The ghost of FDR is everywhere, haunting both Washington and New York City. The dreadful problem is that the minds in power have confused an economic wrecker with an angel of mercy. They are following his confusions and prescriptions day to day in an attempted repeat of the longest economic disaster in modern-day American history.
They have taken a look at the history of the New Offer and totally misunderstood it, thinking the civics-book claptrap about how FDR saved us from the Depression, whereas the fact is that FDR’s theories and policies extended and deepened it to the point that the only way out that the Roosevelt administration saw was war.
The excellent theoretical mistake of the New Dealers was to confuse the symptom of low costs with the causes of the economic slump. The genuine problem was that rates were enormously pumped up prior to the stock-market crash of 1929. The correction had to happen and would have happened in harmony, if not entirely painlessly, had the federal government not intervened.
No government in all of human history that has actually waged war on rates has won.
The Great Anxiety is display A.
First there was Hoover with his attack on the “bitter-end liquidationists,” whose guidance he summarily declined. Rather he increased taxes, regulated against short selling, attempted to broaden liquidity and the cash supply, attempted to maintain existing wage rates, extended loans through government, and bailed out debtors with insolvency laws. For more on Hoover’s antimarket program, see Rothbard’s America’s Great Anxiety.
Roosevelt took office and extended this program, while rhetorically claiming that it was the free-market policy of the Hoover administration that failed. Today we see Bush’s attack on speculators and the mediawide attempt to claim that the meltdown is triggered by unregulated markets run amok. No doubt the next president, whoever he may be, will continue this crusade against markets, pretending as if the Fed and the Bush administration have not been attempting antimarket ways of rescue for fully 2 years, with each effort backfiring.
But now let’s eagerly anticipate the next step in the war on falling costs in the 1930s. FDR took workplace under the guarantee that he would curb the huge costs of the Hoover administration. The tune altered once he took office. Like Hoover prior to him, he denounced the abundant and effective speculators, bankers, and corporations he blamed for bad financial times. Even as he was stating these things, he called together individuals he considered as the most powerful and essential business, banking, and labor interests– together with a gaggle of professors from Columbia– and essentially asked what they wanted to get the economy going again.
This was the Brain Trust that set the pattern for all of Washington’s activities from then to the present day. John T. Flynn, in his skillful book The Roosevelt Myth, explained the first round of the New Deal as
that huge hippodrome, that stressful, whirling, woozy three-ring circus with the NRA in one ring, the AAA in another, the Relief Act in another, with General Johnson, Henry Wallace and Harry Hopkins popping the whips, while all around under the large tent an entire drove of clowns and dervishes– the Henry Morgenthaus and Huey Longs and Dr. Townsends and Upton Sinclairs and a host of crackpots of every variety– jumped and danced and toppled about and shouted in a terrific harlequinade of federal government, until the tent came toppling down upon the heads of the cheering audience and the prancing buffoons.
What did the elites gathered around FDR demand? Greater rates (naturally), consistent industrial codes on labor and prices, production controls, an end to competitors from below, security for labor unions, ensured credits, import tariffs– and likewise the authorities power they required to impose all this. The model here was Mussolini’s Italy, which was related to at the time as a perfect system of commercial management. Naturally, antitrust laws were shelved as the federal government itself set out to create as lots of trusts as possible.
What came out of these conferences was the all-around industrial planning mess called the National Industrial Recovery Act, which created the National Recovery Administration. The head was previous draft administrator General Hugh Johnson, who brought to the effort every propaganda trick he had actually learned from his kidnapping years. He started with a main strategy of wages, working hours, rates, and production quotas. He broadcast, to the documents, to billboards, motion pictures, and everything else to work up a craze.
There was a sign of compliance: The Blue Eagle. FDR stated on the radio that “soldiers wear a bright badge to be sure that pals do not fire on associates. Those who work together in this program must know each other at a look. That bright badge is the Blue Eagle.” And, included Johnson, may “God have mercy on anyone who tries to trifle with that bird.”
And you know what? It is a complete disgrace that service supported everything– for a while.
Flynn tells of cops raids of factories, as workers were lined up and questioned to make certain that they weren’t working overtime and weren’t accepting less than the government-approved minimum. Customers were apprehended for paying less than the authorized minimum prices. A tailor named Jack Magid in New Jersey was apprehended and jailed for charging 35 cents rather of 40 cents to press a pair of pants. In time, the NRA became unenforceable, as black markets emerged in every market. The crackdown became worse, with nighttime raids on factories, and bureaucrats chopping down doors with axes to make certain that nobody was stitching clothes. The NRA staff ballooned from 60 staff members to 6,000 at the national level.
The entire thing became a war on production to benefit a handful of elites, all in the name of keeping prices up, all on the extensive misunderstanding that enhancing costs would improve production, whereas the opposite was true. Finally the Supreme Court came to the rescue and declared the entire Soviet-like plan unconstitutional, however, by that time, it was clear that it was unworkable and doomed to failure.
At the extremely exact same time, other sectors such as banking and agriculture were being administered by other destructive plans, all based upon financial error. The result was great waste, devastating attacks on flexibility and performance, a regimentation of the entire nation under a totalitarian, and a prolongation of the Anxiety, which went on and on.
No matter how many disasters FDR produced– and it was nonstop– and no matter just how much his absurd “rabbits from the hat” were exposed as financially harebrained, with every new bureau, every new law, every brand-new initiative, the economy continued to sink.
The New Offer is a paradigmatic case of how to turn a recession into a depression. That United States leaders regard this as a model to follow does not speak extremely well of their economic literacy, and it does not bode well for our future.
On the other hand, if you wish to see how to handle a crisis, think about the Panic of 1819. Never become aware of it? That’s because it came and went, and that’s because the federal government not did anything about it.
[Originally released October 7, 2008.]