Monday, April 27, 2015

Making it "Great"

(After reading an old econ book from college and a book about President Franklin D. Roosevelt, I thought I'd post this book review from 2008.)

Following the 1929 stock market crash the nation entered an economic recession. President Hoover implemented many policies in an attempt to turn things around, but succeeded only in driving more banks into insolvency and increasing unemployment. He also sought to have government replace business as the spending engine in the economy, and initiated numerous projects, such as Hoover Dam in Arizona. But when conditions hadn't improved by the next election he was overwhelmingly swept out of office by FDR and his New Deal.

Beginning in 1932 FDR had high ambitions for his first 100 days in office, and indeed was a whirlwind of activity. Unfortunately, there wasn't much logic or reason behind the activity, and the uncertainty of FDR's policies and actions further weakened the market. But he went even further by seeking to regulate business excessively and replace many private-run industries, such as utilities. Taxes were increased as high as 90% for wealthy individuals, and many new taxes were created such as the death tax, inheritance tax, undistributed profits, etc. Tax rules where changed retroactively and government prosecutors were kept busy persecuting those who'd already paid or had run afoul of the complex government rules.

The Forgotten Man: A New History of the Great Depression by Amity Shlaes is a fascinating look at the Depression from a very convincing economic policy perspective. She skewers Hoover for turning a recession into a depression and FDR for having made it "Great." She points out why government policies failed to keep banks from failing, why the market lost confidence in government and how harsh tariff laws not only further weakened domestic industries but also exported the financial crisis abroad. She chronicles the various advisers to FDR, including many who were socialists in the many government bureaucracies created to tax anyone with money and spend it on New Deal programs that amounted to little more than expensive propaganda. She also points out that many of FDR's early New Deal successes were actually programs that Hoover started. As the depression deepened and lingered until the beginning of WWII, as many as 1 in 4 workers were either unemployed or in government work programs and people began to accept the depression as a fact of life.

Having studied economics for several years in college, I found the arguments to be logical and persuasive. I'm especially surprised, however, with the view this book paints of FDR and the lasting reverence so many in this country had for him. Some very brief research showed that the merits of the New Deal are indeed controversial, so for me further research is necessary to either validate or refute the claims of this book. Nevertheless, Ms. Shlaes has made a very logical argument against the legacy of the New Deal.

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