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Topical Depression

Books | The hallowed New Deal succeeded in making a bad economic situation worse

Issue: "Our long war," March 8, 2008

The New Deal began 75 years ago this week, but its mythology is still fresh. Many Americans still believe that when Franklin Roosevelt was inaugurated on March 4, 1933, the United States began to come out of the Depression. Not so, declares The Forgotten Man: A New History of the Great Depression (HarperCollins, 2007), a splendidly written history of governmental economic intervention during 1930s America.

Author Amity Shlaes, a syndicated columnist for Bloomberg News and a senior fellow in economic history at the Council of Foreign Relations, has also worked at The Wall Street Journal and written books on German reunification and taxes in America.

WORLD: You've made a splash with The Forgotten Man. What's it about?

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SHLAES: The thesis of this book is not especially controversial for economists, but it is controversial for historians who have not kept up with the economic findings. The argument is that the government made the Great Depression worse, both under Hoover and Roosevelt. That is a relatively new argument for historians. There is a school of economic thought called Keynesianism, invented by John Maynard Keynes, which says that government should spend to stimulate the economy when there is no money in the private sector. We learned a Keynesian history of the 1930s. We learned that for want of government spending, the Depression was bad, and that Roosevelt came along, spent, and made things better.

WORLD: You write that the governmental mishandling began with President Herbert Hoover.

SHLAES: Hoover is berated for not spending and for being too laissez-faire, but both those attacks on him are poorly thought-out. When Herbert Hoover was president, the government was really tiny, 3-4 percent of GDP, whereas now the federal government alone is about 20. So, even if Herbert would have spent the whole government budget, it wouldn't have been the whole stimulus that could have changed things.

WORLD: But he wasn't laissez-faire anyway.

SHLAES: He was not. He loved to intervene. If he lived today, he would be a McKinsey consultant. He was the smartest guy in the room; he came in and fixed everything. The thing he did that was most profoundly damaging was that he mistrusted the stock market. He thought it was like a bad child, and he should berate it. There were a lot of rogues in the stock market, but the stock market is also an expression of our economic growth, and there was more growth there than Hoover saw, and less inflation.

WORLD: So myth No. 1 concerns Herbert Hoover. He's often seen as a Republican, small-government conservative, but in many ways he was the exact opposite. There was continuity from him to Franklin Roosevelt.

SHLAES: Some of the New Dealers acknowledged that: "We're doing what Herbert did." Herbert and Franklin should have trusted the private sector more.

WORLD: I like the way you use their first names.

SHLAES: Well, you do get to know them. Hoover was extremely compelling. He really wanted to do good. In World War I he rescued the Belgians by giving them food when they were starving on the other side, behind enemy's lines, because Germans were in Belgium.

WORLD: Franklin Roosevelt's most famous line was, "We have nothing to fear, but fear itself." You write about government officials intimidating business during the 1930s and experimenting so much that businesses had reason to fear.

SHLAES: Roosevelt's experimentation scared the markets. Today, we watch business television and know unknowns are bad for the stock market. Roosevelt was king of the unknowns. One day he would be for big business, the next day he hated big business. The lingo of Roosevelt was extraordinarily hostile by modern terms. He said things John Edwards would not say. For example, "We seek an instrument of unimagined power in government." When markets hear that, they go under their shell. They say, let us wait this one out.

WORLD: You quote Secretary of Labor Frances Perkins speaking of FDR's "conflicts of logic and feeling, which so often beset, but kept him flexible."

SHLAES: I liked Roosevelt a lot-some of what he did. He's a wonderful man, you'd want to have dinner with him, you'd want him to be your president. He had a nice voice on the radio, and the radio was a new medium. It was like he was IM-ing people when all the other candidates were using some older means of communications. But, there were many Roosevelts, and that was the problem. One day, he'd say that he wouldn't betray future generations. Another day, he would do it.


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