People of all political ideologies often cite the New Deal and World War II to support claims that Franklin Roosevelt was one of the greatest presidents in United States history. They argue that FDR injected hope into American society during the darkest times of the Great Depression, which he temporarily did with his oratorical skills. “FDR ended the Great Depression”, they assert. “And his resolve and leadership won WWII,” they excitedly proclaim, “so he was a great president! Perhaps the greatest!”
People believe that FDR saved America from the Great Depression because they learn about the New Deal in high school and college history classes without analyzing it from an economic perspective. Many people assume that since FDR was president when unemployment fell to 4.7 percent in 1942 it must have been his policies that ended the Great Depression.
To the chagrin of FDR admirers, however, his policies neither shortened nor ended the Great Depression. The FDR administration’s massive, yet ineffective, economic stimulus packages, burdensome regulations, tax increases and anti-business policies and sentiment prolonged the Great Depression, probably by several years.
According to the Bureau of Labor Statistics (BLS), unemployment did not fall below 14.3 percent from 1933, FDR’s inaugural year, to 1941 during the buildup for the United States’ entry into WWII. Unemployment fell from 24.9 percent in 1933 to 14.3 percent in 1937 only to rise sharply to 19.0 percent in 1938.
One may argue that federal stimulus packages and deficit spending obviously work because unemployment dropped from 24.9 percent to 14.3 percent. The unemployment figures noted above, however, reveal the fundamental flaw of stimulus spending: it provides only a short-term boost to the economy. Such short-term boosts come at high future costs, though, as governments cannot maintain high levels of deficit spending. And, employment from public works projects is temporary. As projects end, employment ends and unemployment rises once again, which occurred in 1938.
Further, public sector jobs arise only as private sector jobs are destroyed. The public sector cannot survive without tax revenues from the private sector. As private sector jobs decline, the government’s ability to create jobs from economic stimuli declines as well unless it operates under deficit spending, but that leads to mounting public debt which cripples government.
Also, the public sector cannot create jobs. It can only steal jobs from the private sector. Only the private sector provides the impetus for real job creation and economic growth. FDR shattered any hope for real private sector job and economic growth with his policies.
Unfortunately, FDR broke his 1932 campaign promises. Lawrence W. Reed of the Mackinac Center for Public Policy wrote in his essay Great Myths of the Great Depression that, “The platform of the Democratic Party…declared, ‘We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.’ It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency ‘to be preserved at all hazards,’ the removal of government from areas that belonged more appropriately to private enterprise and an end to the ‘extravagance’ of Hoover’s farm programs.”
Had President FDR presided like candidate FDR promised, America may have remembered only an economic contraction of the early 1930s. It would have been a slightly deeper contraction than previous contractions but not a Great Depression. Instead, FDR’s intrusion into the economy stifled recovery as he expanded President Hoover’s misguided theories and policies to destructive levels. Like Hoover, FDR distrusted private corporations and banks and he believed that the economy would rebound if wages and prices remained artificially high.
The government bureaucracies created under the FDR administration and the Democrat controlled Congress put far too many regulations on private businesses. The National Recovery Administration (NRA), which was created from the National Industry Recovery Act of 1933, suffocated the private sector. Reed wrote that, “In the five months leading up to the act’s passage, signs of recovery were evident: factory employment and payrolls had increased by 23 and 25 percent, respectively. Then came the NRA, shortening hours of work, raising wages arbitrarily, and imposing other new costs on enterprise. In the six months after the law took effect, industrial production dropped 25 percent.”
The NRA is only one of numerous bureaucracies created while FDR was in office. Some of the bureaucracies regulated the private sector while others administered public works projects. FDR thought that the economy would rebound if the government could control and tax business and spend massive amounts of federal dollars, via deficit spending, to put people to work for the government. The Works Progress Administration (WPA) was an example of putting people to work for the government. The WPA paid people to do various jobs, many of which were meaningless tasks such as raking leaves from one side of public grounds to the other then back again. Such work was wasteful federal stimulus spending. The federal government employed price controls as well.
To keep agricultural prices high, theoretically to help farmers and ranchers, the Agricultural Adjustment Administration (AAA) decreased the supply of crops and livestock by destroying them. Any crops or livestock that the AAA deemed excessive were removed from the agricultural market. Doing so resulted in the slaughter of millions of pigs, chickens, cows and other animals. Tragically, while millions of Americans were starving the federal government destroyed and wasted countless pounds of crops and meat. FDR’s fiscal policies were equally destructive.
FDR and the Democrats in Congress increased taxes on individuals, businesses and investment. The top marginal tax rate increased from 63 percent to 79 percent then eventually to 90 percent. Social Security taxes soaked up more disposable income. Corporate retained earnings were taxed. Capital gains were heavily taxed. FDR taxed everything he possibly could. All of that taxation transferred money from the private sector to the inefficient public sector. Businesses simply did not have enough aggregate capital to expand and hire. Plus, federal regulations hindered private expansion as well. Also, the federal intrusion into the private sector gave unions far too much power which weakened businesses even more.
The most efficient way to shorten an economic contraction is to foster an environment in which businesses can invest, expand and hire. FDR should have created a stable, low-tax environment in which businesses could have confidently planned for expansion. Instead, FDR attacked businesses via taxes and regulations creating an unfriendly, anti-business environment in which businesses could neither confidently create nor execute strategic plans; resulting in a prolonged economic contraction that turned into the Great Depression.
The Great Depression ended during WWII when FDR ended his attacks on the private sector. He understood that he needed efficient private sector production to prepare for and facilitate war. Since FDR understood this, encouraged private production and utilized the private sector when only it could efficiently produce goods for the war, one may wonder how many of FDR’s policies were implemented to make voters reliant on the federal government. After all, the more that people were reliant on government meant that they were more willing to vote for the political party that provided them the most from government. FDR was reelected three times. Could his policies have been more about retaining personal and Democratic political power than actually helping the American people? Perhaps they were not. Yet, perhaps they were.
***Brian Anderson is a Colorado native and graduate of Regis University where he earned a Bachelor of Arts in History and a Bachelor of Science in Business Administration. He is a graduate student at the University of Colorado Denver working on a Master of Arts in Political Science. His area of study is American Politics with an emphasis in addressing community issues via local government and nonprofit development. He is a Contributing Editor for A Line of Sight.
