The Enduring Myths of Herbert Hoover, Franklin D. Roosevelt, and the New Deal
One of the greatest myths told about American history is the idea that Franklin D. Roosevelt’s New Deal propelled the nation out of the Great Depression. This fallacy has been sustained by our education system ever since the Depression became a history class topic. It is also unfortunate that history remembers Herbert Hoover as a do-nothing, laissez-faire type President. If he only he was! President Hoover’s interventionist policies turned a recession into a depression, and paved the way for the economically ignorant policies of FDR. Statistics, rather than the Left’s emotional rhetoric, expose the New Deal and its massive expansion of government for what it really was: A failure that has been judged by its intentions rather than its economic results. In the age of Barack Obama, the economic failures of the Roosevelt Administration (or should I say Monarchy?) linger on. Failed spending projects like Obama’s stimulus, wasted investments like Solyndra, and economically moronic legislation such as Dodd-Frank are just as worthless today as they were in the 1930’s. When people realize that interventionist policies hinder growth rather than stimulate it, then we will see an end to boom and bust cycles and create a safe haven for economic prosperity.
When politicians remind us that we must look to the past for economic advice, it seems they always try to emulate interventionist policies rather than hands-off economic policies. Perhaps creating more programs and bankrupting the treasury makes you look busy and helps win more votes, but it is not a recipe for success. After the financial crisis of 2008, many people wished for President Obama to implement activist policies early in his term. Many liberals, perhaps even Obama himself, saw the President as the reincarnation of FDR and his New Deal. They got their wish, and four years later, we have seen the result: Anemic economic growth, record spending, and the molestation of personal liberty. Like the New Deal, Obama’s policies have failed. That is why we should look to Presidents like Warren Harding and Calvin Coolidge for economic advice, rather than the fiscally obtuse Franklin Delano Roosevelt.
An economic event that garners little attention in history textbooks is the Depression of 1920. Immediately after World War I and the beginning of Prohibition, the United States faltered economically. By 1920, unemployment rose from 4% to 12%, and our Gross National Product declined by 17%. While Secretary of Commerce Herbert Hoover (The supposed lazy do-nothing Capitalist) urged President Warren Harding for steadfast government intervention, he was rightfully ignored. Against the wishes of Hoover, Harding cut the federal budget by almost half, cut taxes for every income bracket, prevented the Federal Reserve from inflating the currency, and even reduced the National Debt by one-third. Unemployment sunk to 6.7% in 1922, and by 1923 was at an amazing 2.4%! Harding-omics arguably led to one of the greatest periods of economic growth and prosperity in American history, but why doesn’t history remember his free market solutions? I guess The New Deal has a better storyline.
The “non interventionist” Herbert Hoover took the office of the Presidency in 1929. That fall, the stock market crashed. Rather than take a lesson from the Harding recovery, President Hoover envisioned a government fueled rebound (an oxymoron if you study the Austrian School of Economics). He summoned leading businessmen to the White House for economic meetings. In these meetings, he demanded that businesses raise wages to give consumers more capital. The private sector complied with Hoover’s demands. Subsequently, businesses cut jobs to compensate for the higher wages, and unemployment skyrocketed. The President made the mistake that liberals to this day are guilty of: Falsely assuming that high wages resulted in prosperity and growth, rather than the opposite. Setting mandatory wage increases defies basic laws of economics, and is severely hazardous to economic growth.
At the time of the crash, food prices in America were very low. This was hurting the profits of farmers and the country’s GNP. To combat the low prices, Hoover established a Federal Farm Board. This encouraged farmers to produce less wheat and cotton (what a great idea, producing less will lead us to prosperity!) in order to drive up prices. When this didn’t work, the Farm Board started the Grain Stabilization Corporation, a program that began buying up the surpluses of American agriculture. The Bureaucrats hoped that this would create a world wide grain shortage, leaving foreign markets in need of buying American grain. Instead, the world markets created their own solutions, and Canada and Argentina took America’s place in global grain exports. Even after Hoover’s zealous intervention into the grain industry, prices still did not rise, and his initiatives failed.
Hoover then turned his attention to tax policy. In 1930, the President signed the Smoot-Hawley tariffs into law, raising tariffs an average of 59% on more than 25,000 products (Thomas E. Woods, Jr. “The Politically Incorrect Guide to American History”). This resulted in retaliation tariffs by European countries, particularly on American automobiles. Subsequently, American car sales in Italy fell by 90%, and countries like France and Spain basically stopped importing American cars at all! Talk about “letting Detroit go bankrupt!” In addition to his tariff hikes, Hoover raised taxes on the wealthiest Americans 25% to 63%, the largest tax increase in history to that point. This obviously deterred people from investing, and made the economy even worse.
As if President Hoover had not done enough to hinder the economy, Franklin Delano Roosevelt made the issue worse after he defeated Hoover in the 1932 election. Upon taking office in 1933, Roosevelt began to implement his New Deal. Contrary to popular belief, it was largely modeled after Hoover’s ideas. To quote Rexford Tugwell, one of the authors of the New Deal, “We didn’t admit it at the time, but practically the Whole New Deal was extrapolated from programs that Hoover started.” I guess that quote doesn’t have the same ring to it as “We have nothing to fear but fear itself.” Maybe that’s why it was left out of the politically correct textbooks.
FDR’s policies were to the left of even Hoover’s. He established the National Recovery Administration. The bureaucracy created legal cartels that were forced to establish minimum prices and higher wages! This meant that there was a lack of competition in the economy, and prices remained high. This, along with the prolonged unemployment due to artificially high wages, meant even more struggles for American citizens. In addition to these asinine economic interventions, FDR built on the already failed agricultural policies of Herbert Hoover. His American Agriculture Administration slaughtered six million pigs (I thought liberals were concerned for the hungry?) and destroyed ten million acres of cotton! This substantially slowed growth in agriculture. In 1936, James E. Boyle of Cornell University argued that the AAA was responsible for the joblessness of at least two million Americans, mainly farmhands and sharecroppers. I agree, considering that discouraging people from economic growth usually doesn’t lead to good employment figures.
Like most big government overhauls, many of Roosevelt’s bureaucracies were riddled with partisans and political hacks. After the Senate investigated the Works Progress Administration, they found some severe cases of political intimidation. There were multiple accounts of public workers being forced to donate to FDR’s reelection campaign, support certain candidates, or change their political affiliation to the Democratic Party. These cases of corruption never came to light due to FDR’s intimidation of the Supreme Court and Congress. For further reading, research his Court Packing Plan and the Supreme Court Decision in Wickard v. Fillburn. Roosevelt’s four terms in office allowed the government to grow to a level in which corruption and one party rule was allowed to run rampant.
Unfortunately, the public opinion of American history offers a much distorted view of the legacies of Herbert Hoover and Franklin Roosevelt. Modern history books paint one as an incompetent lame duck, and the other as an activist champion of economic rebound. Truthfully, both these depictions are false. Both favored aggressive interventionist policies that molested economic growth and sewed the seeds of Keynesianism in America. It seems like the modern Democratic Party paints Franklin Roosevelt as its inspiration in their present day lame attempts at economic recovery. From 1933-1940, unemployment averaged 18%, and was still stuck at 14% in 1940 ! That’s not the record of someone I would look to for economic advice.
Barack Obama has echoed the economic policies of Roosevelt in his first term. He has done nothing to incite economic growth, and only hinders it. His tenure only provides us with more evidence that government forces do not have the power to stimulate the economy. The only way we can turn a corner in this recession is through libertarian policies, small government, and faith in the citizenry, not the government. The New Deal was an absolute failure, why would it work now?
For further reading, I strongly recommend The Politically Incorrect Guide to American History by Thomas E. Woods, Jr., which has had a substantial influence on me.