Monday, December 08, 2008

Book Review: New Deal or Raw Deal? by Burton Folsom

Burton Folsom’s New Deal or Raw Deal? is a timely, informative and captivating read on the destructive economic policies on the Franklin Delano Roosevelt Administration. This book is a valuable addition to the growing number of books on how government intervention, not free markets, plunged the United States deep into the Great Depression.

Folsom corrects many common misconceptions about the New Deal and the Great Depression in this book. The first misconception is that President Hoover was a principled advocate of laissez-faire capitalism. In fact, Folsom argues, Hoover was a big government Republican. Consider the Smoot-Hawley Act, which imposed unprecedented tariffs on thousands of imported items. Not only did this drastically increase the prices of U.S. imports (hurting U.S. consumers), but it also encouraged European nations to impose retaliatory tariffs on U.S. exports (hurting U.S. producers.) Furthermore, Hoover responded to the early onset of the Great Depression with disastrous economic regulations. He endorsed the Federal Farm Board, which issued over $500 million in cotton and wheat subsidies only to have the massive surpluses dumped on an oversaturated world market. Hoover also supposed the Reconstruction Finance Corporation, which spent over $1.5 billion on bailouts to failing banks and industries. (Sound familiar?)

Another major point of Folsom’s book is that many of FDR’s programs were struck down as unconstitutional. These include the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act (AAA). The NIRA imposed economy-wide price controls and production regulations on domestic manufacturing. The AAA was similar in spirit, except it focused on price and production controls on agriculture. The extent of the controls evidently became so detailed where, for example, the purchasers of a live chicken were required by law to blindly reach into the coop to randomly choose a chicken. Customers were not free to choose whichever chicken they fancied. Recognizing the absurdity of this, one of the Supreme Court justices quipped “what if the chickens are all on the other side?” before the Supreme Court unanimously ruled the NIRA unconstitutional.

Folsom also emphasizes the crushing tax burdens imposed by the New Deal. Under FDR, the highest income tax rate was 79%, meaning that four out of five earned dollars was confiscated by the government! According to Folsom, FDR also seriously entertained the idea of imposing a 99.5% income tax rate on all who earned over $100,000 in income. Flippantly justifying this, FDR joked that nobody in his administration would ever make that kind of money. Under FDR, the national debt grew more in the 1930s than it grew in the previous 150 years of the existence of the United States. Putting it in other words, Folsom indicates that if $100/minute was deposited into an account the day Columbus discovered North America up until FDR took office, there would not be enough money in this account to fully defray the costs of the New Deal.

The last major point that I will reiterate is the extensive level of corruption of the FDR administration. According to Folsom's research, the Works Progress Administration (WPA) offered large government handouts to whichever lobbyists ingratiated themselves most with the administration. FDR used the WPA to make or break the careers of public officials, depending on whether they supported him. This corruption rose to such an overt and perverse level that officials at the WPA used to cheerfully greet callers with “Democratic headquarters!” The Hatch Act, which forbids government employees from using their office for political activity, was passed in response to these activities.

Reading this book will reveal how truly appalling his administration was and how in many respects, FDR was like a gangster. In addition to the above, you will learn about how FDR used the IRS to intimidate political opponents, such as the principled banker Andrew Mellon as well as FDR’s unscrupulous court-packing scheme. You will learn about the sheer arbitrary nature of FDR’s economic controls. This cannot be better exemplified than how, when advised to increase the unit price of gold from 19 cents to 22 cents, FDR proposed 21 cents since it was his “lucky number”.

Anyone interested in politics and economic history should read this book, before history repeats itself with the Obama administration.

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Anonymous said...

You write: "Folsom corrects many common misconceptions about the New Deal and the Great Depression in this book. The first is that President Hoover was a big government Republican and not a principled advocate of laissez-faire capitalism."

As written, this means that it was a misconception that Hoover was a big gov't Republican and not a principled advocate of laissez-faire. I assume you intended to say the opposite.

Also, the National Industrial Recovery Act was not "shortened to NRA." The act created an agency called the National Recovery Administration, or NRA.

Doug said...

Thanks for the observations.

I am not sure that the latter is an error. According to page 43 of Folsom's book, the National Industrial Recovery Act's abbreviation "was later shortened to NRA". However, I cannot find this confirmed by Wikipedia or by Jim Powell's FDR's Folly. Perhaps Folsom is in error here?

I definitely know the difference between the National Industrial Recovery Act and the National Recovery Administration but I can easily understand why this appears to be an oversight of my doing.

Either way, I will abbreviate this act as NIRA so as to preemptively avoid confusion.

Anonymous said...

Not sure it's an error? It doesn't make any sense!

And besides, a simple google search shows you that it's abbreviated NIRA. To say it's not "confirmed by Wikipedia" is evasive. Wikipedia shows it abbreviated as NIRA. If you don't believe Wikipedia, here's a .gov article:

If this still isn't good enough for you, email Folsom and ask him:

I'm sure he'll tell you it's a mistake.