The New Deal -- Did it help or hurt the U.S.A.?

[Yonivore]

I'm bored with the race topic...it's become like the abortion argument in here. I think Jamtas#2 and I have reached an impasse and so, I'm ready to move on to another divisive and weighty topic.


How FDR Made the Depression Worse (http://www.mises.org/freemarket_detail.asp?control=258)


Yet after all this, the grand promise of an end to the suffering was never fulfilled. As the state sector drained the private sector, controlling it in alarming detail, the economy continued to wallow in depression. The combined impact of Herbert Hoover's and Roosevelt's interventions meant that the market was never allowed to correct itself. Far from having gotten us out of the Depression, FDR prolonged and deepened it, and brought unnecessary suffering to millions.

Even more tragic is the lasting legacy of Roosevelt. The commitment of both masses and elites to individualism, free markets, and limited government suffered a blow in the 1930s from which it has yet to recover fully. The theory of the mixed economy is still the dominant ideology backing government policy. In place of old beliefs about liberty, we have greater toleration of, and even positive demand for, collectivist schemes that promise social security, protection from the rigors of market competition, and something for nothing.

The Real Deal (http://www.aei.org/publications/pubID.26390,filter.all/pub_detail.asp)


The real question about the 1930s is not whether it is wrong to scrutinize the New Deal. Rather, the question is why it has taken us all so long.
***
My own sense is that there is a final reason we have all paused at the New Deal--a generational one. To insult the New Deal is to insult the Social Security that we, our parents, or grandparents receive. The Baby Boomers have a reputation as being selfish. But their reverence in regard to Social Security, not to mention Medicare Part D, is overly unselfish, and comes out of misplaced filial piety. Younger Baby Boomers and the generations after them will doubtless pay higher taxes because of our current unwillingness to criticize entitlements. Americans owe them as much as we owe senior citizens.
Two excellent articles on how FDR's New Deal was a disaster.

Discuss.

[ChumpDumper]

The AEI? :lmao After this Iraq debacle, I can't see how anyone would want to pimp those idiots.

FDR's New Deal kept the rabble from getting violent and radical. Good enough.

[Marcus Bryant]

FDR's New Deal kept the rabble from getting violent and radical. Good enough.

Yep. No doubt a pure economic analysis will find plenty of faults with the New Deal, but the context is what matters most. Without a quick redistribution to those at the bottom, the situation was ripe for a more radical overhaul of the American political economy. One could argue that wasn't enough; save for an assassin's barrage of bullets in the Louisiana state capital in 1935 we could have seen the emergence of a true American dictator.

[Extra Stout]

We take for granted in modern-day America that our government is a stable capitalist democracy.

In the early 1930's, that was by no means certain.

The outfall of the Panic of 1893 brought the government close enough to the brink as it was.

[BradLohaus]

FDR was a communist. Rexford Tugwell was his chief economic advisor from 1933 to 1945. In 1930 he wrote a book called American Economic Life. Here's a little something from that book:

"Communism is able to produce goods in greater quantities than capitalism, so as to spread such prosperity as there is over wider areas of the population. Yes, there may be a certain ruthlessness, a disregard for liberties and rights, but anyone interested in peace, prosperity, and progress must nevertheless imitate Russia and the Russians."

Yes folks, that man was the chief economic advisor to the president of our country for 12 crucial years. FDR and his advisors used the Great Depression as an excuse to increase the size of the federal government and its power over the economy, something people like them had wanted for a long time. The economy didn't even recover until WW2; without that event FDR's reputation would probably be in the mud where it belongs.

The reason that the Great Depression caused such massive unemployment and unrest for such a long period is because the financial meltdown caused at least one-third of the money supply to vanish. The cause of this meltdown, and the cause of all crashes, is the legalized fraud that is dressed up with the term fractional-reserve banking.

During the Depression people were willing to work. There was certainly work to be done. Tools, machines and industrial capacity and farms didn't just disappear. What was missing? Money. The best solution to the crisis would have been to turn the money printing presses on full blast and literally give money away until the price level was sufficiently increased; no structural changes of the federal government or economy were necessary, except of course to outlaw fractional reserve banking. Alas, the banking leaders would have assassinated FDR if he tried that simple and effective solution. There was no chance of that happening, though, because FDR was safely stored in their pockets, like so many presidents.

[Marcus Bryant]

Better the New Deal than "Share Our Wealth". Look it up.

[BradLohaus]

The fact that Huey Long was a utopian doesn't make the New Deal a good thing. Neither of their plans were necessary. All that happened was that cheap credit caused a huge credit bubble that popped and erased much of the money supply and personal savings. I have no idea why people think the best solution to that problem was to greatly increase the size of the government and its control over our personal economic decisions. All anybody needed at that time was some real money in their hands. I wonder why the Federal Reserve didn't give it to them.

[Marcus Bryant]

When someone is out of work, broke, and starving they don't have time for the economy to rebound. Multiply that by a factor of 50 million out of a nation of 120 million or whatever. The New Deal was a good thing compared to what else could have made it to Pennsylvania Avenue.

What happened was that the Fed failed to act as the lender of last resort and then Hoover pushed for price floors to help against the subsequent deflation during his administration which of course didn't help the market to clear, yadda yadda yadda. In any event, the economy doesn't operate in a vacuum. Politiically it could have been a lot worse than FDR's New Deal.

[PixelPusher]

The best solution to the crisis would have been to turn the money printing presses on full blast and literally give money away until the price level was sufficiently increased; no structural changes of the federal government or economy were necessary, except of course to outlaw fractional reserve banking.
I guessing you aren't being literal about "just printing extra money and giving it away" but I'll ask anyway...wouldn't that have just cause inflation?

[gtownspur]

When someone is out of work, broke, and starving they don't have time for the economy to rebound. Multiply that by a factor of 50 million out of a nation of 120 million or whatever. The New Deal was a good thing compared to what else could have made it to Pennsylvania Avenue.

What happened was that the Fed failed to act as the lender of last resort and then Hoover pushed for price floors to help against the subsequent deflation during his administration which of course didn't help the market to clear, yadda yadda yadda. In any event, the economy doesn't operate in a vacuum. Politiically it could have been a lot worse than FDR's New Deal.


WWII

[BradLohaus]

I guessing you aren't being literal about "just printing extra money and giving it away" but I'll ask anyway...wouldn't that have just cause inflation?

Yes I am being literal, and yes it would have caused inflation. Inflation is a good thing when there is massive deflation because there is not nearly enough money in the economy.

Printing money and just giving it away is exactly what federal deposit insurance is for, and it was created after the great depression. If a bank fails the FDIC will replace all of the depositors funds. Why didn't the government, or more precisely the Fed since they control the money supply, not do that during the depression?

The money didn't even really exist anyway, it was just entries in banks' ledgers. When the stock market crashed it caused rampant bankruptcies as people and business defaulted on their loans. As the banks wrote these loans off the money they leant out of thin air in the first place disappeared, and they became insolvent, and the people who deposited their money in these banks lost it all. Flooding the economy with printed money would have stopped the deflationary spiral. The best way to do that is to give it straight to the consumer - the people who just lost their deposits. They will spend it and businesses will produce and hire.

It's not like printing free money will solve every problem. It is often a bad idea. But when a third of the money supply vanishes almost over night, then printing free money to replace at least most of that credit money that disappeared will solve alot of problems.


What happened was that the Fed failed to act as the lender of last resort

True, but why didn't they? They can do whatever they want with the money supply. Because they didn't know any better? If they had flooded the economy with printed Fed notes that replaced the money the depositors just lost the crisis would have been alot shorter. But then the government expansion and increased control of the economy wouldn't have been necessary. I'm not saying it was all on purpose, but things sure worked out really well for the Fed and the federal government and not very well for everyone else.

[Extra Stout]

It was Hoover's Fed that slashed the money supply, not FDR's. Hoover also raised taxes between 1929 and 1932, which was galactically stupid.

We also had the Smoot-Hawley Tariff Act of 1930 which, following international reprisals, caused a 75% decline in world trade.

All these factors caused the Depression to be much more severe than it otherwise would have been. The absolute nadir was 1932. FDR didn't take office until 1933.

The events of the early 1930's probably looked very much to the casual observer like Marx's predicted implosion of capitalism.

[BradLohaus]

It was Hoover's Fed that slashed the money supply, not FDR's.

The one-third reduction in the money supply that I was talking about was when the loan defaulting took place after the crash in '29 and so much credit money was wiped off banks' books.


We also had the Smoot-Hawley Tariff Act of 1930 which, following international reprisals, caused a 75% decline in world trade.

Yes, that played a role in exacerbating the problem because it took away alot of markets for people to sell to, contributing to the defaults. But I think it gets too much of the blame. It did make things somewhat worse, but it wasn't part of the core problem. People who view free trade as always perfect love to bash Smoot-Hawley, but I'm not accusing you are anybody of that. Your point is valid.


All these factors caused the Depression to be much more severe than it otherwise would have been. The absolute nadir was 1932. FDR didn't take office until 1933.

True, all of the blame for the cause of the Depression lies at the feet of the Federal Reserve. And as I have said in other threads, they now admit this. But, FDR's solutions were unnecessary and opportunistic with respect to his and his advisors' view of what the federal government should look like - bigger and more powerful.


The events of the early 1930's probably looked very much to the casual observer like Marx's predicted implosion of capitalism.

Probably, but they actually reaveal the inevitable implosions of fractional reserve banking, a practice that is actually antithetical to true competitive capitalism.