History Lesson: The New Deal Revisited

For decades, many historians and educators have passed on the idea that it was FDR and his New Deal that brought the United States out of the Great Depression, while in reality, the New Deal prolonged chronic unemployment in the U.S. in the 1930s, Cato Institute scholar Jim Powell said recently.

“The New Deal was substantially financed on the backs of the middle class and the poor,” Powell said at a Cato Institute Forum. Powell spoke, along with Michael Barone of U.S. News & World Report, on the findings of his new book, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003). Powell’s book brings together evidence from the recent findings of several dozen economists at Princeton, Stanford, Columbia, Brown, the University of Chicago, and the University of California at Berkeley.

Throughout the bulk of the Depression, unemployment rates averaged about 17 percent. What help the New Deal did provide did not go to those who needed it most. Meanwhile, other New Deal policies impeded, rather than helped, the creation of new jobs, particularly for unskilled workers.

New Deal policies, Powell said, were especially harsh on black Americans. Wages set by the government above market level meant that 500,000 black Americans lost their jobs. By lowering farm production the Agricultural Adjustment Act of 1933 cost thousands of poor black sharecroppers their jobs while also increasing prices for food.

The many public works projects FDR introduced became an active drag on the U.S. economy, while doing little to help, Powell said. The Tennessee Valley Authority (TVA), for example, probably did much more harm than good. The TVA flooded an estimated 730,000 acres of land. Thousands of citizens lost their property and homes to the flooding waters. Tenant farmers were not given compensation for their loss of land and property. Furthermore, the electricity that the TVA eventually provided did almost nothing to benefit Tennessee farmers that had been most affected by the project’s construction. Tennessee farmers did not need electricity, Powell pointed out. They needed gasoline or other engine fuel for farming equipment. Moreover, electricity prices from the TVA were overly high, thus further restricting its usefulness to lower and middle class workers.

FDR referred to investors and corporate leaders with contemptuous language, calling them names like, “economic royalists.” This habit made businessmen more worried about making investments for it implied that the fruit of their efforts might be taken from them by some future reform. The values of hard work were similarly played down.

Powell recounted a few of the lines of a Louis Armstrong song of that era: “Sleep while you work, rest while you play, lean on your shovel to pass the time away, at the WPA [Works Progress Administration].” The WPA was a key New Deal program.

Many historians praise FDR for his political abilities, and his success in boosting the morale of Americans during the Depression. Powell and Barone mildly disagreed on this matter. Barone believed that Roosevelt did have a sizable accomplishment in this regard, and that Roosevelt may have helped save capitalism in the U.S. by moderating the radical revolutionary feelings among some parts of the American population. Powell, on the other hand, argued that the best answer to those advocating revolution was for the U.S. economy to regain its vigor as soon as it could. Notorious figures such as Father Charles Coughlin and Louisiana Governor Huey Long would never had had the following that they did, Powell suggested, were it not for the sputtering American economy.