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ROOSEVELT'S "NEW DEAL" PROLONGED DEPRESSION RATHER THAN ALLEVIATING IT

Posted on: October 25, 2007

By Bryan Fischer, Executive Director, Idaho Values Alliance

One of the persistent myths of the 20th century is that Franklin Roosevelt’s massive expansion of the budget and power of the federal government pulled the nation out of the Depression. However, as Michael Medved says, that myth rests on “distortions, half-truths and outright lies.”

The truth, unfortunately for fans of big government, tells a different story. Unemployment was at 17.4% in the darkest days of the Depression under President Hoover. Seven years later, after more than five years of ambitious and expensive new government programs under FDR, the unemployment rate stood at – 17.4%!

The Dow Jones Industrial Average was at 250 in 1930, after the stock market crash but while Hoover was still in office. By 1940, the market had sunk to 151, and didn’t return to its 1929 levels until the 1950s. But federal spending jumped from 2.5% in 1929 to 9% by 1936 (as a percentage of Gross Domestic Product), meaning that the part of the economy controlled by the federal government increased by a massive 360% but did not provide any discernible benefit to the nation’s financial health.

In fact, FDR presided over an economic crash in 1937 that was more severe than the first months of the Depression, with national income falling 13% and payrolls declining a precipitous 35%.

Even historian David Kennedy, a professor of mine at Stanford, wrote in 1999, “Whatever it was, the New Deal was not a recovery program, or at any rate not an effective one.”

The New Deal, in Medved’s words, was a “wretched, ill-conceived failure.”

In contrast, history shows that in every sharp reversal, whether in 1815, 1837, 1893, 1920, 1958 or 1979, leaders who cut the size of government, rather than expanding it, enabled the economy to revive far more quickly and painlessly than the New Deal.

For instance, Martin Van Buren responded to the Panic of 1837 by slashing federal spending by a third and sharply reducing taxes. The nation’s economy soon recovered and resumed its spectacular growth.

Even Democratic President Grover Cleveland responded to the financial crisis of 1893 by reducing taxes, cutting tariffs and blocking an income tax. (Where is a good Democratic president when we really need one?) He said, “Federal aid . encourages an expectation of paternal care on the part of the Government and weakens the sturdiness of our national character.” Two years later, the entire depression was over.

The famous War on Poverty begun by LBJ made things worse. As Ronald Reagan said, “We had a war on poverty. And poverty won.” By eliminating the distinctions between the “deserving poor” and the “undeserving poor,” government programs created a “culture of helpless victimhood and presumed powerlessness” that undermined the self-reliance of citizens and mired them in dependence upon government largesse..

Charities, unlike sluggish bureaucracies, make a distinction between the “worthy” poor and the “destructive” poor, and know how to tailor programs for each that will help them become self-sustaining, and turn them into productive citizens who are in position to give to others rather than take from them.

It’s long past time to get the federal government out of the welfare business altogether, return the money used to fund it to the taxpayers, and urge them to donate generously to the charities of their choice.

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