Wednesday, April 8, 2009

FDR's Folly

Books have a pretty high place in our home. My wife placed a little plaque just inside the front door that reads, "A house without books is like a room without windows." And so it is that many of our conversations with friends revolve about current readings.

Not too long ago a good friend of mine told me about the very interesting book he was reading called FDR's Folly by Jim Powell. In light of the Reason magazine article cited yesterday, in which a panel of economists expressed their concerns about the stimulus package recently passed, I thought this worth recommending.

It is apparent that there is a war of ideas at play in the world. In Washington, the Social Planners have been eager for their day, and it it would appear to have arrived at last. This book tells how it played out back in the 30's. Ironically, the spin machinery was effective at leaving FDR firmly entrenched as an icon of the 20th century.

Here are some observations regarding the book that can be found on Amazon.com, followed by additional comments from a reader.

Editorial Reviews of FDRs Folly

“Admirers of FDR credit his New Deal with restoring the American economy after the disastrous contraction of 1929—33. Truth to tell–as Powell demonstrates without a shadow of a doubt–the New Deal hampered recovery from the contraction, prolonged and added to unemployment, and set the stage for ever more intrusive and costly government. Powell’s analysis is thoroughly documented, relying on an impressive variety of popular and academic literature both contemporary and historical.”–Milton Friedman, Nobel Laureate, Hoover Institution

“There is a critical and often forgotten difference between disaster and tragedy. Disasters happen to us all, no matter what we do. Tragedies are brought upon ourselves by hubris. The Depression of the 1930s would have been a brief disaster if it hadn’t been for the national tragedy of the New Deal. Jim Powell has proven this.”–P.J. O’Rourke, author of Parliament of Whores and Eat the Rich

“The material laid out in this book desperately needs to be available to a much wider audience than the ranks of professional economists and economic historians, if policy confusion similar to the New Deal is to be avoided in the future.”–James M. Buchanan, Nobel Laureate, George Mason University

“I found Jim Powell’s book fascinating. I think he has written an important story, one that definitely needs telling.”–Thomas Fleming, author of The New Dealers’ War“Jim Powell is one tough-minded historian, willing to let the chips fall where they may. That’s a rare quality these days, hence more valuable than ever. He lets the history do the talking.”–David Landes, Professor of History Emeritus, Harvard University

“Jim Powell draws together voluminous economic research on the effects of all of Roosevelt’s major policies. Along the way, Powell gives fascinating thumbnail sketches of the major players. The result is a devastating indictment, compellingly told. Those who think that government intervention helped get the U.S. economy out of the depression should read this book.”–David R. Henderson, editor of The Fortune Encyclopedia of Economics

About the Book
For generations, the collective American consciousness has believed that the former ruined the country and the latter saved it. Endless praise has been heaped upon President Franklin Delano Roosevelt for masterfully reining in the Depression’s destructive effects and propping up the country on his New Deal platform. In fact, FDR has achieved mythical status in American history and is considered to be, along with Washington, Jefferson, and Lincoln, one of the greatest presidents of all time. But would the Great Depression have been so catastrophic had the New Deal never been implemented?

In FDR’s Folly, historian Jim Powell argues that it was in fact the New Deal itself, with its shortsighted programs, that deepened the Great Depression, swelled the federal government, and prevented the country from turning around quickly. You’ll discover in alarming detail how FDR’s federal programs hurt America more than helped it, with effects we still feel today, including:

• How Social Security actually increased unemployment
• How higher taxes undermined good businesses
• How new labor laws threw people out of work
• And much more

This groundbreaking book pulls back the shroud of awe and the cloak of time enveloping FDR to prove convincingly how flawed his economic policies actually were, despite his good intentions and the astounding intellect of his circle of advisers. In today’s turbulent domestic and global environment, eerily similar to that of the 1930s, it’s more important than ever before to uncover and understand the truth of our history, lest we be doomed to repeat it.
A reader named Doug offered the following comments on the book.

A common historical misconception is that FDR's New Deal rescued the United States from the Great Depression. However, Cato Institute Historian Jim Powell argues that the New Deal exacerbated and elongated the Great Depression. With impressive attention to detail, Powell examines the long-term results of the New Deal and persuasively argues that they crippled the U.S. economy.

In this detailed book, you will learn about the numerous programs the FDR administration brought about, including the following:

* Programs that inundated private businesses with unprecedented waves of regulations, such as the Agricultural Adjustment Administration, the National Recovery Administration and the Securities and Exchange Commission.

* Programs that redistributed wealth from producers to consumers, such as the Federal Emergency Relief Act and the Reconstruction Finance Corporation.

* Programs that nationalized industries, centrally planned infrastructure or created make-work projects to increase employment such as the Civilian Conservation Corps, the Public Works Administration and the Tennessee Valley Authority.

Powell argues that these programs typically led to poorly planned infrastructure that was more expensive than what could have been acquired in a free market. The economic results of FDR's programs were devastating. For example, consider the Agricultural Adjustment Administration (AAA). The price and production controls of the AAA led to perverse practices such as millions of tons of domestic oat and corn being burned while the U.S. simultaneously imported oat and corn, millions of peaches being left to rot and millions of "excess" pigs being needlessly slaughtered while lard was being imported from overseas. The extent of economic regulation under the FDR Administration reached such absurd levels, there was even a government board organized solely to control the production and pricing of milk!

In closing, a quote from F. A. Hayek: "We shall not grow wiser before we learn that much that we have done was very foolish."

14 comments:

LEWagner said...

Deregulation and "free markets" have had ample chance to prove themselves over the past 30 years.

Anonymous said...

Deregulation and "free markets" have, in fact, proved themselves in the past 30 years with unprecedented wealth creation and increase in standard in living.

You might be worse off today than you were a year ago; I doubt very much you are worse off than you (or the average person) was 30 years ago.

LEWagner said...

As you say, there HAS been unprecedented wealth creation and increase in standard of living -- for the "average person".
The "average person" statistics include the filthy rich, of course. The gap between the rich and poor has vastly widened over the past 30 years, while the middle class has been virtually wiped out.
As an advertising executive, for example, you'd probably be classed as "middle class".
Your standard of living in your middle age is probably roughly equivalent to what my parents' was in their middle age.
Dad was a school-bus driver and farmer. Mom worked for a few years, but was mainly a housewife. Neither of them had a college education, and yet they could still afford a middle-class lifestyle, including travel throughout the US and Mexico, and the modern conveniences of the time.
Your retirement will very likely be LESS comfortable than theirs was/has been.
And no, my children definitely DON'T have the opportunity that I had 30 years ago, or even the opportunity that my dad had 60 years ago.
In 1979, I owned a mobile home, was building my own house, had full-coverage medical insurance, life insurance, a savings plan, a car AND a truck that I could afford to keep insured, equipment sufficient to run a business, was finishing up my first Bachelor's degree at a respected University ... and I was a farmer's son.
My father was a farmer's son, also, and in 1949 he had about the same as I had 30 years ago, except for the Bachelor's degree. He was working on the house on the Hermantown Road, had health insurance, life insurance, a car and a truck, a brand new tractor and lots of other farm equipment, a herd of dairy cows, a savings plan .....
How about your kids? My kids are renting, have to buy what passes for food at the grocery store, are barely getting by from month to month, and are doing work that is much more unpleasant and dangerous than I ever had to do. Bob's student loans for a college education he couldn't even afford to finish were only paid off when I sold the family house. Otherwise, he'd still be paying on those. I doubt very much if either of them has full medical coverage, let alone life insurance or a savings plan, (besides Social Security, that is).
Also, the country is trillions in debt, mostly incurred by the cut taxes, spend and borrow policies of 3 Republican administrations. I don't have much use for Bill Clinton either, but he did maintain a balanced budget, at least.
Well, keep on insisting that everyone is doing better than they were in the past, and maybe it'll become true.

Ed Newman said...

Not sure who you were replying to. I hadn't replied yet.

The stock market boom of the 80s-90s was not a boon simply to the super rich, it was a boon to the middle class. But for sure there has slowly been a levelling occuring in the last ten years, more due to global economy than to administration policies.

There is a lot of wealth in the U.S. and when I look around I see a lot of people with nice homes and cars and all kinds of electronic toys and cable TV,... If that is poverty, it really is a wonderful thing to be so poor.

As for me, most of my peers have far more wealth than I because my first ten years out of college were spent in trying to do good deeds and mission work. Any success I have since then would be anecdotal evidence that is not relavant to anything other than that some people can, with hard work, marketable skills and a college degree, obtain a few personal assets.

The middle class of the fifties was chiefly created by the wealth which fell our way in the U.S. as a result of the fact that all other countries' economies were in shambles after WW2.

The last 20-30 yrs have seen remarkable growth in GNP wealth creation (Bill Gates didn't make just himself wealthy) but simultaneously -- and the point I was making two days ago, we are increasingly a debtor nation. The notion of living frugally and saving for a rainy day has been lost as a virtue.

As for the path out of the economic turmoil... well, social planning has historically failed everywhere it has had free reign, so if the nation veers that direction, I am not sure why we would see a different result this time around. The point being made by citing FDR's Folly.

Anonymous said...

One thing I've been saying lately.......Our present Government reminds me of a teenager who gets a new Credit card...and goes on a spending spree , not realizing that the Bill will come at the end of the month......Unfortunatly I'm seriously questioning whether it's their stupidity.....or if their real intention is to destroy this country....

LEWagner said...

Oh -- I thought I WAS replying to you. Silly me. :>)
Now I'll reply to you.

>>>>>>>But for sure there has slowly been a levelling occuring in the last ten years, more due to global economy than to administration policies.

How can the rich getting richer, and the poor getting poorer -- as has undeniably happened over the past 30 years in the US -- possibly be called a "leveling"? I would call it just the opposite. But, then I'm an English major.

>>>>>>>>There is a lot of wealth in the U.S. and when I look around I see a lot of people with nice homes and cars and all kinds of electronic toys and cable TV,... If that is poverty, it really is a wonderful thing to be so poor.

I see the same here. Lots of wonderful goods that really have nothing to do with a person's financial well-being.
My friend's boss just bought a Lexus, there is a Hummer in town, lots and lots of luxury SUV's, satellite dishes, VCD players, cable TV, and big booming speakers that wouldn't even be allowed in US neighborhoods. Kids playing useless video games. Huge houses are going up, mostly empty rooms, made of brick and concrete (instead of chipboard) and paved with high-gloss CERAMIC floor tiles (not linoleum). Consumption is up all over the world, that's true, a great percentage of it completely needless and wasteful.
The main difference is that here, all these goods are all already paid for, in cash. The government-regulated banks don't give loans on private houses, luxury, or consumer goods. Only on business and farm development.
(I've never been much of a consumerist, myself. My only luxury is my computer, Internet service, a fan, a small stereo system, and a still camera (my dad had a movie camera, but that is a little beyond my reach, right now.))

>>>>>>>>>>>>Any success I have since then would be anecdotal evidence that is not relavant to anything other than that some people can, with hard work, marketable skills and a college degree, obtain a few personal assets.

There are very few people here who don't have a few personal assets, at least a paid-for house, a few animals (at least chickens), and their own land. Even totally uneducated farmers.
In the US?
EVERYONE who has a college education here, marketable skills, and works hard, has more than a few personal assets, and besides, is not in debt.
In the US?

>>>>>>>>>>The middle class of the fifties was chiefly created by the wealth which fell our way in the U.S. as a result of the fact that all other countries' economies were in shambles after WW2.

None of that wealth was made from manufacturing and producing real goods, or people doing real, useful work?
Try telling my dad that one, or some other old-timers.

>>>>>>>>The last 20-30 yrs have seen remarkable growth in GNP wealth creation (Bill Gates didn't make just himself wealthy)

No, he made a few others wealthy, too. Not a lot of others, though. Most Microsoft employees aren't wealthy, just a very few on the top.
Just like Walmart. Just like Home Depot. The great majority of workers are just barely squeaking by, with not as many social benefits as a simple farmer had in the past.

>>>>>>>>>>but simultaneously -- and the point I was making two days ago, we are increasingly a debtor nation.

Well, the point I've been trying to make is: Don't blame the socialists for it. They have NOT been in charge (in the US) for the past 30 years.
The socialists have been in charge here, and as I said, the population is NOT in debt to the banks for their very homes.

>>>>>>>>>>The notion of living frugally and saving for a rainy day has been lost as a virtue.

There are 100's of thousands of people living in cars and tents and basements in the United States, with no jobs, and not enough food to eat. How should they live more frugally, or save for a rainy day?
There are millions and millions more, in the US, living at a stage just above not having a place to even live in. How should THEY live more frugally? Move into a tent? How should they save for a rainy day? Stop eating? Sell blood?
My God.

>>>>>>>>>>As for the path out of the economic turmoil... well, social planning has historically failed everywhere it has had free reign, so if the nation veers that direction, I am not sure why we would see a different result this time around. The point being made by citing FDR's Folly.

Where has social planning failed? The economies in China, Laos, and Vietnam are growing, while those in South Korea, Thailand, and Japan are falling.
Maybe you can give me some examples from the Western Hemisphere.
What major country is in financial free-fall, right now, in debt up to its ears to China, with a large percentage of the people not even able to afford basic medical treatment? Is it a socialist country, or is it a "compassionate conservative" country?

LEWagner said...

>>>>>>>>One thing I've been saying lately.......Our present Government reminds me of a teenager who gets a new Credit card...and goes on a spending spree , not realizing that the Bill will come at the end of the month......Unfortunatly I'm seriously questioning whether it's their stupidity.....or if their real intention is to destroy this country....

The Bush administration cut taxes for the rich, put the entire Iraq War on credit card, and drained the Treasury.
Why didn't that bother you?
Yeah, Obama's borrowing. He has to. Bush left America broke, and in debt to the Chinese.
When you're broke, what can you do BUT borrow?
The question we should be asking is, "Was it the Bush administration's stupidity, or their intention to destroy the country -- that caused them to put America and Americans in such debt, that any attempt to get out, is just digging deeper?"
The world IS asking that question, by the way.

LEWagner said...

>>>>>>>>When you're broke, what can you do BUT borrow?

I should have said, "When you're broke and have nothing left to sell, what can you do BUT borrow?"

Ed Newman said...

1. the levelling I was referring to was U.S. wealth (overall) going down as India and China, etc. go up. I was not referring to rich and poor in America. Excuse my lack of clarity.

2. I agree that there is a serious problem in America that all those goods are paid with by credit. That was my inital point Tuesday.

3. re: Fifites wealth
Not my point there.

4. >>> where has social planning failed?
Maoist China in fifties resulted in tens of millions dying of starvation while there was food in the silos. The wealth in China was created when they became Capitalist...

LEWagner said...

>>>>>>2. I agree that there is a serious problem in America that all those goods are paid with by credit. That was my inital point Tuesday.

And I'm trying to establish that that is not the fault of socialism, which has never had any political power in the United States.

>>>>>>>3. re: Fifites wealth
Not my point there.

I read your point, that the middle class of the fifties was chiefly created by wealth that "fell [their] way". I disagreed with that point, and I'm sure my dad would too.

4. >>> where has social planning failed?
Maoist China in fifties resulted in tens of millions dying of starvation while there was food in the silos. The wealth in China was created when they became Capitalist...

Food in the silos, but no way to get it to the people who needed it? That sounds like a LACK of planning, to me, or perhaps inadequate infrastructure?
Of course, in capitalist America, families are presently living in cars and tents, while there is no shortage of empty, locked, and guarded houses and rooms that could accommodate them. Also in capitalist America, the poor are denied life-saving medical-care, while those at the top of the medical and pharmaceutical industries get richer and richer. Also in capitalist America, the landless poor are just about forced to eat salmonella-laced food from the huge food-packers, while small producers are forbidden to sell what they raise, even to their neighbors.
In America, however, these anomalies are said to be caused by a moral failure of the poor themselves, not by a total lack of insightful planning by the people who've been in charge of the government for the past 30 years -- the same crew who proudly repeated the failed trickle-down policies of the 1920's. These people are STILL are arguing for more of the same, even as the end results of these policies have clearly ushered in the second Great Depression.
The Chinese Communists at least had the excuses of inexperience and a country that was backward to start with -- they had been in power for less than 10 years during the 1950's, and China had suffered close to 20 years of war, after over a century of colonial exploitation.
If, 50 years later, the Chinese were STILL concentrating nearly all economic power in a few mega-companies and mega-farms that just about everybody was required to work at, while stifling as much grass-roots competition as possible, (as IS still being done in the US today), I'd have to say they were as incapable of learning anything from experience as are the Milton Friedman-type theorists in the United States.
And if the Chinese Communists had outsourced nearly all their manufacturing capabilities to other countries with the claim that this would strengthen their own economy, I'd have to say they were idiots.
Total economic power wielded in the hands of a few rich, powerful, greedy, and short-sighted people doesn't work. 1950's China proved that, and 2000's America proves it yet once more.
That doesn't mean that *social* planning doesn't work -- but only if it takes ALL the people's needs into consideration, not just the needs of a few lucky college-educated people with marketable skills.

Ed Newman said...

The debt problems in America are not the fault of socialism.

As for social planning... Where has it succeeded?

The free markets are like people who walk toward each other on a crowded New York intersection crossing the street. It looks like chaos, yet they never collide. The instincts of the street walking masses are driven by inner senses, not prescribed planners, laws and such.

The failures of the planners are too numerous to cite. I mentioned one obvious one... if one takes time to investigate, the flaws become apparent.

Capitalism is flawed, I agree. And the human race itself is flawed. Sadly.

Ed Newman said...

>>>>I read your point, that the middle class of the fifties was chiefly created by wealth that "fell [their] way". I disagreed with that point, and I'm sure my dad would too.

My point was not that people did not have to work to get ahead in the fifties. Rather, that the U.S. as a whole had a tremendous economic advantage while the competing world economies were in shambles at that time. This benefited Americans in ways that are no longer valid or relevant today due to global competition. Much has been written about this, so I am only stating the obvious.
The playing field has shifted significantly.

LEWagner said...

>>>>>>>>As for social planning... Where has it succeeded?

I already answered that question in a previous post above, and I quote:
"Where has social planning failed? The economies in China, Laos, and Vietnam are growing, while those in South Korea, Thailand, and Japan are falling.
Maybe you can give me some examples from the Western Hemisphere."
Obviously, just like people, governments HAVE to make plans, somehow, sometime, somewhere. Some plans are smart and good for society, and some plans are downright stupid and harmful to society (they're *anti*-social).
Freeing bankers to seek higher and higher profits by making loans on luxury consumer items that people can't afford and don't need, is a stupid and anti-social plan.
Restricting bankers from making loans on such items is a smarter social plan.
That's why the banks in the US are going belly-up, and the banks here in Laos are not going belly-up. The banks here are regulated to keep them honest.
Freeing big corporations to take over whole neighborhoods with big-box stores that crowd out local competition is a stupid and anti-social plan.
Allowing neighbors to sell to neighbors and to police each other on a small scale is a much better social plan. There is no unemployment, here. Anyone can start a shop, anywhere.
Freeing greedy corporations to outsource manufacturing is a stupid plan. America is now dependent on China for a large percentage of its goods, and in debt up to its eyeballs.
Encouraging local manufacturing is a smarter plan, which keeps people working, the money in-country, and keeps the country independent.
Freeing huge meat packers to put out millions of pounds of contaminated meat to be recalled only after killing a few people and sickening hundreds, or freeing huge manufacturers to put out lead-contaminated toys (as was done in China) are stupid and anti-social plans.
Strictly regulating the big companies to ensure safe products, while allowing local people to trade locally and regulate each other by reputation, is a much better social plan. The meat is fresh here, and only fresh. Killed the same day, in fact.
It's not a matter of "social planning" versus "freedom"; it's a matter of "social planning" versus "anti-social planning".
The greedy and unscrupulous will always plan and scheme to get more than their share, and SOMEBODY has to plan a way to prevent them from doing that.

>>>>>>>>>The free markets are like people who walk toward each other on a crowded New York intersection crossing the street. It looks like chaos, yet they never collide. The instincts of the street walking masses are driven by inner senses, not prescribed planners, laws and such.

They never collide?!?
You're saying there shouldn't be any planning or laws to prevent Ponzi schemes such as Bernie Madoff's? He didn't collide with anybody? He just walked right on through, and didn't damage anybody, because they all followed their better instincts and went around him?
Wow.
No laws against greedy dishonesty? No laws against selling snake oil as an effective cancer cure? No laws against selling peanuts with salmonella? Just trust that everyone will be driven by their inner senses, and no one will scheme to grab more than their share, and to heck with anyone who gets in their way or buys their contaminated products?
No traffic lights in New York City?
If one takes time to investigate, the collisions become apparent, even WITH the traffic lights.

>>>>>>>>>>The failures of the planners are too numerous to cite. I mentioned one obvious one... if one takes time to investigate, the flaws become apparent.

I think I've taken as much time to investigate various economic plans as anyone else has.
Internet friends not even trained in economics predicted the housing bubble bust as early as 2003. They pointed out that the whole thing was obviously a Ponzi scheme, (a greedy plan to help a very few get rich at the expense of others) and obviously, housing prices couldn't continue to go up, forever.
Paul Krugman predicted it too, by the way, but the so-called "free-marketers" wouldn't listen to him. They called him a "socialist", as if that were a dirty word.
A failure of planning, all right, to let the big boys grab what they could at the expense of everyone else -- and the United States is suffering for it now. It is sad.
One more comment: It's just a leeeetle bit too early yet for the right-wing to blame the Bush recession on Obama's policies. He hasn't even been in office 100 days. Stick to blaming FDR for the results of the policies of the past 30 years, and in another few months you can begin to blame Obama.

Ed Newman said...
This comment has been removed by the author.

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