FDR’s Bad Deal gaining new life
Published: September 25, 2008
Legends and lore are the survivors of wars and cataclysms, and so perhaps Hank Paulson will endure in the manner of other socialists before him, Roosevelt and Lenin. Americans taught to genuflect at the memory of Roosevelt and gnash teeth at that of Lenin might take notice of distinctions, which evanesced as schoolbook fiction subsumed historical fact on the subject of the former.
Like disciples under state tutelage in the fashion of the kind of despotism that repulses Americans when it occurs elsewhere, schoolchildren in this country have been taught that FDR’s New Deal initiatives rescued the country from the Great Depression’s horrors. That proselytism girds arguments for the necessity of the $700-billion bailout pitched by Paulson’s Treasury Department with the gun of a new Depression threat pressed firmly to the temples of Beltway lawmakers.
Peering closer at the New Deal for leftists is like looking at the sun or seeking a glimpse of Yahweh from Mount Sinai. But the absence of light blinds. In 1939, six years after Roosevelt’s first New Deal, unemployment was 17 percent, higher than the 16-percent rate in 1931, two years after the stock market collapse. Gross domestic product increased after the crash then stumbled again in 1938, when the economy slipped from ostensible recovery into a recession that has turned to vapor in the American memory.
Also forgotten is 1921, when the economy faltered, and 1922, when it recovered, aided not by government takeover but by a slashing of high-income tax rates from 73 percent to 25 percent. As such moves do almost invariably, that sparked investment, which in turn sparked an economic surge. President Hoover, faulted for inaction, acted where he should not have in 1932, when he pushed the top-income rate back to 63 percent, followed by FDR who bumped it to 79 percent. Then came farm subsidies, paid to affluent property owners to keep croplands idle and drive up prices. That legacy and others remain, with FDR’s image relatively free from blemish.
Skulking in the shadows of the modern economic apocalypse is Bill Clinton, revered for his oversight of a boom in the ‘90s. An appointee of his, Franklin Raines, the former CEO of Fannie Mae and alleged adviser to Democratic presidential nominee Barack Obama, expanded the cheery but corrosive Community Reinvestment Act of 1977, which mandated that banks lend money to borrowers with poor credit and insufficient capital to make down payments on homes. The clucking emanating from the vicinity of Clinton’s Harlem office is the sound of chickens roosting after coming home.
On FDR, the question ought to be did he end the Great Depression or extend it? That answer could help resolve a question more pressing, should the government be trusted now to gallop to the country’s rescue astride taxpayers’ billions? Or more to the point, who will save taxpayers from government?
Failing to sift fact from myth could doom America to learning afresh Depression lessons never learned. Those inclined to look for a savior to rise from Washington are on the verge of realizing too late the wisdom of bewaring the hand that feeds.
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If the 1929 crash was the start of the Depression, then this analysis would be sound. But it wasn’t. Economic historians agree that it was the run of bank failures in 1931 that was the root cause of the Depression. Unemployment rose to as high as 25 percent before returning to pre-Depression levels later in the decade.
To be sure, wartime spending in the 1940s and the fact that the U.S. emerged from WWII alone among the great powers with a virtually intact infrastructure as a gird for a postwar economic expansion were key factors in reversing the economic tide. But just the same, the Reaganomics that has dominated much of the past 30 years of American economic life was similarly girded by artificial stimuli in the form of massive defense spending in the 1980s under Reagan and then again in the 2000s under Bush that both ended in recession when the failure of the Republican administrations that led those effors to balance the federal budget led to out-of-control deficit spending and a weak dollar that in turn pushed dangerous foreign trade deficits.
Just as the New Dealers overreached with LBJ’s Great Society in the ‘60s and ‘70s and paved the way for the Reagan Revolution, the Reagan disciples have overreached in the 2000s with a redistribution of wealth to the superwealthy that has left our economy and society dangerously unbalanced. The Reagan Revolution was a correction for the excesses of LBJ, and if the election goes the way I expect it will in six weeks, whatever we call the political realignment that is to come will serve as a correction for the excesses of Bush.
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