The Folly of Franklin Roosevelt and the Myth about the Great Depression

If you read any list of greatest presidents in American history you will almost surely find Franklin D. Roosevelt on that list.  In part because of what he did during the World War II Crisis.  But also due to guiding us through the Great Depression.  The reality is that he did not guide us THROUGH the Great Depression but is one of the main reasons we have what we will forever call "The Great Depression."

The information that you will see in this blog comes from Dr. Thomas Sowell and Dr. Walter Williams from various articles and the book "The Housing Boom and Bust."

Almost every person in America knows of the Great Depression.  We study it in school.  In fact the American History class that I teach has three major sections covering the stock market crash, the Great Depression, and the New Deal.  All three sections are focused on the time period of the late 20's and 30's and even early 40's during a time that we call The Great Depression.  For many years FDR was given credit for ending it with the New Deal.  Then many said that WWII ended it but FDR's New Deal actually kept things from getting worse.  But many modern economist of the last 30 years are now often blaming FDR's New Deal for having caused much of the Great Depression or at the least prolonging its demise to our nation.  Lets look into it a bit.

The huge stock market crash of 1929 has for years been considered the cause of the massive unemployment of the 1930's, the period we refer to as the Great Depression.  Unemployment was as high as 25 percent in 1933 and the annual rate remained above 20 percent for four consecutive years 1932 to 1935.  Thousands of banks failed and stock prices fell to a fraction of their peaks in 1929.  For two consecutive years, American corporations as a whole operated in the red(Sowell).  Foreclosures of homes and especially farms followed and many people had to live in what we term shanty towns that were nicknamed "Hoovervilles" after the president of the time, Herbert Hoover.

His successor was Roosevelt who is regarded as the man that guided us out of the Great Depression.  Roosevelt understood the need for the federal government to get involved with disasters like this that were caused by the free market of capitalism and correct the problem.  But this picture or belief has again, recently been challenged by economists although historians, often primarily liberal and in love with FDR are reluctant to revise their history.

Here are the facts, Two months after the stock market crashed in October, unemployment rose and peaked at 9 percent and then began to gradually decline over the next several months all the way down to 6.3 percent by June of 1930.  Then in June of 1930, Herbert Hoover signed into law the Smoot-Hawley Tariffs which raised taxes on imports to their highest in history.  This was an effort to reduce imports and increase domestic production and exports to preserve American jobs.  In November of 1930, unemployment reached double digits for the first time in the decade at 11.6 percent.  Unemployment began to rise after the federal government got involved.  It was more than a year after the stock market had crashed.  In fact after two months unemployment had peaked and began to fall until the  tariff bill was passed into law.  Not all of this was due to the tariff laws though.  Lets look deeper into it.

FDR as president involved the federal government even more so.  He passed laws like the National Industrial Recovery Act of 1933, which controlled prices and wages in industry.  The Agricultural Adjustment Act of 1933 established federal control over prices and output in agriculture.  The National Labor Relations Act of 1935 mandated employers to negotiate wages and working conditions with labor unions.  FDR also took us off the gold standard and issued thousands of executive orders.

"During the first year of President Franklin D. Roosevelt's New Deal, he called for increasing federal spending to $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent. Roosevelt signed off on legislation that raised the top income tax rate to 79 percent and then later to 90 percent. Hillsdale College economics historian and professor Burt Folsom, author of "New Deal or Raw Deal?", notes that in 1941, Roosevelt even proposed a 99.5 percent marginal tax rate on all incomes more than $100,000. When a top adviser questioned the idea, Roosevelt replied, "Why not?""  

In the five months leading up to the passage of the National Recovery Act, signs of recovery were evident in our economy.  Factory employment was up 23% and payrolls altogether were up 35%.  Then the law was passed and what was the result of raising wages and shortening work hours?  In the six months after the law was passed, industrial production dropped some 25 percent according to economist Dr. Walter Williams.  Even more interesting is that the Supreme Court eventually ruled this law unconstitutional.  Unemployment then fell to 14 percent in 1936 and even lower by 1937.

Roosevelt had more ideas such as the Wagner Act also known as the National Labor Relations Act.  This law was to improve the power of Labor Unions to help workers in the workplace.

In 1938, Roosevelt's New Deal produced the nation's first depression within a depression. The stock market crashed again, losing nearly 50 percent of its value between August 1937 and March 1938, and unemployment climbed back to 20 percent.  -Williams

Roosevelt was not hated though.  The chief Nazi paper at the time bragged on his policies.  Roosevelt even considered the dictator Benito Mussolini as an "admirable" man whom he was impressed with and had accomplished.

FDR's very own treasury secretary, Henry Morgenthau, saw the folly of the New Deal, writing: "We have tried spending money. We are spending more than we have ever spent before and it does not work. ... We have never made good on our promises. ... I say after eight years of this Administration we have just as much unemployment as when we started ... and an enormous debt to boot!"

The reality is that what was a four year sharp downturn was extended to a 16 year depression due to destructive policies of Roosevelt and his New Deal agenda.

Roosevelt's administration created unpredictable interventions in the economy and businesses were impeded due to the federal involvement in the economy that caused uncertainty.  Business investments remained unusually low during the New Deal era.  While the government was becoming more involved, one financial historian said that throughout the 1930's "the amount banks lent for each dollar of reserved remained at about half the level of the 1920's."  Unemployment remained at double digits for the entirety of Roosevelt's first two terms in office despite much economic and statistical analysis that concluded that government policies in the 1930's prolonged the depression by several years.

The stock market crashed again in 1987 in a similar way to that in 1929.  Unlike Hoover and Roosevelt, Reagan did little to intervene in 1987 despite media criticisms of his inaction.  The result was that the economy had to recover on its own.  This led to what the British magazine The Economist later called 20 years of a combination of steady growth and low inflation.  Two sharp downturns in the early 1920's were allowed to recover on their own as well and quickly did so. Remember the nickname of the 1920's?  "The Roaring Twenties".   

There is much more information available to describe the impact of the New Deal and statistics as far is how the economy reacted when laws were passed or repelled.  Unfortunately our education system is mostly ran by big government.  And any history that belittles or speaks of the weaknesses of big government might lend to a desire for reduced government involvement in our lives today.

FDR was one of the worst presidents in history domestically.  I for one history teacher will speak of his strengths and weaknesses and allow others to develop their own opinions based on all sides of the history story.  The Great Depression was truly caused by massive government failure that this blog only touches the surface of.  I hope this opens the eyes of many readers who often buy into the belief that since so many people say it, it must be true that Roosevelt was a great president.  I find it hard to believe anyone that was bragged on by two Fascist leaders could truly be that great.