The New Bad Deal

In 1939, ten years after the crash on Wall Street, the Secretary of the Treasury, Henry Morgenthau, Jr., told the House Ways and Means Committee:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong...somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises...I say after eight years of this administration we have just as much unemployment as when we started...And an enormous debt to boot!"

Does history repeat itself? Yes, it does. And there is every appearance that the White House and the Congress intends to repeat many of the errors of the last Depression that came to be known as Franklin Delano Roosevelt's New Deal.

With exquisite timing, after ten years of research, professor of history, Burton Folsom, Jr. has published "New Deal or Raw Deal? How FDR's Economic Legacy has Damaged America" ($27.00, Threshold Editions).

To get an idea of just how bad the U.S. economy was during the 1930's, Folsom notes that, even though the U.S. had budget surpluses in 1930 and 1931, government spending "ballooned and far outstripped revenue from taxes." It was the Wall Street Crash of 1929 that precipitated the Depression, but it was FDR's "solutions" that deepened and lengthened it, actually preventing any solution.

FDR was an enormously popular President in his day. His photo could be found everywhere in people's homes and apartment, in barbershops, in businesses, and just about anywhere people gathered, but he not only did not solve the nation's economic problems, he made them worse with the help of a Congress that by 1936 was totally dominated by the Democrat Party in ways that exceeded any previous party for 150 years.

The similarities with President Obama include Obama's youth and lack of experience to occupy the Oval Office. He arrived with a very slim resume and not even a single completed term as a Senator. What he knows and believes about the conduct of business in America is anyone's guess.

As Prof. Folsom points out, "In part, his family's wealth immunized him from having to learn how business worked or how to earn money." He had been a mediocre student, getting by with a C average. Though he did not finish law school, he did pass the bar exam, but he showed little talent or interest in the practice of law. Oliver Wendell Holmes later observed of Roosevelt that he had "a second class intellect. But a first-class temperament."

It was his sunny and apparently endless optimism that buoyed up a nation that listen to his radio "fireside chats" and speeches. He was always convinced that whatever new program the New Dealers tried was bound to turn the economy around. Not only did they not achieve this, they saddled generations of Americans with programs like Social Security and poured money into states and areas for solely political, not economic, purposes.

FDR was Governor of New York when the Wall Street Crash precipitated the Depression. Prof. Folsom identified several factors that led up to it. The First World War (U.S. participation from 1917-1918) had been a financial and social catastrophe that drove up the national debt from $1.3 to $24 billion in just three years. Ten billion loaned to European nations during the war largely went unpaid after the conflict.

The Smoot-Hawley Tariff Act, debated and passed during 1929 and 1930, instituted the highest tariffs ever, intended to protect U.S. industries by taxing 3,218 imported items. It enraged Europe, the nation's greatest trading partner at the time. "Our exports, therefore, dropped from $7 billion in 1929 to $2.5 billion in 1932" and, with them, went the jobs of Americans.

"The third cause of the Great Depression," writes Prof. Folsom, "was the poor performance of the Federal Reserve...In practice, the Fed had raised interest rates four times, from 3.5 to 6 percent, during 1928 and 1929. This made it harder for businessmen to borrow money to invest, which hindered economic growth." In addition, the Fed let hundreds of banks fail rather than lending them money to continue operating.

In the same way President Obama spoke of "spreading the money around" as his economic plan to keep Americans prosperous, FDR spoke of a "more equitable distribution of the national income." Giving money to people who don't even pay taxes is an example of this.

Roosevelt and his "brain trust" of academics, most of whom had never met a payroll in their lives, really put the nation's economy on the skids with their National Industrial Recovery Act in 1933. "It allowed American industrialists to collaborate to set the prices of their products, and even the wages and hours that went into making them." The competition in the marketplace ceased and one could actually be sent to jail for offering a product or service for less than the fixed amount.

The NRA and the Agricultural Adjustment Act both had what are commonly called "unintended consequences", another way of saying that were the worst possible solutions because they imposed a centralized planning structure that involved the vast expansion of the federal government to oversee their requirements. Paying farmers not to plant crops, a practice that exists to this day, was one of the more idiotic aspects of the AAA.

If this current recession is ever to be ended, massive spending programs that are largely political in nature, have to be avoided. Isolating the bad debt acquired by banks, loan companies, and others like the insurance giant, AIG, has to be the top priority.

It is not likely to happen. President Obama, combining the same charm and lack of business acumen as FDR, is likely to pursue the same course of action as he did; he will use the present crisis to build up support for the Democrat Party through various forms of patronage. Employment by various government agencies is likely to expand.

FDR's popularity was conditional during his first two terms in office. The American public knew he and Congress were not ending the Depression. Today, polls clearly indicate that the American public considers wants the economy strengthened. The Pew Research Center for the People & the Press recently released the findings of a national survey that revealed that the economy and jobs are the top priority; higher than at any point in the past decade.

Thus, spending millions or billions to construct "more than 3,000 miles of transmission lines to convey this (solar and wind) new energy from coast to coast" repeats the errors of the past. Solar and wind represent barely one percent of the electricity generated or needed nationwide. The solar and wind farms are always located far from the major urban centers that require megawatts of electricity, currently provided primarily by coal and nuclear power. How much better and wiser it would be to update the current electrical grid and to build plants closer to where they are needed than to waste money on just this one project?

Politics, the pursuit of power, and a distrust of capitalism will likely force a new generation of Americans to repeat what those in the 1930s experienced for no good reason.