In yesterday’s post about regulation, I quoted Jonah Goldberg, who touched on the New Deal. Goldberg wrote, “During the New Deal, FDR supposedly carried on his (distant) cousin Teddy’s crusade against the “malefactors of great wealth.” But the truth is that big business often welcomed government regulation. Clarence Darrow, surveying the National Recovery Act’s record, found that the keystone agency of the New Deal had served only to help big business.”

 

This is true, but as with anything concerning Franklin Roosevelt’s shifty impulses and slapdash policy-making, there is more to the story. 

 

I say shifty because Roosevelt compartmentalized, played subordinates against each other, haphazardly chose policy, and often advocated competing sets of policies. For example, Roosevelt set the price of gold at 21 cents, his rigorous methodology for arriving at that number: “it's a lucky number, because it's three times seven.” Once, when advisors presented him with two opposing policy prescriptions he said, “Let’s do both.”

 

Business and industry felt Roosevelt’s constantly changing impulses as he attacked them, supported them, and attacked them again over the course of his presidency. So yes, in some instances Big Business did gain from the New Deal. However, most of the time, Roosevelt used them as a scapegoat, denouncing them as “malefactors of great wealth,” “economic royalists,” “economic dictators,” and “privileged princes”, to implement the next policy that tickled his fancy. Or, to put it more accurately, as Roosevelt stated in his second inaugural address, to seek an “instrument of unimagined power for the establishment of a morally better world.”

 

What I am getting at here, is that the New Deal was not the miracle cure for the Great Depression, as it is often perceived in our popular perception of the era. In fact, when you peel back the layers of myth, the New Deal is not all its cracked up to be.

 

Not until 1937, did the nation finally squeak past the output levels seen before the 1929 crash. However, Roosevelt chose this time to assault business once again, and in doing so created the Depression within the Depression. In 1937, durable manufacturing– an important meter of the economy at the time—plummeted.  Unemployment increased from 12% to 19%.  Steel manufacturing fell 80% of capacity to below 20%.  Works Progress Administration relief rolls in the Midwest increased, in some cases as high as 434% as it did in Detroit.  The Dow-Jones did not rise to pre-Depression levels for at least a decade after Roosevelt died.  Roosevelt ran up all time record deficits after a campaign pledge of a balancing budget. He ran those huge deficits after raising the income tax on the upper classes from 59% to 75%! That bastion of right wing thought The Brookings Institution labeled the economy as “precarious?”

 

Roosevelt and the New Deal Brain Trust scared the crap out of American business and industry, and they froze.  Uncertainty caused by government harassment and prosecution tends to do that. Couple FDR’s tool of “unimagined power” together with the cumulative effects of the minimum wage act, the Wagner Act, high taxation, and Keynesian inflationist policies, and you create a situation where business had to ask itself how much it could withstand.  American business leaders, who FDR constantly derided and slandered using the same class warfare rhetoric we know today, were scared away from investing or innovating and consequently creating jobs and sparking the economy.  It did not help the economy that FDR initiated over 150 anti-trust lawsuits against businesses further discouraging investment and job growth.  Roosevelt prosecuted Andrew Mellon, the Alan Greenspan of his time, until the day he died.

 

Through his intimidating tactics and rhetoric, FDR essentially bullied business and the private sector and turned government into a competitor with which they could not compete.  This should be expected when the head of the National Recovery Agency (NRA), Hugh Johnson, threatened corporate leaders with “a sock in the nose” when they refused to follow his “voluntary” programs.  Johnson, it should be mentioned kept a portrait of Mussolini on the back wall of his office, and brought copies of Il Duce’s book to hand out at cabinet meetings.  

 

It was not just the big boys that Roosevelt hurt, but the little guys as well, the “forgotten man” if you will. The NRA harassed and prosecuted the Schechter brothers, Orthodox Jews in Brooklyn who ran a small chicken farm, for having the temerity to sell their chickens at a price lower than that set by NRA bureaucrats in Washington. The Schechter’s even went to jail for their transgression.  Their case went all the way to the Supreme Court, where they won. The NRA tossed drycleaner Jacob Maged into prison for pressing suits at 35 cents instead of the NRA mandated 40 cents. Under the New Deal, offering your customer’s lower prices was literally a jailable offense. The NRA imposed thousands of codes and regulations, which drove up prices at a time when consumers needed lower priced goods. Specifically the Anti-Chain Store Act, and the Retail Price Maintenance Act, (can you say Wal-Mart) kept the price of everyday consumer goods high. NRA’s mandatory cuts in manufacturing production and the Agricultural Adjustment Administration’s (AAA) cut’s to farm production, destroyed thousands of industrial and agricultural jobs at the very time they were needed. 

Poet Ogden Nash authored a clever poem describing the udder—pun fully intended—absurdity of centralized NRA planning in every facet of the economy:

 

Did the New Deal create millions of jobs? Sure it did. However, they were government created public works jobs designed to serve political ends, and they lasted only months at a time. They were not the type of private sector jobs that could have spurred real economic growth that could have pulled the rest of the economy through. 

 

Oh but the New Deal provided hope in dark times, say FDR’s defenders. Really? What hope did Jacob Maged, the Schechter’s have sitting in jail and losing their businesses? What about the thousands of workers cut out of a job or tenant farmers kicked off their land by distant bureaucrats in Washington, DC? Some might call that a Raw Deal.