All Commentary
Wednesday, August 19, 2009

New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America

Not everyone loved President Franklin D. Roosevelt. Even in 1936, when he enjoyed his most lopsided electoral victory, almost 17 million voters cast their ballots for Alf Landon. During Roosevelt’s long presidency, he attracted vigorous literary critics, such as H. L. Mencken, John T. Flynn, and Garet Garrett. But the winners write the history, and for many years, the bulk of the writing about Roosevelt and the New Deal amounted to little more than hagiography.

Gradually, however, as the original Roosevelt idolaters aged and died, more-balanced appraisals began to appear, and several good iconoclastic books have appeared recently, including: Thomas Fleming’s The New Dealers’ War, Gene Smiley’s Rethinking the Great Depression, Jim Powell’s FDR’s Folly, and Amity Shlaes’s The Forgotten Man. Now we can add Burton Folsom’s new book to the list.

Folsom builds his discussion around what he calls “the Roosevelt legend,” the handiwork of historians who idolize FDR, applaud the New Deal, and, if they cavil at all, do so only to lament that the New Deal did not create a socialist paradise. If Folsom does not give this legend a knockout blow, he certainly thrashes it severely, and no honest reader can come away from this well-documented book with a positive view of FDR or his economic nostrums.

Folsom presents a colorful overview of the economic events of the 1930s, drawing on the latest revisionist literature to strengthen his critique of the New Deal, but readers who want a strictly economic appraisal will probably do better by going directly to the new interpretive sources he employs. Where Folsom shines brightest is, first, in his appraisal of Roosevelt as a person and as a politician and, second, in his demonstration of the extent to which the vaunted New Deal was little more than a partisan political endeavor.

Roosevelt has always been renowned for his charm and charisma, and there is no gainsaying that many people were taken in by his ebullient self-confidence. Underneath this appealing surface, however, the real Roosevelt was anything but attractive. Instead, he was callous, self-centered, manipulative, and chronically dishonest. Having been an indifferent student, he was, in Folsom’s words, “no intellectual.” In particular, he knew little about economics and made scant effort to learn. Nevertheless, he pushed through his hugely unsettling economic policies largely to serve political ends, justifying his actions with the foolish idea that merely “trying something” made sense even though he had no idea of the economic effects this blind flailing would produce.

Folsom presents a valuable discussion of the great extent to which taxes were increased during the 1930s, especially excise taxes–on alcoholic beverages, gasoline, cigarettes, radios, movie tickets, and many other goods–that bore relatively heavily on lower-income people. From 1933 through 1936, federal excise taxes exceeded federal individual and corporate income taxes combined, and during the following four years excises always brought in at least 40 percent of federal revenue. After 1935 Social Security payroll taxes diminished poor people’s wages disproportionately.

Especially from 1935 onward, Roosevelt plunged into class warfare. He sought a variety of soak-the-rich taxes and got Congress to approve several of them, including an economically damaging tax on corporate retained earnings, a prime source of funding for new firms. He sent the IRS on punitive expeditions against political opponents Huey Long and Hamilton Fish, newspaper publishers William Randolph Hearst and Moses Annenberg, and former Treasury secretary Andrew Mellon, among others. At the same time, he instructed the IRS to back away from investigations of political favorites. The President also directed the FBI to investigate people he disliked.

Folsom gives an eye-opening account of various ways in which the Roosevelt administration used the billions of dollars of relief funds at its disposal for partisan political purposes. “If we probe deeply into Roosevelt’s popularity,” he writes, “we almost always discover the presence of patronage–the creating and the manipulating of federal jobs to strengthen his political support.” FDR did not invent patronage, but he greatly increased its scale.

After Roosevelt tried to pack the Supreme Court in 1937, the New Deal began to sputter, and new programs and taxes became more difficult to push through Congress. His attempt to “purge” uncooperative legislators in the 1938 elections failed, angering many senators and representatives in the process. “The president became resented more than adored,” writes Folsom, “and soon Congress was altering his legislation and overriding his vetoes.” The 1937–38 “depression within a depression” cost the president even more support.

Nonetheless, the bulk of the New Deal persisted. Indeed, much of it remains in effect today. Folsom concludes: “The myth that these programs were once valuable, that they helped end the Great Depression, and that they restored prosperity to the United States has been enough to keep them going.” Moreover, once a program has been created, “bureaucrats within the program flock to defend it, [and] those receiving benefits from the program strive to retain it.”