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Revisiting the New Deal. Finally.

By this definition of "not normal", I am not normal either.  I share with Tabarrok the strong sense that the New Deal (combined with shockingly stupid use of Wilson's Federal Reserve and of course rampant scorched-earth protectionism) extended rather than shortened the Great Depression. 

Imagine, increasing the power of unions to strike and raise wages during a time of mass strikes and mass unemployment. Imagine thinking that cartelizing whole industries thereby raising prices and reducing output could improve the economy. Not everything Roosevelt did was counterproductive - he did end prohibition (although in order to raise taxes) - but plenty was and worst of all was the uncertainty created by Roosevelt's vicious attacks on business.

One of the things I think we have done historically is understate the true degree to which Roosevelt showed himself willing to take the country down the road to socialism, or more accurately, Mussolini-style fascism. Via David Gordon:

Roosevelt never had much use for Hitler, but Mussolini was another matter. "'I don't mind telling you in confidence,' FDR remarked to a White House correspondent, 'that I am keeping in fairly close touch with that admirable Italian gentleman'" (p. 31). Rexford Tugwell, a leading adviser to the president, had difficulty containing his enthusiasm for Mussolini's program to modernize Italy: "It's the cleanest … most efficiently operating piece of social machinery I've ever seen. It makes me envious" (p. 32, quoting Tugwell).

Why did these contemporaries sees an affinity between Roosevelt and the two leading European dictators, while most people today view them as polar opposites? People read history backwards: they project the fierce antagonisms of World War II, when America battled the Axis, to an earlier period. At the time, what impressed many observers, including as we have seen the principal actors themselves, was a new style of leadership common to America, Germany, and Italy.

Once more we must avoid a common misconception. Because of the ruthless crimes of Hitler and his Italian ally, it is mistakenly assumed that the dictators were for the most part hated and feared by the people they ruled. Quite the contrary, they were in those pre-war years the objects of considerable adulation. A leader who embodied the spirit of the people had superseded the old bureaucratic apparatus of government.

If you don't believe me, it is probably because you are not familiar with the National Recover Act (NRA) -- the famous "blue eagle".  This program was the very heart of Roosevelt's vision for the American economy, a vision of cartelized industries managed by government planners. (via Sheldon Richman of the Concise Encyclopedia of Economics):

The image of a strong leader taking direct charge of an economy during hard times fascinated observers abroad. Italy was one of the places that Franklin Roosevelt looked to for ideas in 1933. Roosevelt's National Recovery Act (NRA) attempted to cartelize the American economy just as Mussolini had cartelized Italy's. Under the NRA Roosevelt established industry-wide boards with the power to set and enforce prices, wages, and other terms of employment, production, and distribution for all companies in an industry. Through the Agricultural Adjustment Act the government exercised similar control over farmers. Interestingly, Mussolini viewed Roosevelt's New Deal as "boldly... interventionist in the field of economics." Hitler's nazism also shared many features with Italian fascism, including the syndicalist front. Nazism, too, featured complete government control of industry, agriculture, finance, and investment.

And further, from John Flynn's The Roosevelt Myth via Anthony Gregory:

[Mussolini] organized each trade or industrial group or professional group into a state-supervised trade association. He called it a corporative. These corporatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in America each industry should be organized into a federally supervised trade association. It was not called a corporative. It was called a Code Authority. But it was essentially the same thing. These code authorities could regulate production, quantities, qualities, prices, distribution methods, etc., under the supervision of the NRA. This was fascism. The anti-trust laws forbade such organizations. Roosevelt had denounced Hoover for not enforcing these laws sufficiently. Now he suspended them and compelled men to combine.

And read this to see the downright creepy Soviet-style propaganda Roosevelt used to promote the NRA.  One example:

A hundred thousand schoolchildren clustered on Boston Common and were led in an oath administered by Mayor James Michael Curley: "I promise as a good American citizen to do my part for the NRA. I will buy only where the Blue Eagle flies."

The fact that the worst of the NRA was dumped by the Supreme Court, and eventually by FDR under pressure, cause us to forget what businessmen in the 1930's were seeing.  The unprecedented fall in asset prices in the early thirties would normally have started to attract capital, at least from the bottom-fishers.  But any reasonable observer at that time would have seen the US government on a path to controlling wages, prices, capacity, etc  -- not an environment conducive to investment.  In fact, under Roosevelt's NRA industry cartels, its not clear that private industrial investment was even legal without the approval of the Code Authority for that industry.

People look back fondly and give credit to the CCC and large public works programs for our recovery, but in fact these programs were necessary because FDR's New Deal, and particularly the NRA, made private investment dry up.

Postscript:  By the way, questioning the greatness of the New Deal is one of those issues that will get you labeled a wacko almost as fast as being a climate change skepticHere is Janice Rogers Brown getting slammed for questioning the New Deal.

Posted on January 12, 2007 at 10:29 AM | Permalink


Not to repeat myself repeat myself, but once again FDR’s Folly, by Jim Powell, remains an outstanding, if somewhat cursory look at How Stupid FDR and Every Single Democrat Since Then Is, at least economically.


The central strength of this argument is Powell’s examination of the various legal “arguments” made for de facto state control of…….you name it. Central was the general welfare clause, which was probably the most abused (up until about 1994, when states like Wisconsin tried real welfare reform programs, and they worked) outside of the commerce clause.

On Mussolini, Powell observes

“The New Deal was the American version of the collectivist trend that became fashionable around the world, so it perhaps shouldn’t be surprising that New Deal utterances by FDR and his advisers sometimes sounded similar to fascist doctrines associated with Italian dictator Benito Mussolini. This, of course, was after Mussolini launched an aggressive foreign policy and allied with Hitler. Mario Palmieri’s The Philosophy of Fascism (1936), published in Chicago by the Dante Alighieri Society, described ideas remarkably similar to those promoted by the New Dealers: ‘Economic initiatives cannot be left to the arbitrary decisions of private, individual interests. Open competition, if not wisely directed and restricted, actually destroys wealth instead of creating it….The proper function of the State in the Fascist system is that of supervising, regulating and arbitrating the relationships of capital and labor, employers and employees, individuals and associations, private interests and national interests….More important than the production of wealth is its right distribution, distribution which must benefit in the best possible way the all the classes of the nation, hence the itself. Private wealth belongs not only to the individual, but, in a symbolic sense, to the State as well.’”

Pretty scary stuff.

Posted by: MesaEconoGuy | Jan 12, 2007 7:27:36 PM


The general welfare clauses and the commerce clause would still be intact if they hadn't gutted the necessary and proper clause long before those two. Check out Randy Barnett's "Restoring the Lost Constitution". I read that a while back, and it was an excellent history of exactly how the jurisprudence of our Constitution has been watered down.

Posted by: Brad Warbiany | Jan 12, 2007 8:22:26 PM

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