With my dad I’ve written an overview of the political follies of the Great Depression. Yet the era deserves much more attention. Within the past few days I received Burton Folsom, Jr.’s New Deal or Raw Deal?, and I’ll post some notes about it here.
I was at first concerned that I’d purchased a dud. The book’s publisher made a big mistake by including an introduction by Stephen Moore, who brings to the book his widely recognized name — and his partisanship. Moore blasts “liberal Democrats” for their proposals to control the economy, conveniently omitting the fact that Republican George W. Bush massively expanded Medicare and pushed for hundreds of billions in “bailouts.”
Folsom’s first three chapters are weak. His first chapter on the FDR mythology lays out the established view in unnecessary detail. The second chapter on FDR’s background is basically useless in understanding FDR’s presidency, though Folsom places great weight on the fact that FDR was a lousy businessman and a great politician. The first two chapters easily could have been combined and condensed.
Folsom’s third chapter explains some of the causes of the Great Depression. I learned an interesting detail about the Smoot-Hawley Tarrif, which Folsom concurs was a major cause of the Depression. The tax scheme, which reduced exports “from $7 billion in 1929 to $2.5 billion in 1932,” encouraged various European nations to repudiate their war debts to the United States; “if we wouldn’t let Europeans trade with us, how could they raise the cash to repay us?”
Folsom points to the failure of the Federal Reserve without indicating that the institution by its nature tends to disrupt the rational economic planning of producers.
The most important part of Chapter 3 is Folsom’s review of FDR’s “underconsumption” theory, which Folsom describes in his first chapter as the view that “workers did not have adequate purchasing power during the 1920s to buy the products of industrial America.” Folsom quotes, and disproves, FDR’s economic analysis of the ’20s, an analysis rooted in the false doctrine of “underconsumption.” FDR’s economic beliefs also led him to follow in Hoover’s footsteps and try to “improve” the economy through wage controls, though the effect of such controls was to maintain high rates of unemployment. I wish Folsom had done more to explain the ideological roots of this “underconsumption” theory, which is essentially Marxist at root.
Folsom is better at delving into the facts of particular programs. Folsom’s Chapter 4 is a great review of the insanity and economic harm of FDR’s National Industrial Recovery Act, or NRA. The measure encouraged businesses to cartelize and set prices. Folsom reviews example after example of how the federal government cracked down on business owners for selling goods and services less expensively than their competitors demanded. The NRA led to Byzantine regulations and police-state enforcement. The NRA, effective from 1933 till the Supreme Court declared it unconstitutional in 1935, displays FDR’s penchant for central economic “planning.” Not deterred by the Supreme Court’s rebuke, FDR soon returned with Guffey-Snider Act, which set coal prices and eventually undercut the United States coal industry. FDR even dreamed of an international cartel, which he and his advisors would control. The good news for us today is that few seem interested in repeating this particular sort of insanity.
I’ll continue my notes on Folsom’s book in a later post…