My friend Conrad Black takes up the topic of the New Deal’s economic success in a recent column for NRO. He seeks to demonstrate that Franklin Roosevelt is not to be blamed — or, so it seems, even criticized — for economic trouble in the 1930s. Conrad frames his attack around my work. His rhetoric is so eloquent that some facts have escaped his attention. Herewith, a point-by-point reply.
(1) Conrad writes: “The argument that Roosevelt failed to end the Depression is too foamite-sodden for even so fiendishly persistent and endearing a pyromaniac as the delightful and otherwise rigorous Amity Shlaes to make any headway reigniting it.”
Roosevelt did fail to end the Depression, and we know that from common-sense measures. Most of us today define recovery as “getting back to where we were before.” Measures we use to gauge whether we have done that include unemployment, the absolute size of GDP or GDP per capita, and stock indices.
By these measures, FDR’s first term and most of his second were a flunk. Unemployment hung in the double digits during FDR’s first two terms. He won his third term in a quarter with one of the lowest unemployment rates of the decade, a still-atrocious 14.2 percent.
These data points come from the Bureau of Labor Statistics (BLS) and have been used by President Obama and Council of Economic Advisers chair Christina Romer. Some have contested them, pointing to another set of data, sometimes called “Darby” after its developer, scholar Michael Darby. His set offers a slightly different picture. Darby has a couple of years — but only a couple — where unemployment got below the 10 percent line, and then only barely. In other words, the difference between the first set and the Darby set is the difference between terrible and awful. (See tables 5.1 on page 77 and 8.1 on page 151 of Richard Vedder and Lowell Gallaway’s Out of Work.)
The economy did not recover until well into FDR’s second term. The Dow Jones Industrial Average did not reach its 1929 level until FDR had been in his grave for a decade.
(2) Conrad writes of the early New Deal (presumably, spring 1934 over spring 1933): “So about 60 percent of the unemployed were gainfully occupied within a year.”
This Obamaesque argument recalls the current White House’s emphasis on new jobs created, rather than net employment. Roosevelt took office in March 1933. In the first year of the New Deal, New Deal programs indeed created many jobs. Those jobs were much appreciated by those who got them, and remembered lovingly by the rest of us. Nonetheless, then as now, the net number is what matters. Net unemployment in March 1934 was 20 percent. For the year of 1934, the BLS number is 21.7 percent. Unacceptable. By Darby, the average for the year was 16.2 percent or 16 percent. Also unacceptable.
(3) Conrad writes: “The argument is that Roosevelt threw money out of the windows from 1933 to 1937 to pull out of the Depression, and then eased up; and that the economy therefore relapsed until he was rescued by Hitler and Tojo.”
This is essentially the monetary argument. It says that monetary and banking/credit policy caused the downturn of the later 1930s, the Depression within the Depression.
Conrad has attributed this argument to me before. It is not my argument. It is the argument of the Obama White House, more or less. It also has won the support of New York Times columnist Paul Krugman. It is surprising that Conrad would confuse me with Paul.
In The Forgotten Man (and/or elsewhere), I do argue that monetary and bank tightening hurt the economy in the later 1930s. I also note that enormous spending can in general raise GDP for a year or two. But the gist of my argument, made in numerous places, is that the key event in bringing an end to the so-called Depression within the Depression of the late 1930s was the New Dealers’ exhaustion. Roosevelt and others turned away from the home front and looked to the war abroad instead. Finding itself a partner rather than a target, business revived. Another way to put it: The big question is not how World War II ended the Depression; it is why the Depression lasted until the war. All other things being equal, the U.S. economy likes to recover. Eventually, it opted to.
(4) Conrad writes: “By 1934, Roosevelt had withdrawn the dollar from the gold standard . . . ”
This phrasing is a little confusing. It was in 1933 that Roosevelt withdrew the dollar from the gold-standard arrangement of $20.67 an ounce. In 1934, he devalued the dollar by fixing it again to gold at $35 an ounce. Neither arrangement, pre-1933 or post, was a true and thorough gold standard. Nonetheless, we commonly refer to what FDR did in 1934 as “going back on the gold standard,” just as we talk about the “gold-standard system” that Nixon ended by closing the gold window.
(5) Conrad writes: “In mid-1935, responding to the political inroads of Huey Long, Charles E. Coughlin, Francis Townsend, and other extremists, Roosevelt raised income taxes on the wealthiest, but spoke of the virtues of high taxes only during the war, and as a temporary measure — along with some further wage and work regulations, and a change in the structure of hydroelectric-power groups after the collapse of the Insull interests.”
This suggests that Roosevelt raised taxes on the wealthiest Americans just once. It is important to recall that in these years, only the wealthiest paid income taxes. Roosevelt raised income taxes on those in the top percentiles on the distribution tables multiple times. For example, those earners in the $50,000-or-higher bracket (definitely America’s wealthiest citizens at that time) paid a 31 percent top rate when FDR came into office. That rate was 34 percent by 1934. It became 35 percent under the Revenue Act of 1936.
Roosevelt liked to keep taxes high, when he could. The 1938 gutting of the much-hated undistributed-profits tax happened only because a rebelling Congress chose to make the change law without his signature. (For an enlightening read, see Joseph Thorndike’s forthcoming history of Roosevelt and taxes.)
(6) Conrad writes: “FDR did resent corporate ingratitude.”
Roosevelt did more than resent. At many points, the president vilified businesses to an extent that made the country believe he was declaring war on business. In his 1936 Madison Square Garden speech, Roosevelt called businessmen “the enemies of peace.” He went on to say of business: “I welcome their hatred. I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master.” It would be hard to imagine such a thing being said today.
(7) Conrad writes that Roosevelt never went after the rich personally: “If he [FDR] had once singled out by name the ‘malefactors of great wealth’ and exploited the anger of the Depression-scourged masses, they would have burned down the houses of the rich.”
Roosevelt did name names, ignoring the resistance of administration lawyers. The way he did it was by singling wealthy people out for public prosecution for violating tax law. Many went to court or jail. “Everyone in tax trouble,” Morgenthau reports telling his staff, “is against Mr. Roosevelt.”
Conrad Black now sits in federal prison (though hopefully, with good news from the courts this week, he will soon be out on bail), even after winning a unanimous victory in the Supreme Court. He is being pursued civilly by the Internal Revenue Service. This all puts him in a better position than most to understand the damage that overzealous prosecution wreaks.
In June 1937, Guy Helvering, head of the Bureau of Internal Revenue, produced a list for the public of 67 “large wealthy taxpayers” who “have avoided paying their full share of taxes.” Many of the names on the list were published in the New York Times. The Bureau of Internal Revenue disingenuously noted, even as it announced the names, that these taxpayers had used legal devices. Nonetheless, the precise purpose of publicizing this list was to attract the interest of Conrad’s “Depression-scourged masses.”
Roosevelt and his Treasury targeted former Treasury secretary Andrew Mellon for several years. At his express request, Roosevelt’s Treasury and Justice Department kept Mellon in court until he died. Roosevelt and his Treasury secretary, Henry Morgenthau, personally insisted that Mellon be prosecuted for fraud, against the advice of lawyers who knew the case was weak. There is even circumstantial evidence of the effect of Roosevelt’s hostility upon the market — within a month of Mellon’s death, the market crashed.
(8) Conrad writes that without Roosevelt the U.S. would have confronted mass unrest or worst: “Roosevelt preserved the moral integrality of the nation . . . ”
My own research and that of others suggests that the argument that the U.S. was close to revolution is exaggerated. The potential for unprecedented unrest existed in the early 1930s (a Katrina of a period), but not later. What instability there was stemmed in good part from the left-wing policies of the New Dealers, most especially the Wagner Act, which, at least unadjudicated and unrevised, as it was early on, gave unions the license for the violent sit-down strikes that tore the country apart in the latter 1930s.
(9) Conrad writes of “Amity and her FDR Arson Society.” There is no such society. There are just a number of scholars and writers who are asking questions about the New Deal. To assume all of us hate FDR is to assume too much. The Forgotten Man concludes with a sympathetic view of the U.S. decision to engage in Europe, which, eventually, was Roosevelt’s. The hero of The Forgotten Man, Wendell Willkie, actually became Roosevelt’s emissary because their foreign-policy views were so closely aligned.
To point out economic errors by the Roosevelt administration in the 1930s is not to trash the president entirely. And to engage in “president-ism,” the all-or-nothing picking of favorites, as Conrad is doing, seems unsubtle. If we refuse to scrutinize Roosevelt out of concern that we may tarnish a saint, we overlook outcomes of Roosevelt policies that are of relevance today.
– Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations and author of The Forgotten Man, is at work on the forthcoming biography of Calvin Coolidge, Coolidge.