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December 21, 2007

The Forgotten Man

Readings in the Age of Empire

by Doug Bandow

Amity Shlaes, The Forgotten Man: A New History of the Great Depression (New York: Harper Collins, 2007), 464 pp.

Franklin Delano Roosevelt has two principal legacies: the New Deal and World War II. The latter would have occurred even had he never been elected president, though America might not have intervened in the conflict, or had it done so, might have focused on Europe while avoiding war with Japan.

The New Deal, however, was entirely Roosevelt's creation. And, as Amity Shlaes demonstrates in her spritely written The Forgotten Man, the Roosevelt program was deeply flawed, actually lengthening America's economic downturn while dramatically expanding government power and undermining constitutional governance. As such, the New Deal continues to malform American politics today.

There is a "standard history of the Great Depression," writes Shlaes, a long-time newspaper editor and columnist. Greed in the 1920s led to economic collapse. Herbert Hoover failed by opposing necessary government action. Roosevelt saved America, and capitalism, by engaging in massive federal spending, intrusive government regulation, and national social engineering. This standard history, along with the usual conservative rebuttal, is largely inaccurate, argues Shlaes.

The title, The Forgotten Man, stems from William Graham Sumner's essay by the same name, citing the man, C, who always pays and suffers as a result of the efforts of A and B to help X. In Sumner's words, C was "the man who never is thought of" even as he is conscripted in the grand reform schemes of others.

Roosevelt picked up on the rhetoric of the forgotten man, but applied it to those he believed required government aid. Which was pretty much everyone.

Shlaes explores the early history of the Roosevelt years, offering an important perspective ignored by more traditional historians. The first "reality," as Shlaes calls it, "was that the 1920s was a great decade of true economic gains, a period whose strong positive aspects have been obscured by the troubles that followed."

Although the stock market crash is identified with the Great Depression, it did not cause economic collapse. The sharp fall in stock prices was an inevitable response to an overinflated market – think housing prices today. A "correction," is it is so often called, ultimately was necessary for sustained growth to recur.

More relevant to causing and deepening the Depression, in Shlaes view, was the fact that neither Hoover nor Roosevelt understood the problem of deflation. It's an issue that the great free market economist Milton Friedman also highlighted when pointing to the Federal Reserve's damaging contraction of the money supply prior to America's economic implosion.

Unfortunately, Hoover worsened the economic downturn precisely because he was a market meddler, not a laissez-faire advocate. Indeed, Shlaes nicely contrasts Hoover with his predecessor, Calvin Coolidge, as well as Treasury Secretary Andrew Mellon. Hoover signed the Smoot-Hawley Tariff, which destroyed international demand for American products. He also pushed businesses to prop up wages and prices, which impeded market adjustments to strikingly new economic conditions. These policies were "dramatically counterproductive," as Shlaes politely puts it.

Unfortunately, nothing much changed under Roosevelt. Indeed, he succeeded politically even as he failed economically. Contrary to pop history, there was no quick rebound after his election. His jaunty optimism could not make up for the mass of contradictory policies, topped by misguided attempts to fix prices and production.

Particularly harmful was Roosevelt's sustained attack, through both rhetoric and policy, on business, wealth, profits, utilities, and private property. On this front Roosevelt started early and steadily expanded operations. By 1935, notes Shlaes, "The skirmishes were over; the class war was out in the open."

While there was corruption and other misbehavior in the 1920s like during every other period in American history, they had little to do with the onset of the Great Depression. But by demonizing his favorite economic scapegoats, Roosevelt ended up cutting business revenues, diminishing profit prospects, reducing property security, and creating economic uncertainty. This discouraged corporate managers from expanding old enterprises and business entrepreneurs from establishing new ones. Thus, the persistence of the Great Depression should come as no surprise. Roosevelt's strategy won votes, at least in the short-term, but impoverished the American people.

In fact, the modest early recovery, notes Shlaes, was cut short by another crash, "a depression within the Depression. It was occurring five years after Franklin Roosevelt was first elected, and four and a half years after Roosevelt introduced the New Deal. It was taking place eight years after President Herbert Hoover first made his own rescue plans following the 1929 stock market crash. Washington had already made thousands of efforts to help the economy, yet those efforts had not brought prosperity."

So bad was the economy that at any other time the incumbent president likely would have been defeated. Roosevelt was saved by war. The Republicans made significant congressional and gubernatorial gains in 1938. In 1940 Wendell Willkie, a former utility executive, "polled 22 million votes, more than any Republican in history, even more than Hoover in 1928," notes Shlaes. But it was not enough. With war raging in Europe, a conflict to which the U.S. seemed increasingly drawn, voters stuck with the more experienced candidate.

The Forgotten Man is more descriptive than judgmental, a thoughtful history that allows readers to draw their own conclusions about the New Deal. But free of the starry-eyed admiration of many biographers, Shlaes presents the dark practical undercurrents to the rhetorical flights of fancy that characterized Roosevelt and the New Deal. As a result, it is difficult to escape the conclusion that while Roosevelt might have restored people's optimism, he undermined their productivity.

Indeed, perhaps the most important judgment offered by Shlaes – admittedly not original to her, but zealously avoided by Roosevelt idolaters – is how similar Hoover and Roosevelt were in practice. She writes:

"Both preferred to control events and people. Both underestimated the strength of the American economy. Both doubted its ability to right itself in a storm. Roosevelt offered rhetorical optimism, but pessimism underlay his policies. Though Americans associated Roosevelt with bounty, his insistent emphasis on sharing – rationing, almost – betrayed a conviction that the country had entered a permanent era of scarcity. Both presidents overestimated the value of government planning. Hoover, the Quaker, favored the community over the individual. Roosevelt, the Episcopalian, found laissez-faire economics immoral and disturbingly un-Christian.

"And both men doctored the economy habitually. Hoover was a constitutionalist and took pains to intervene within the rules – but his interventions were substantial. Roosevelt cared little for constitutional niceties and believed they blocked progress. His remedies were on a greater scale and often inspired by socialist or fascist models abroad."

Unfortunately, while both Hoover and Roosevelt erred – proved wrong by the failure of their programs to reinvigorate the American economy – their mistaken visions live on in both the Republican and Democratic parties today. Both major political parties promote economic intervention on a massive scale. Both political parties push for ever more expansive federal power. And both political parties seek to apply those policies to the entire world, using war, if necessary, to advance their attempts at global social engineering.

The American people eventually turned away from the worst excesses of the New Deal. It is time for the American people to again say no more.

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  • Joshua Frank is the author of Left Out!: How Liberals Helped Reelect George W. Bush, just published by Common Courage Press. You can order a copy at a discounted through Josh's blog at www.brickburner.org. He can be reached at brickburner@gmail.com.

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