LM#51--Evaluating the FDR's Economic Policies: New Deal or Raw Deal?

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Those are the drums of liberty.

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Those are the drums of economic liberty.

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In this case, our question of the day did FDR's economic policies of the New Deal help Americans get back on their feet, or were the drums of liberty silenced for eight long years?

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Let's answer that on today's Liberty Minute.

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Welcome to the Theory to Action podcast, where we examine the timeless treasures of wisdom from the great books in less time to help you take action immediately and ultimately to create and lead a flourishing life.

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Now here's your host, david Kaiser life.

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Now here's your host, david Kaiser.

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Hello, I am David and welcome back to another Liberty Minute.

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Today we are answering that most pivotal of questions.

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Did FDR's economic policies coming from the New Deal help revitalize the economy and get America moving again In 1932, 1933, 1934,?

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Was the country back on its feet by 1934 or 1936, or 38 or 40?

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After these economic reforms were implemented?

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After all, if you attended government classrooms, we were all taught this was the American story.

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Fdr's New Deal policies came in and helped get the country moving again.

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We had the quaint pictures in all of our history books of these New Deal programs People getting back to work.

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That's what helped end the Great Depression.

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But is it true?

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Is that the real story?

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Is that the real history?

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Or have we been taught that history from a very slanted point of view?

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Or have we been taught that history from a very slanted point of view?

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Have we been taught that history from, say, like we talked about the last couple weeks, from the crazy uncle or the crazy aunt at the family reunion who's always telling us outlandish stories about our family roots and our family heritage and we're always quizzically looking at our parents going?

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Is that true?

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Well, let's find out.

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First, let's find out through what is the conventional history, what is the liberals take on this history, and then we will actually I'll probably give you my own thoughts as we work through this, as I'm looking at my outline, and then we will get a wholesale conservative take from our book of the day, which is the new deal, or a raw deal by Bert Folsom how FDR is economic legacy has damaged America.

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So now let's pivot and we will go through the 10 points that conventional historians say about the new deal and its significance, its long-term effects on the US economy and the reshaping of the role of government and establishing new economic safeguards that we have been living with since 1932.

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The first conventional wisdom about the New Deal programs is that it expanded the role of the federal government, and that absolutely did.

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The New Deal fundamentally altered the relationship between the federal government and the economy.

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It marked a shift from dual federalism, which we had before the New Deal, to cooperative federalism where the roles of state and national governments became less clearly defined.

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This expanded federal government's role in economic affairs, which has persisted to the day, and with the government taking a much more active part in regulating the economy and providing social services.

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And, like I said, my response yep, absolutely.

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The government certainly has expanded its role and its authority since the New Deal in 1932.

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Not sure if that benefit is to most Americans to have a bigger, more invasive government.

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Though it has helped many people, one can certainly argue that it also has created much more dependency.

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The second fact of the New Deal is the creation of social safety nets.

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Conventional wisdom says it's one of the most enduring legacies of the New Deal is the establishment of the social safety nets.

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Social Security Act of 1935 created a system of old age pensions and unemployment insurance which continues to be the cornerstone of American social policy.

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These programs have had lasting impact on reducing poverty among the elderly and providing a buffer against economic downturns.

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My response absolutely.

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Social Security has helped millions of Americans over the years.

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Now I'm not sure it'll be around for my generation or future generations down the line, but and that's a shame because we've been paying into it all of our lives, shame because we've been paying into it all of our lives.

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But Social Security has had an enduring legacy and there's no doubt about that.

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Now it's interesting to note in 1981, the beginning of the Reagan administration, galveston County and two other Texas counties opted out of Social Security and entered into another retirement plan.

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Benefits for these Texas counties had clearly exceeded those under the regular Social Security system by 1996, these retirement benefits for county employees were significantly higher than what they would have received from Social Security.

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And, as is common with our government, congress closed that loophole for local governments to opt out of Social Security in 1983.

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And legislation raised taxes and effectively reduced benefits by increasing the eligible retirement age after um for social security.

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And that happened in 2015.

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Most people don't know that, but that's a good, uh interesting side note to this whole question of government providing social services.

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Number three the new deal, programs and the conventional wisdom labor rights and protections.

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Oh, the New Deal will tell you.

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They introduced significant labor reforms that continue to shape the American workplace.

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The Fair Labor Standards Act established minimum wage and maximum work hours, while the National Labor Relations Board protected workers' rights to unionize and engage in collective bargaining.

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These reforms have had lasting effects on labor management relations and worker protections?

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My response is yes.

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For a long time they were probably needed.

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Union membership was a big deal in the country at the time.

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Now the largest union shops are the National Education Association, the NEA with over 3 million members, it's the largest union in the United States Represents public school employees, teachers, education support professionals, cafeteria workers, bus drivers, guidance counselors, nurses, admin assistants, secretaries, psychologists and librarians.

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The second largest union is the SEIU Service Employees International Union.

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They have roughly 1.9 million members.

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International Union they have roughly 1.9 million members.

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It's a diverse group of workers registered nurses, professional, technical and non-professional health care workers, public employees and janitorial and security employees.

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And then, lastly, we have the American Federation of State, county and Municipal Employees, with about 1.4 million members.

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That represents employees of state, county and municipal employees.

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With about 1.4 million members, that represents employees of state, county and municipal governments.

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It's the largest trade union of public workers in the United States.

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Now, these unions play significant roles in advocating for workers' rights, negotiating collective bargaining agreements and influencing labor policies in the United States.

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Now, it's interesting to note that now, in 2024, our two or three largest unions represents teachers and government.

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Is this needed?

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Are teachers and government workers being exploited?

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Hmm, do our government classrooms actually work anymore, or do they simply indoctrinate?

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It's a compelling question in 2024.

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Certainly something to explore later on.

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For sure, certainly, since the 1960s, no one can argue that our public education system has gotten any better.

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In fact, it is steadily declined, and thus the reason for a huge expansion of private schools and homeschooling over the last several decades.

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Now, moving on to our next of the New Deal reforms in the conventional history and what liberal historians tell us is how great the FDR years were and how FDR improved America during the Great Depression is these financial sector reforms?

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Conventional wisdom will tell us that the creation of the Federal Deposit Insurance Corporation and the Securities and Exchange Commission the FDIC and SEC respectively they helped to restore confidence in the banking system, the stock market at the time.

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These institutions continue to play crucial roles in maintaining financial stability and protecting investors.

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They certainly help to prevent economic crisis to the scale of the Great Depression.

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Now, my response is okay.

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The FDIC and the SEC were most likely needed to ensure and restore confidence in the banking system and the stock market at the time.

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We can say that the FDIC suffered a huge setback in the 1980s and ended up having to and the taxpayers ended up having to pick up an estimated $800 billion in bailouts.

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Now, is that the fault of the Roosevelt administration or is that the fault of a lack of oversight of Congress and not FDR's initial rollout of this legislation.

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That blame should go to Congress because these programs are so big and so vast that they should have been restrained and improved as we went along.

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Now the fifth development from the New Deal is infrastructure.

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Boy, they just beat you over the head in the government classrooms about how great these New Deal programs like the Works in Progress Administration, the WPA and the Civilian Conservation Corps the CCC led to significant improvements in national infrastructure.

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The WPA they alone were responsible for over 650,000 miles of roads and they built 125,000 public buildings and 75,000 bridges.

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And the conventional wisdom will say this infrastructure development had long-term positive effects on the economy and economic productivity and growth.

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Boy, is that exhausting to hear that alphabet soup of all those programs.

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And we certainly learned about it in our high school books.

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You had that quaint picture of the WPA, the old guys working on the road.

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That's how we got all these roads built.

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And the WPA and the CCC?

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Yes, they probably were somewhat effective, putting the country back to work.

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But did putting those people back to work actually get us out of the depression?

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We're going to tackle that later on.

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So more to come on that.

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Agricultural policy is the next big development where the conventional wisdom says these new deal agricultural programs, while they're controversial, they actually admit that now.

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It established a precedent for government involvement in the agricultural markets.

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This involvement, in various forms, has continued to be a feature of US agricultural policy.

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And my response is oh, wait, wait.

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Why would New Deal agricultural programs be controversial?

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Hmm, now the AAA farm subsidy program began and has persisted since the 1930s and these farm subsidies have cost billions, with a B of dollars, with no real benefit to the country.

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That's easily examined.

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That's why they say they're controversial.

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Now Our seventh big deal or new deal program is it actually said there was a shift in political alignments?

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The conventional wisdom says the new deal led to significant realignment in American politics, with many groups, including African Americans, shifting their support to the Democratic Party.

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This realignment, political realignment, had long-lasting effects on our American electoral politics and policy priorities?

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Absolutely Certainly did.

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While it's not an economic lever that FDR played, this was far more important as a political lever that he brought over these groups, especially African Americans and the New Deal coalition, in 1932.

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And then he further deepened their dependency in 1936, 1940, and 1944.

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By then, african Americans were well within the Democratic Party and were not going to move away.

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The eighth conventional wisdom is the New Deal brought economic stabilization.

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The conventional wisdom says, while the New Deal did not end the Great Depression on its own per se, it established mechanisms for economic stabilization that have been used in subsequent economic crises.

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This concept of using government spending to stimulate the economy during downturns, the fiscal policy, became a standard tool of economic management.

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And my response is ah, now we're getting somewhere.

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Even conventional historians are now just saying that well, maybe, just maybe, fdr's economic programs didn't end the Great Depression per se, but they did establish these wonderful mechanisms to help presidents in later economic crises.

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Yes, in fact, we will see how those responses, these bad responses, in fact hurt more Americans than they helped.

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Now just two more of FDR's economic New Deal concepts.

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Number nine it increased economic regulation.

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The conventional wisdom says the New Deal ushered in an era of increased economic regulation, particularly in the financial sector.

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This regulatory approach, while modified over time, has remained a key feature in the US economic system.

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My response yes, indeed, tons of economic regulation that would put a stranglehold on the US economic system for decades and decades.

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And finally, it changed Americans' expectations of government, expectations of government.

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Perhaps the most fundamental New Deal change is how Americans now have expectations of their federal government's role in ensuring economic security and responding to these economic crises.

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This shift in perspective has influenced policy debates and decisions in the decades since, and my response is absolutely.

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Fdr certainly changed Americans' expectations of their federal government role in American citizens' life, and one important fact to remember about these eight years from 1932 to 1940, and FDR's eight long, long years until the end of his second term and we got into World War II.

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If there's one thing you take away from this whole episode is unemployment remained high for all eight years of his presidency, or for all eight years of that those first two terms, residency or for all eight years of that, those first two terms.

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That's one of the great myths is that everyone says unemployment came down and when you look at the facts, it did not.

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And we'll get into greater deal uh, greater detail uh, later in this podcast.

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It's one of the great myths of the great depression that it put a lot of people back to work and the unemployment rate went down.

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It did not.

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Now let's go to our book, the New Deal or Raw Deal, by Burson Folsom, and let's grab our first poll quote Under the WPA, that is, the Works Progress Administration, roosevelt wanted to encourage those on relief to work on newly created government jobs quote to preserve their self-respect, their self-reliance and encourage and their courage and their determination.

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The WPA was funded under the Emergency Relief Appropriation Act of 1935, which dispensed over $4.8 billion with a B, the largest appropriation of its kind in US history.

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The switch from direct relief, the FARA, to work relief under the WPA would seem to be an advance.

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After all, doing a job brings dignity, purpose and a sense of improving life to the world around you.

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However, many WPA jobs were make-work projects that accomplished little.

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Critics called the WPA we piddle around.

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The word boondoggle was often applied to WPA projects.

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Defenders of the WPA point to the many roads built, the 2,500 hospitals, the 5,900 school buildings, the 1,000 airports or landing strips as part of a strong, strong legacy of the program.

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Some of these projects were well done and construction was completed in an efficient manner.

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That's a valid point.

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Other projects merely duplicated existing facilities and were so poorly constructed they had to be rebuilt almost immediately.

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Of the make-work projects, reporter Frank Kent of the Baltimore Sun studied the WPA in action and wrote, quote boondoggling is on a gigantic scale and it's about to begin again.

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Millions are being spent giving piano lessons to children of those on relief.

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Millions more will pay 7,000 men to write a guidebook of America.

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Pay 7,000 men to write a guide book of America.

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A disgusted Congressman was here the other day telling of discovering seven men in an automobile going around his district counting caterpillars, counting caterpillars.

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All right, and here's the kicker.

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Check this out, listen closely.

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Economist Henry Haslett, who wrote for news week and the New York Times during the 1930s, argued the WPA destroyed as many jobs as it created.

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Quote every dollar of government spending must be raised through a dollar of taxation, hazlitt emphasized.

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Hazlitt emphasized If the WPA builds a $10 million bridge, for example, the bridge has to be paid for out of taxes.

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Therefore, hazlitt observed, for every public job created by the bridge project, a private job has been destroyed somewhere else.

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We can see the men employed on the bridge, we can watch them work.

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The employment argument of the government spenders becomes vivid and probably for most people, convincing.

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But there are other things that we do not see because at last they have never been permitted to come into existence.

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They are the jobs destroyed by the 10 million taken from the taxpayers by the 10 million taken from the taxpayers.

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All that has happened at best is that there have been a diversion of jobs because of the project.

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Later on we read the inefficiency and the uselessness of many WPA projects was a serious problem.

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But a greater problem was the increased politicization of relief under the WPA.

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And boy did things get political with the WPA.

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Harry Hopkins, the right-hand man to FDR, would suggest this or that public works project in a district, only to see which politician would come calling Key Democratic leaders ponied up to the government trough.

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And that happened repeatedly and often.

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Check out the book for more details.

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But let's finally answer our original question If FDR's New Deal programs didn't end the Great Depression, what in fact did then?

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Let's go back to the book.

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If Roosevelt's New Deal programs didn't break the Great Depression, then what did Most Americans have?

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Argued that America's entry into World War II was the key event that ended it into World War II was the key event that ended it.

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Federal spending drastically increased as 12 million US soldiers went to war and millions more mobilized in the factories to make war material.

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As a result, unemployment plummeted.

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And so the argument goes, the Great Depression receded.

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And that's where economists and historians then break from each other on answering this question.

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Economists say the war ended the great depression and historians say fdr's policies did.

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Going back to the book, economist henry haslett, who wrote for the new york times during the roosevelt years, observed no man burns down his own house on the theory that the need to rebuild it will stimulate his energies.

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And yet has historians and others viewed World War II?

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They see almost endless benefits and enormous acts of destruction.

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They tell us how much better off economically we all are in war than in peace.

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They see quote miracles of production which it requires a war to achieve.

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Thus, in Hazlitt's argument, the United States merely shifted capital from private markets, where it could have made consumer goods, to armament factories, where it made tanks, bombs, planes for temporary use during war.

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Along these lines, economic economist Robert Higgs has observed unemployment virtually disappeared, as conscription directly and indirectly pulled more than 12 million potential workers into the armed forces and millions of others into draft-exempt employment.

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But under the prevailing conditions the disappearance of unemployment can hardly be interpreted as a valid index of economic prosperity.

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A supporting point for this idea is that real private investment and real personal consumption sharply declined during the war.

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Stock market prices, for example, in 1944 were still below those of 1939 in real dollars.

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And furthermore, here's two more persuasive points staying in the book.

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And furthermore, here's two more persuasive points staying in the book.

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First, many leading industrialists of the 1930s openly explained how the president's efforts to tax and regulate were stifling the nation's economic expansion.

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For example, lamont DuPont, who revolutionized the textile industry in the 1940s with the invention of nylon, was one of the many businessmen who complained about Roosevelt's policies.

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Uncertainty rules the tax situation, the labor situation, the monetary situation and practically every legal condition under which industry must operate.

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Legal condition under which industry must operate, dupont protested in 1937.

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Are new restrictions to be placed on capital, new limits on profits?

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It is impossible to even guess at the answers.

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And secondly, other nations recovered from the Great Depression more quickly than the United States did.

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During the late 1930s the League of Nations collected statistics from the United States and from many other nations on industrial recovery.

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Much of that data supports the idea that Roosevelt's New Deal created economic uncertainty and was in fact uniquely unsuccessful as a recovery program.

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The table below we can see some of the aftermath of the depression.

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Within a depression in 1937, when the stock market lost one-third of its value.

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During late 1938, the United States had some recovery, but in 1939, a recovery happened again and then lagged.

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By May of 1939, unemployment again reached 20%.

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Industrial production had fallen by about 10% for the first time for the first of the year, and Henry Morgenthau confessed quote we are spending more than we ever have spent before, and it does not work.

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Did you catch that, henry Morgenthau saying we are spending more than we ever have spent before and it does not work?

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The dude was the secretary of the treasury, and this is in 1939.

00:28:13.884 --> 00:28:21.539
And he doesn't know what to do after eight years of being the head of the economic team for the white house.

00:28:21.539 --> 00:28:26.221
Whoa, and here's your number one nugget of wisdom.

00:28:26.221 --> 00:28:27.164
Let's go back to the book.

00:28:29.037 --> 00:28:42.125
Some historians trying to defend Roosevelt point out that unemployment in the United States slightly dropped each year from 1933 to 1937, which suggests some progress in fighting the Depression.

00:28:42.125 --> 00:29:00.782
Unemployment was 25.2% in 1933 when Roosevelt started, 22% in 1934, 20.3% in 1935, 17% in 1936, and 14.3% in 1937.

00:29:00.782 --> 00:29:14.535
That 14.3%, however, is alarmingly high and outside of the 1930s was only exceeded for a brief period in all of American history, during the Panic of 1893.

00:29:14.535 --> 00:29:27.214
What's worse, the business uncertainty during Roosevelt's second term stifled that modest recovery of his first term, that modest recovery of his first term.

00:29:27.214 --> 00:29:38.788
To be fair, if we describe the downward movement of unemployment during Roosevelt's first term, we must present the steady upward movement of unemployment during most of his second term.

00:29:38.788 --> 00:30:00.522
Unemployment was 15% in September of 1936, 15.1% in January 1937, 17.4% in January 1938, 18.7% in January 1939, and 20.7% in April of 1939.

00:30:00.522 --> 00:30:15.087
Thus, more than six years after Roosevelt took office and almost 10 years after the stock market crash of 1929, unemployment topped the 20% mark again.

00:30:16.368 --> 00:30:28.153
The League of Nations study, which tried to explain the poor performance of the US economy, cited the quote uneasy relations between business and the Roosevelt administration.

00:30:28.153 --> 00:30:37.257
As Yale economist Irving Fisher bluntly wrote.

00:30:37.257 --> 00:30:38.239
Roosevelt quote you have also delayed recovery.

00:30:38.239 --> 00:30:41.445
Roosevelt took office in March of 39 or 38.

00:30:41.445 --> 00:30:49.914
Excuse me, roosevelt took office in March of 1933.

00:30:49.914 --> 00:30:55.916
And these liberal historians say he was winning on unemployment as it was going down.

00:30:55.916 --> 00:31:02.423
And yet his second term, unemployment increased over and over again over the next four years.

00:31:02.423 --> 00:31:16.861
We were no better off in 1933 as we were in the 1940s and 1940, rather, and when that unemployment reached again 20.7%.

00:31:16.861 --> 00:31:26.804
And then, finally, let's look at everything objectively, and before we end, let me just say this Thank you to Bert Folsom for writing this book.

00:31:26.804 --> 00:31:28.637
It's, frankly, just tremendous.

00:31:28.637 --> 00:31:49.145
This should lead scholars and economists and historians to finally get the truth out about what actually happened in FDR's first, second and third terms and how we can learn on what government should and should not be doing in major crises.

00:31:50.888 --> 00:31:51.730
Let's go back to the book.

00:31:51.730 --> 00:31:58.875
Why was the performance of the US economy, especially relative to other nations, so miserable?

00:31:58.875 --> 00:32:07.891
What were some of the ingredients in America's unique regime uncertainty?

00:32:07.891 --> 00:32:11.003
The first place to start is tax policy.

00:32:11.003 --> 00:32:23.551
One reason that the United States lagged behind other countries in recovery from the Great Depression is that the Roosevelt administration strongly emphasized raising revenue by excise taxes.

00:32:23.551 --> 00:32:25.175
Raising revenue by excise taxes.

00:32:25.175 --> 00:32:33.701
According to another League of Nations study, the US increased its revenue from excise taxes more rapidly than did any of the other nine nations surveyed.

00:32:33.701 --> 00:32:41.728
Britain and France, for example, decreased their dependency on excise taxes from 1929 and 1938.

00:32:41.728 --> 00:32:47.432
Japan, germany, italy and Hungary did increase their excise revenues, but only slightly.

00:32:47.432 --> 00:33:15.690
The United States, however, had a whopping 328% are due to substantial increases in the rate of duty the study concluded.

00:33:15.690 --> 00:33:24.907
Since these taxes fall heavier on lower incomes, they may have contributed to the poorer rate of recovery from the Great Depression by the United States.

00:33:24.907 --> 00:33:27.479
They have contributed to the poorer rate of recovery from the Great Depression by the United States.

00:33:27.499 --> 00:33:31.224
Other tax problems contributed to regime uncertainty.

00:33:31.224 --> 00:33:33.147
Corporate taxes went up.

00:33:33.147 --> 00:33:34.390
The estate tax went up.

00:33:34.390 --> 00:33:39.357
It was increased to a top rate of 70%.

00:33:39.357 --> 00:33:44.308
The United States alone among nations, passed an undistributed profits tax.

00:33:44.308 --> 00:33:48.976
An undistributed profits tax.

00:33:48.976 --> 00:33:57.390
Businessmen watched the top rate of the federal income tax increase from 24 to 63 percent in 1932 under Hoover and then to 79 percent in 1935 under Roosevelt.

00:33:57.390 --> 00:34:04.247
The president regularly castigated businessmen and threatened to raise rates further.

00:34:04.247 --> 00:34:07.093
Businessmen and threatened to raise rates further.

00:34:07.093 --> 00:34:13.568
On April 27, 1942, roosevelt issued an executive order that would tax all personal income over $25,000 at 100%.

00:34:13.568 --> 00:34:21.067
100% All excise income, the president argued, should go to win the war.

00:34:21.067 --> 00:34:33.135
Furthermore, roosevelt's use of the IRS to prosecute wealthy Americans, especially Republicans, created incentives for businessmen to shift their investments into areas of lesser taxation.

00:34:33.135 --> 00:34:42.722
All of this created regime uncertainty and the Great Depression persisted throughout the 1930s.

00:34:42.722 --> 00:34:51.884
As we have seen in the League of Nations study, in 1929, the United States had the lowest level of unemployment of any of the 16 nations surveyed.

00:34:51.884 --> 00:35:04.487
The US dropped to eighth place by 1932, 11th place in 1937, and then 13th place in 1938.

00:35:04.487 --> 00:35:07.291
So there's your answer.

00:35:07.291 --> 00:35:15.255
Roosevelt just prolonged our climbing out of the Great Depression and our recovery.

00:35:15.255 --> 00:35:16.255
The data is there.

00:35:16.295 --> 00:35:27.644
This book is a fantastic tour de force on rebutting the rubbish that we've heard for the last 80 plus years in government classrooms.

00:35:27.644 --> 00:35:58.865
So in today's Liberty Minute, when people throw out that same rubbish that to handle another economic crisis, we should handle it the same way we handled the Great Depression you have to shout oh, no way, we can't do that, just like I'm sure most of you will now say in the future, if we have to have another pandemic and someone insists we need to handle the next pandemic the same way we handled COVID-19, oh, hell to the no.

00:35:58.865 --> 00:36:01.983
We have to learn from our mistakes.

00:36:01.983 --> 00:36:04.934
We cannot keep making these same mistakes.

00:36:04.934 --> 00:36:16.824
So to save our country from the absolute horror of going through another Great Depression and even the Great Recession of 2008 and 2009, which was handled poorly, we have to push back.

00:36:17.023 --> 00:36:19.815
As a country, we have to say no to all this rubbish.

00:36:19.815 --> 00:36:26.168
More government spending, more and higher taxes, more regulation is not the answer.

00:36:26.168 --> 00:36:29.384
History is now teaching us what really happened.

00:36:29.384 --> 00:36:35.007
Don't let liberal historians give you the same conventional wisdom and liberal talking points.

00:36:35.007 --> 00:36:36.900
It's all rubbish.

00:36:36.900 --> 00:36:38.565
We have the data.

00:36:38.565 --> 00:36:46.650
Americans in 1932 elected a man to give them a new deal and instead they got a raw deal.

00:36:46.650 --> 00:36:53.164
Americans got a raw deal in 1932, 1936, and 1940.

00:36:53.164 --> 00:36:59.378
Hopefully we will learn from history and keep our economic liberty next time.

00:37:04.467 --> 00:37:05.688
Thank you for joining us.

00:37:05.688 --> 00:37:09.065
We hope you enjoyed this Theory to Action podcast.

00:37:09.065 --> 00:37:18.244
Be sure to check out our show page at teammojoacademycom, where we have everything we discussed in this podcast, as well as other great resources.

00:37:18.244 --> 00:37:22.105
Until next time, keep getting your mojo on.

LM#51--Evaluating the FDR's Economic Policies: New Deal or Raw Deal?

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