How This Happened
For years, many of us puzzled about how something so stupid and destructive as the New Deal could have happened. The stock market crashed because it was over-inflated. That’s nothing new. History is filled with credit-filled bubbles that pop. Resources are reallocated to reflect economic reality and we move on.
The New Deal was different. It actually began under Hoover, who initiated new spending programs and jobs programs, and tried to inflate the money supply and bail out the banks. He was blasted by FDR for his big government policies, and FDR won the election. Once in power, FDR went nuts, instituting a program of central planning that combined features of the Soviet and Fascist models.
It was one idiotic program after another. They tried to raise wages when they should have fallen. They tried to save banks that should have collapsed. They destroyed resources when they were most needed. They encouraged spending when people should have been saving. They smashed the dollar at a time when it needed to be shored up. They cartelized business when competition was most necessary.
What were the results? Economic growth went nowhere between 1933 and 1939, with real gross domestic product per adult still 27 percent below trend at the end. Per capita GDP was lower in 1939 than in 1929. Unemployment was at 17.2 percent in 1939. This was actually higher than it was in 1931. This is despite 100 percent increases in monetary expansion. Taxes had tripled. Employing people became ever more expensive due to unions and national income guarantees.
Every time the economy would bottom out and genuine recovery would begin, policy would knock it back down again. Other seeming upturns were entirely artificial: make work instead of real work, for example. Regimentation was everywhere, so that business couldn’t compete, farmers were destroying livestock and crops on command, and dissidents were being ferreted out through police-state tactics.
In other words, the whole project was a massive dud. It turned what might have been a short downturn into a decade-long national calamity, the biggest cost of which was freedom itself. And then as a cover-up for the calamity, there was war. At last FDR found some use for those unemployed workers: send them to kill and be killed at taxpayer expense. As for wartime price controls and nationalization, it was the New Deal by other means.
(For a full account, with all the detail, in scintillating prose, see Flynn’s Roosevelt Myth.)
Was it some sort of national insanity?
No, it was a power grab, and the current political moment shows precisely how this happens. A small group of elites, cut off from the broader reality, decide to finagle the system to serve themselves and their friends in the short term while forgetting the big picture and the long term. Sensible people try to point out obvious facts but their voices are drowned out.