Diary: 'Failure' of the New Deal, Part III

In spite of unassailable facts concerning the effect President Franklin Delano Roosevelt's New Deal program of the 1930s had on the Great Depression OpEdNews's primary "libertarian" propagandist ignored all facts and challenged the recovery while claiming the New Deal failed by using quotes out of context or misunderstood, propaganda pieces from likewise antigovernment ideologues, anecdotal arguments lacking a single fact and other events that had no relation to the Great Depression.

Facts that disprove conservative and libertarian claims were detailed in the first two articles of this series at
http://www.opednews.com/populum/diarypage.php?did=12078
and
http://www.opednews.com/populum/diarypage.php?did=12109
so we won't visit them again.

Our fact-avoiding libertarian attributes economic growth following the 1920-21 severe recession to spending reductions and otherwise do-nothingism by government. That is nonsense.

He asked: "If cutting govt spending & balancing the budget is bad for the economy in a downturn then how do you explain the recovery from the recession of 1921 which happened with the govt cutting spending & balancing the budget?"

First of all, no one said those activities "were bad for the economy." I only said they didn't work in the Great Depression.

Claiming reduced spending corrected the recession following World War I is ignoring reality. The timing of that recession (depression, some say) mirrors the November 1948-October 1949 recession during Harry Truman's administration. Since our libertarian doesn't understand the occurrences or similarities; here is how it worked both times.

During World War I (June 1914-November 1918) and World War II (December 1942-September 1945) the economy was on a wartime footing producing material mostly for the war. Unemployment was low because millions of men were in the military and those not in the service were employed in production for the military. For employed civilians, there was nothing to spend their incomes on other than basic necessities of life, so they saved most of their incomes.

When both wars ended, military production continued in order to replenish the military before the economy could switch from wartime production to peacetime production. When the continuation of the war powers that took over the economy was challenged in court, the United States Supreme Court ruled that the extraordinary war powers could continue into peace time in order to replace all destroyed in the war. But when the military was made whole (in two to three years), the economy needed to switch back into peacetime mode and that meant manufacturing had to retool to produce consumer goods. That lack of commercial activity during retooling produced recessions a few years after both wars.

When the retooling was completed, and goods were once more available, the public that was awash with cash from saving for six or more years went on a buying spree, purchasing automobiles, houses, furniture, appliances, clothing and numerous other items that had been unavailable for years Those buying sprees produced extraordinary economic activity that ended both the 1920-21 and 1948-49 recessions without government assistance, and loaded federal and state government treasuries with tax receipts to balance all budgets. Reduced government spending had nothing to do with ending either recession, lower spending brought about by government no longer purchasing extraordinary amounts of military equipment and supplies led to those recessions.

And our libertarian ignores the recessions of May 1923-July 1924 and October 1926-November 1927 which followed his "miraculous" cuts in government spending and preceded the Great Depression.

It is thought that the 1920s was a decade of monster growth and production. It was the "Roaring Twenties" but it roared mostly for the elites of the nations who had the economic laws skewed in their favor and went on a wild party while much of the rest of the nation was housed in dilapidated tenements or in rural shacks and cabins. Many had to work in sweatshops where employers locked all the windows and doors (hence the term "sweatshop") making it impossible to escape during a fire. Others had to scratch out a sustenance from soil that was dying because no one had discovered how to replenish it with crop rotation or nutrients.

The policies of the twenties produced a disparity of income in America in which one percent of the population had 20% of the nation's wealth in 1928. That exact same disparity occurred in 2008 just as the present Reagan-double-Bush "Voodoo Depression" began. And in both cases, the high concentration of wealth at the top 1% meant there was less money with that portion of the population most likely to spend it in the economy. Using money saved by a tax cut to buy a villa on the coast of Italy or Treasury instruments that prop up the national debt is not productive for the US economy.

The Roaring Twenties also saw conservative presidents reverse the trust-busting of Teddy Roosevelt, and lesser degrees of busting by William Howard Taft and Woodrow Wilson, to let corporations run wild and do as they wished. That was mirrored by the deregulation of present-day financial entities by Ronald Reagan, both George Bushes and Bill Clinton that resulted in the present financial meltdown.

It is only fair here to offer a slight defense of Herbert Hoover. He is blamed for the Great Depression, but that is unfair. He had been in office less than seven months (from March 4 until September 29) when the Wall Street crash of 1929 occurred and no one could be so incompetent to do so much economic damage in such a short period of time to create that crash. Hoover's sin was in doing the wrong things as the Depression grew increasing worse under his watch.

The Great Depression was caused by the policies preceding Hoover, those of Warren Harding and Calvin Coolidge who stated "the business of America is business." Coolidge's position reflected that of Reagan who claimed that "government is not the solution to our problems, government is the problem" and government should just get out of the way for business to lead us to an economic paradise. Is it any wonder that the disastrous conservative policies of the 1920s and the 1980s-2000s ended in similar fashion. The present meltdown took longer to occur because we still have some of FDR's anti-depression measures in force.

Hoover cited the activities of his predecessors noting that Woodrow Wilson had been occupied by WWI and Harding and Coolidge were concerned about economic reconstruction (the switch from wartime to peacetime production, mentioned above) so neglected the needs of the nation. Hoover wrote, "Mr. Coolidge was reluctant to undertake much that either was new or cost money. And by 1929 many things were already fourteen years overdue." That sounds an awful lot like the Republican administrations of the past three decades totally ignoring the crumbling intrastructure all around us, our dependence of foreign oil, climate change, all of which have led to a lack of innovation on all energies and products.

In the book "The American Presidents", author David C. Whitney wrote, "Unfortunately, neither he (Hoover) or his advisors, nor the orthodox economists of the country knew what to do." Hoover tried some orthodox measures, which was the wrong medicine. His public-works programs to compensate for Harding and Coolidge neglect were small and ineffective so he engineered massive tax cuts through Congress. Tax cuts as economic cure-alls didn't work.

And our tax-hating libertarian never explained why the massive tax cuts under Ronald Reagan in 1981, that the right claims led to the "Reagan Miracle," never produced a balanced budget. Nor did the massive tax cuts in 2001 under George W. Bush, but both their tax cutting preceded economic recessions.

Blaming Hoover for the stock-market crash and subsequent depression is foolish, but not as foolish or idiotic as the Republican politician who just last week said the 1929 stock-market crash was caused by policies of FDR, who didn't become president until 1933.

Our libertarian takes quotes out of context or misunderstand them trying to claim a New Deal failure.

He cites this May 1939 quote by Henry Morganthau:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot." (Of course, in 1939 the administration was six years old, not the eight in the quote.)

What our libertarian didn't acknowledge is that the aristocratic Morganthau, FDR's secretary of the Treasury, always believed in balancing the budget, a stable currency, reduction of the national debt, and a need for more private investment under all circumstances. He, like the orthodox economists who advised Hoover, didn't know what to do in extraordinary times other than the orthodoxy. And that was his advice to FDR, but FDR had done otherwise between 1933 and 1937 when unemployment had been reduced significantly and the GDP had grown substantially.

The New Deal had inherited an unemployment rate of 24.9 percent and a Gross Domestic Product of $56 billion in 1933, down from $104 billion in 1929. The New Deal got unemployment down to 14.3% and the GDP up to $90.8 billion by 1937 at which point FDR tired of conservatives's constant whining to cut spending and balance the budget. FDR reduced spending and the GDP fell to $85.2 billion and unemployment rose to 19%. So when a reversal of the New Deal's progress occurred in 1938 after FDR followed Morganthau's advice in 1937 and sought a balanced budget, Morganthau jumped on the reversal to criticize the New Deal that he had never fully supported.

It was not until 1939 and government spending increases that the GDP recovered to its 1937 levels and until 1940 that unemployment neared its 1937 level, thereby losing about two years in the recover just for listening to right-wingers. That reversal gave Morganthau the opportunity to knock a program he was never fully behind trying to salvage his own beliefs. That is not proof of a failure of the New Deal. Our libertarian did not give Morganthau's ~ or any other cabinet member's ~ assessment from the summer or fall of 1941, a year in which unemployment was at 9.9% and the GDP was $125.8 billion, a 125% increase from the 1933 GDP inherited from Hoover, or more than 15% annual growth, even factoring in the two lost years trying right-wing "solutions". An annual growth of 3% to 4% is considered healthy today, and anything above that is robust.

Those leftists who complain that Barack Obama has filled his cabinet and advisory positions with "moderates" not sufficiently progressive enough for major changes, should take solace in knowing that FDR also had in his inner circle moderate or conservative men who weren't onboard with his progressive programs, but he did spectacularly well.

The libertarian proved he misunderstands quotes when he wrote:

"In cabinet meetings in November 1937 FDR said the following:

'I get all kinds of criticisms and complaints about the economic situation, but few people come into me with any concrete suggestions as to how the situation can be alleviated. It's easy enough to criticize, but it's another thing to help.'

'I'm sick and tired of being told by the cabinet, by Henry and everybody else what's the matter with the country and nobody suggests what I should do.' "

To the libertarian, FDR was professing a failure of the New Deal and he didn't know what to do. That is nonsense. Roosevelt was expressing his frustrations at know-nothing whining about "do nothing, do nothing, do nothing" and "balance the budget, balance the budget, balance the budget," and "cut spending, cut spending, cut spending" the orthodox solutions that he tried and which failed. What he was telling his advisors is, if you must give me advice, give advice that would work not the same old crap that failed throughout Hoover's reign of ineptitude. Our libertarian couldn't grasp the meaning of FDR's statement.

The success of the New Deal should not be taken as proof that the present "economic stimulus" package just enacted will have the same outcome, but we can be assured that doing nothing or merely cutting taxes of the aristocracy would probably take us down the same path Herbert Hoover took the nation for four years.

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Author's note: I did not start this three-part series on the New Deal to prove that the New Deal worked. The intention was to counter right-wing arguments that the New Deal failed and that government spending is "wasteful"; two ridiculous claims that became more intensified, strident and ridiculous as the present stimulus package was being considered. There is no concrete proof that the New Deal worked; we can only look at the facts and form a logical conclusion that it did work because of the spectacular growth in the Gross Domestic Product and reduction in unemployment while the New Deal was active. No one can claim failure unless they can factually prove when the Great Depression would have ended and how the GDP would have grown had the New Deal not existed. And no spending in the economy ~ whether government, consumer or industrial ~ is "wasteful" because it all goes to the same purpose; economic activity. The argument that the New Deal failed appears to be nothing more than ideological hatred of the United States government, especially when it is progressive, and is not based on reality. It is galling to hear conservatives now claim to be protecting the "taxpayers" by opposing the stimulus and accusing Obama of "generational theft" after they spent 20 years of the Reagan and Bush regimes piling $10 trillion of debt onto the backs of taxpayers. And that doesn't include the trillions the Iraq-war fiasco will cost and which must be paid for by persons in generations presently unborn. Under Republican administrations their mantra was, "the taxpayers be damned."