FDR Reading

The Great Depression was the most devastating catastrophe in American history. Most

historians credit FDR and the New Deal with lifting America out of the Great

Depression, but the evidence indicates that Roosevelt’s policies actually prolonged it.

For example, in 1939 – seven years after Roosevelt won the presidency from Herbert

Hoover – the national unemployment rate stood at almost 21%. Indeed, Roosevelt’s

Treasury Secretary, Henry Morgenthau, confessed to fellow Democrats on the House

Ways and Means Committee that “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 an enormous debt to boot!”

Roosevelt subscribed to the theory that the Great Depression was caused by under-

consumption. This thesis claims that “The Great Depression was accelerated because

workers did not have adequate purchasing power during the 1920s to buy the products of

industrial America.” In short, Roosevelt blamed America’s economic maladies on the

misdistribution of wealth.

The under-consumption theory sounds plausible on a superficial level. After all, it seems

reasonable to believe that unequal distributions of wealth would mean that at some point

too many goods would be churned out with not enough buyers able to afford them.

However, the statistical evidence does not support the under-consumption theory. In fact,

the evidence indicates that, prior to the Great Depression, demand far exceeded supply as

Americans gobbled up radios, vacuum cleaners, telephones, cars, and other consumer

goods. Further, there was no great surge in corporate profits prior to the Great

Depression. Instead, employee compensation as a percentage of corporate income was

on the rise. All this makes the under-consumption theory untenable. Nevertheless,

Roosevelt latched onto the thesis and made it the linchpin of his economic program.

The under-consumption theory implicitly blamed the rich for wrecking the economy.

The assumption was that businessmen and entrepreneurs could not be trusted to manage

the economy. Therefore, academic and other experts would be needed to serve on

economic planning boards and see that wealth was more evenly redistributed. The stage

was set for a massive government intervention in the economy.

Relief and the WPA: Did They Really Help the Unemployed?

“The Founders all saw relief as local and voluntary, and the Constitution gave no federal

role for the government in providing charity.” However, as unemployment soared during

the Great Depression, many Americans wondered how the jobless would find the means

to provide for themselves. President Hoover, under immense economic and political

pressure, inaugurated federal relief efforts. Many states and charities opposed this

tendency, but Roosevelt expanded this approach with his Federal Emergency Relief

Administration (FERA).

The federal government’s assumption of functions traditionally managed by charities and

localities would prove to be a far reaching shift that ultimately undermined the American

work ethic. Federal handouts had a number of unintended consequences:

1) It discouraged recipients from finding work.

2) States had an incentive to exaggerate needs in order to receive large chunks of

federal aid.

3) FERA money was frequently dispensed on the basis of political considerations,

rather than on the basis of real needs.

To his credit, Roosevelt recognized some of the pernicious consequences of FERA. As a

result, he replaced FERA with the Works Progress Administration (WPA), which

replaced direct handouts with a form of workfare. Undoubtedly, this was a move in the

right direction. Many WPA projects led to improved public works such as roads, bridges,

and schools. However, many observers believe that creating jobs in the WPA meant

losing at least as many private sector jobs. After all, government spending depends on

higher tax rates, which leaves less money for private job creation. In fact, many WPA

programs proved to be boondoggles.

Roosevelt promised he would not use WPA and other government relief programs for

political ends, but the evidence indicates this is exactly what he did. Simply put, workers

were hired or fired depending on their allegiance to the Democratic Party. Not

surprisingly, states that were key to Roosevelt’s electoral prospects were showered with

relief money. Some elected officials objected to how federal money was being used to

buy votes, but politicians that refused to accept political pork soon found themselves out of office

No Free Ride: The Burden of Excise, Income, and Corporate Taxes

Franklin Roosevelt dramatically expanded excise taxes to finance his New Deal policies.

An excise tax, of course, is a government fee on goods manufactured within a country.

Traditionally, the United States had limited excise taxes to alcohol and tobacco. After

all, excise taxes tend to be heavily regressive. However, Roosevelt expanded excise

taxes to cover cars, telephone calls, stock transfers, gasoline, and countless other

consumer goods.

Roosevelt justified his reliance on heavily regressive excise taxes on the grounds that the

rich were not paying their fair share of the income tax. Roosevelt had a conspiratorial

mindset when it came to the wealthy; believing a clique of wealthy businessmen were

hoarding wealth and purposively hindering new investments. Some advisors suggested

Roosevelt should cuts taxes to stimulate growth, but FDR’s response was paranoiac; he

agreed that cutting taxes would probably help recovery, but he insisted doing so would

lead to the election of a fascist president.

Roosevelt’s paranoia regarding the wealthy was reflected in the draconian tax rates he

aimed at the rich. In 1939, the top federal income tax rate stood at 79%. But if Roosevelt

had it his way, anyone earning $100,000 or more would have been hit with a 99.5% tax rate

The IRS: FDR’s Personal Weapon

FDR may have been the originator of the practice of using the IRS as a political weapon.

In fact, “Roosevelt marveled at the potential of the IRS for removing political

opponents.” In addition to targeting political leaders who opposed him, FDR also used

the IRS to go after wealthy Americans and media critics of the New Deal. In short,

Roosevelt used the IRS to intimidate the wealthy in order to insure they sent more of their

money to Washington for the funding of New Deal programs. Ironically, FDR used

substantial deductions and loopholes to shield his own income. His tax avoidance

schemes were legal, but hypocritical.

Roosevelt’s New Deal programs did not bring America out of the Great Depression; most

historians agree that the mobilization and large-scale spending made necessary by WWII

led to the full employment that catalyzed America’s recovery. In fact, the evidence

indicates that Roosevelt’s ad hoc, whimsical, and politically self-serving New Deal

policies created the kind of uncertainty that prolonged the Great Depression.

Despite Roosevelt’s poor economic track record, the vast majority of historians have

lauded FDR. No doubt, many are sympathetic to his New Deal philosophy and wish he

had done even more to redistribute wealth and reform society. However, FDR’s

progressive view of government – that it should intervene to insure equality – is

diametrically opposed to the Founders’ conception of limited government, which

emphasized process not results.

“Roosevelt’s new progressive rights, unlike those of the Founders, imposed obligations

on society to provide jobs, buy homes, and pay for education.” Consequently, FDR’s

progressive philosophy led to a huge increase in the size of government.

The New Deal continues to cast a giant shadow over American society. It is a myth that

FDR’s New Deal policies restored American prosperity. Minimum wage laws prevent

low-skill workers from gaining a foothold in the workplace, thus exacerbating

unemployment. Social Security is financially unsound since the funds paid into the

system are no longer sufficient to meet future obligations. And farm subsidies continue

to impose indefensible costs on taxpayers and consumers.

The federal government’s massive intervention into American society began with FDR.

This fact has produced dramatic changes in our economic system, our politics, and our

presidents. Unfortunately, these changes have led voters to weigh money and subsidies

more heavily than substance and character when picking presidents.