, and they should have killed all the conservatives.  Because Global Warming, and extreme right wing Tea Party. Or something.

  • Michael T Lyster

    It worries me that you’re allowed outside alone without a nurse. And that they allow you to use a computer without supervision.
    I love the ‘Tea Party simple mindedness’ slap.  And WE are the narrow, simple minded ones?  Most people that I know who support the principles of the Tea Party are either business owners, self employed, or are retired business owners.  Your implied ‘toothless trailer trash’ slam is inaccurate, but reflects the elitist dismissal of any dissenting thought by the Progressive mind.CS Lewis once said (close as I can remember), “The most Progressive individual is the one who, realizing he has gone too far down the wrong road, is the first to turn back to where he came from”.

    You, and the other Progressive mastodons continue to wallow into the tar pits, too emotionally attached to your wrongheadedness to admit error. Keep wading in there, big guy: we’ll just wait here until your tired, monolithic worldview follows its predecessors into extinction. 

  • http://twitter.com/lexalexander Lex Alexander

    “Professor” Folsom is deeply, seriously, misguided. From an economic standpoint, World War II was just the New Deal on steroids. Once we did ENOUGH of it, it worked; when we tried to retrench in 1937 — as the Tea Party would have us do again today — things got bad again.

    Federal taxes are at their lowest level in 60 years, regulations have been slashed and burned in every Republican administration in the past 30 years, and yet the problem is taxes and regulation? Corporations are sitting on $2 trillion in cash. They are not refusing to create jobs because of taxes, regulations or “uncertainty” about either. They are refusing to create jobs because they believe, correctly, that no one will buy the goods/services those jobs would produce.And why is that? Because 1) right now, OFFICIALLY, one in six Americans is un- or under-employed (the real figure is probably higher) and 2) household debt as a percentage of GDP is 50% higher than it was just 15 years ago. People don’t feel economically secure, and when they don’t feel economically secure, they don’t spend. This is not rocket science. Human Events should be ashamed to give a platform to frauds like Folsom.

  • billwhit1357

    The Son of a Whore has no idea why the New Deal failed because he never studied American History.  They didn’t teach it at the schools he attended in the Islamic lands he lived during his formable years.  They also taught him nothing about Honor, Integrity, and Dignity, and it shows he has none.  Obama is a Snake in the Grass, not to ever be trusted.  His days are numbered, that is for sure!

  • phlyphisher

    Perhaps you might explain what your purpose is here despensing your brand of hackery as you bump your chin in the “trough of the commentary”. Perhaps you are but  a denizen of the shallow end, puffing yourself up and chortling about what you think others know or don’t know, eh? It certainly appears that way.

  • http://pulse.yahoo.com/_BLHIVPD5P45CYOF4HFO475AJIA gorio

    Perhaps this country’s job market has been distorted by the introduction of 12million low skill but hard working illegals.   If they were not here the burger flippers would make a living wage because the market would reflect the lack of workers, yes burgers would cost more but competition and inovation would rule.
    There wouldn’t be the 11 million extra houses and unemployment would be very low even in recessions.  To bad the average American doesn’t appreciate the opportunity here, very few of my asian immigrant friends have NOT done well here, and with little formal education.  The “entitlement” mentality being sold so well by the democrats will be the reason our children are going to be the economic slaves of future foreign governments.