Hoover: Worse Than FDR

I was surprised to see that Scott Powell categorizes Herbert Hoover as a presidential "mixed bag," while FDR is among the "unforgivables." As I discuss for The Objective Standard in my review of Amity Shlaes's book The Forgotten Man, Hoover helped cause the economic catastrophe that assured FDR's election, and Hoover implemented many of the political economic controls that paved the way to FDR's continued controls. So Hoover was at least as bad as FDR.

As Shlaes mentions (and I review), Hoover once said that concern with private property is a "fetich." I was curious about this, so I looked up the passage in Hoover's American Individualism:

But those are utterly wrong who say that individualism has as its only end the acquisition and preservation of private property -- the selfish snatching and hoarding of the common product. Our American individualism, indeed, is only in part an economic creed. It aims to provide opportunity for self-expression, not merely economically, but spiritually as well. Private property is not a fetich in America. The crushing of the liquor trade without a cent of compensation, with scarcely even a discussion of it, does not bear out the notion that we give property rights any headway over human rights.

Notice how Hoover builds his collectivist edifice on grains of truth. He claims to endorse "individualism," yet his sort of individualism sacrifices the individual to the collective, moderately, of course. It is true that authentic individualism is not concerned only with economic ends.

Hoover denigrates economic interests as "selfish snatching and hoarding," something inherently suspect morally. Why "snatching," rather than "earning?" Why "hoarding," rather than "investing?" And what is this "common product?" Hoover here suggests that the wealth within a nation belongs to the nation, rather than to the individuals who earn it.

Notice the example Hoover gives of the "spiritual" dimension of "American individualism:" the "crushing" of an industry without compensation or even much discussion. Obliterating an entire industry through federal controls, subverting the choices and property rights of individuals to the will of the collective -- that is what Hoover means by "human rights."

Hoover was a dishonest snake who crushed the entire American economy beneath the boot of his collectivist "individualism."

Amity Shlaes Review

With talk of new taxes, new union powers, continued bailouts, and more federal controls of business, now is the perfect time to review the damage that similar controls caused under Hoover and FDR.

The Spring Objective Standard has published my review of Amity Shlaes's book, The Forgotten Man: A New History of the Great Depression. The beginning of the article is available online at no cost; the journal sells the article singly and offers online and print subscriptions.

I summarize, "As president, Hoover pursued six main types of political controls that devastated the economy: protectionism, wage controls, interference with the money supply, scapegoating of businessmen, expansion of public works, and increased taxation." By the time Hoover left office, unemployment was somewhere between 20 and 30 percent. By extending and expanding such controls, FDR prolonged the Depression and impeded economic recovery.

Obviously I recommend Shlaes's book. However, as I mention in the review, Shlaes does not offer a good account of Federal Reserve policy especially before the Depression. While others, including Milton Friedman and Murray Rothbard, have written about monetary policy of the time, I don't think the matter has been definitively settled. (The economic analyses of both Friedman and Rothbard are influenced by political preconceptions that I believe are significantly faulty.) I still have much reading to do in that area, though my sense is that I will search in vain for a definitive account that fully explains the historical facts and points the way to a free market alternative.

But Shlaes does a great job of reviewing the other sorts of controls imposed by Hoover and FDR. I hope my review serves to crystalize some of the key historical events as well as to generate more interest in Shlaes's book.

New Deal Harmed Economy: Two More

Economists Harold Cole and Lee Ohanion unjustifiably praise welfare spending under the New Deal, and they unjustifiably lament the lack of antitrust prosecution. (Government-induced cartels are bad, but successful free-market mergers take advantage of economies of scale and better management.) However, the economists' unemployment figures tell the basic story about the New Deal:

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

The economists correctly note that wage and business controls raised unemployment and harmed the economy.

Amity Shlaes also criticizes the New Deal in an article for the Washington Post:

But many of the jobs that the early New Deal produced were not merely temporary but also limited in economic value. It was in these years that the political term "boondoggle," to describe costly make-work, was coined. It came from "boondoggling," the word for leather craft projects subsidized by New Deal work-relief programs. As was the case for the Troeller brothers, work-relief earnings were usually not sufficient to offset other Depression losses.

Shlaes also points out that, as FDR pushed out private utilities with tax-subsidized ones, so Obama is trying to push out private internet with subsidized service.

New Tariff Wars?

Herbert Hoover's tariffs were a major cause of the Great Depression. You'd think that, occasionally, we might learn something from history. But not today's Republicans. Diana Hsieh points to an article in the Telegraph:

The French government is facing calls to slap a massive import tax on Coca-Cola in retaliation for punitive American duties levelled on the salty, blue-veined, sheep cheese roquefort.

The American measures were taken as part of a trade dispute, now known as "cheese wars", in which the Bush administration took action against the European Union's ban on imports of US hormone-treated beef.

Last week, America imposed a 100 per cent import duty on a long list of EU products, but singled roquefort out for a 300 per cent tariff.

"Symbol versus symbol," said Philippe Folliot, a French member of parliament whose Tarn constituency contains many roquefort producers. "Since the United States has decided to surtax one of the most ancient (cheese) appellations, I think that the French government, with the European Union, must think about a heavy specific tax on imports of Coca-Cola concentrates produced in the US."

The correct response on tariffs is always the same, regardless of what other countries are doing: lower them. The last thing we need right now is a new round of tariff wars.

Did New Deal Cutbacks Harm Economy?

Sandra Elliot argues:

Liberal economist and Nobel Prize winner Paul Krugman stated on ABC's This Week (Nov. 17, 2008) that the economy improved after the New Deal, and that it was FDR's attempt to balance the budget in 1937 that then cut into that progress.

Robert S. McElvanie, an economic scholar at Millsaps College, says in his book The Great Depression that by 1937 production was above 1929 levels, stock prices and profits were up and many agreed the emergency had passed. But then, bowing to conservative demands for a cutback in spending and a balanced budget, FDR caused another downturn.

I posted the following reply in the comments:

It is interesting that Sandra Elliot relies on the authority of one economist with a specific agenda -- Paul Krugman -- yet she seems entirely uninterested in the works of economists who have actually studied the era in detail. (Elliot invokes Robert McElvaine's book -- note the correct spelling -- but he is a professor of history, not economics.)

It is true that FDR slightly scaled back some public works. But that is only a tiny aspect of the story. The real reason the economy recovered somewhat in the mid 1930s was that the Supreme Court threw out FDR's National Recovery Administration, FDR mitigated the damage of Hoover's tariffs, and the Federal Reserve's inflationary policy mitigated the harm of FDR's wage-and-price controls.

The real reason the economy again tanked in 1937 and 1938 is that FDR imposed harsher wage controls in a period of renewed monetary contraction. Add to that FDR's disastrous new taxes and his widespread persecution of businesses, and the result was a "capital strike." Economists Richard Vedder and Lowell Gallaway calculate that FDR's union legislation alone contributed nearly six percent [meaning six percentage points] to unemployment by 1938 (see Out of Work, page 141).

If Elliot wishes to move beyond her convenient propaganda to the facts, she might consider reading, in addition to Out of Work, Amity Shlaes's The Forgotten Man; Gene Smiley's Rethinking the Great Depression; Jim Powell's FDR's Folly; or Burton Folsom's New Deal or Raw Deal? It is true that it took Republican Herbert Hoover to devastate the economy, generating unemployment nearing 25 percent by the time he left office. But it is also true that FDR inhibited, rather than promoted, economic recovery through the 1930s.

Here I'll return to Elliot's claims about McElvaine. First, Elliot neglects to mention that, even using the most generous figures, unemployment remained over nine percent. To put this in perspective, today we're worried that "Colorado's unemployment rate jumped to 6.1 percent in December." Sure, the economy saw some turn-around under FDR relative to Hoover, but certainly there was no recovery.

What about industrial production? Here's what Amity Shlaes has to say on the matter (see The Forgotten Man, page 395):

What about that oft-cited rising industrial production figure? The boom in industrial production of the 1930s did signal growth, but not necessarily growth of a higher quality than that, say, of a Soviet factory running three shifts. Another datum that we hear about less than industrial production was actually more important: net private investment, the number that captures how many capital goods companies were buying relative to what they already had. At many points during the New Deal, net private investment was not only merely low but negative. Companies were using more capital goods than they were buying.

All this tells us that while some companies were gunning their engines for the moment -- that industrial production -- they had little hope for productivity gains in the years ahead.

Interestingly, McElvaine runs a blog for the Huffington Post. So, like Krugman, he's definitely a partisan in the debate. Obviously I have nothing against partisanship per se, as I'm a partisan myself, but when partisanship gets in the way of objective analysis, as it has for Krugman and Elliot, it's a problem.

'The Whole Country Is With Him'

I found this comment amusing in light of current events:

"The whole country is with him... If he burned down the Capitol, we would cheer and say, 'well we at least got a fire started anyhow.'"

-- Will Rogers on FDR's first election, quoted in Amity Shlaes, The Forgotten Man, p. 150

Quillen on New Deal Make-Work

Unlike FDR's wage and price controls, destruction of agricultural crops, and massive cartelization schemes, the New Deal's make-work spending actually left something to show for the effort. Ed Quillen, neglecting to review the most obviously destructive aspects of the New Deal, points to the "infrastructure" projects that continue to enhance our lives. He pushes his point: "The post- World War II population growth along the Front Range couldn't have happened without those Depression-era water projects."

Letter writer Cora Scherma praises Quillen's analysis and New Deal make-work: "[P]erhaps the neocons and libertarians among us should consider the following: Don’t attend concerts or religious services at Red Rocks; don’t enjoy IMAX films at Phipps Auditorium; avoid sections of the Denver Zoo lest you be tainted by big government..."

But Quillen and Scherma commit a basic economic fallacy. Henry Hazlitt explains in Economics In One Lesson:

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to "insufficient purchasing power." The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the "deficiency."

An enormous literature is based on this fallacy... [A]ll government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation. ...

I am here concerned with public works considered as a means of "providing employment" or of adding wealth to the community that it would not otherwise have had. ...

For every dollar that is spent on the bridge [or other public work] a dollar will be taken away from taxpayers. ... Therefore, for every public job created by the bridge project a private job has been destroyed elsewhere. ... [Consider also] the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. (1979 edition, pages 31-34)

Of course an artificial boom or bubble -- such as the modern one caused by federal easy credit policies -- necessarily triggers a consequent recession, which tends to generate temporary unemployment. If the government has imposed wage controls, including wage floors and union favoritism, this will dramatically exacerbate unemployment, as it did during the Great Depression clear through the late '30s. The solution is to remove the political impediments to economic activity and allow a recovery. Federal make-work may soak up some of the unemployment, but only at the costs that Hazlitt reviews. These funds are desperately needed in the market economy; they will instead be diverted to politicized projects.

Quillen errs also in imagining that government is the only entity capable of conducting certain projects. But there is no reason to expect that a market cannot provide water as it provides so many other goods and services.

Scherma adds a double error to the above. First she suggests that the only ones to oppose federal make-work are "neocons and libertarians"; I am neither. Second she implies that, when politicians force people to fund projects, those most opposed to that use of force should also refrain from benefiting from that which they were forced to fund. But that would only add a second injustice to the first, first stripping people of their wealth, then of even any marginal benefits of it.

The seen, as Hazlitt puts the matter, consists of the projects funded by politicians with other people's money. These projects are visible, and their use is obvious. They offer something tangible for which the politicians can take credit. The unseen are all the investments and expenditures prevented by the forced wealth transfers. Politicians can take little credit for allowing individuals to produce without their "help." So the next time you read about New Deal spending, or federal spending under Obama, consider not only the jobs and projects created, consider also the jobs and projects prevented.

Colorado Media Matters Cites Economist Who Critiques New Deal

Colorado Media Matters (CMM) relies heavily on an economist to make the case that the New Deal helped the economy. Unfortunately for CMM's case, that economist -- Gene Smiley -- is a well-known critic of the New Deal with a book out called Rethinking the Great Depression.

The main issue is that are two main sets of unemployment data for the Depression era. Colorado Media Matters plausibly argues that the lower figures, adjusted for federal make-work employment, should be used. (I discuss the issue at greater length in my previous post.) Beyond that, CMM fails to make its case and indeed undermines it.

Colorado Media Matters writes:

[F]ormer Wall Street Journal writer Amity Shlaes -- whose 2007 book The Forgotten Man: A New History of the Great Depression (HarperCollins) conservative media figures have cited frequently to dismiss the New Deal's effectiveness -- acknowledged that her unemployment figures excluded "make-work jobs," instead relying on data compiled for the Bureau of Labor Statistics (BLS) by economist Stanley Lebergott. In a November 29, 2008, Wall Street Journal op-ed, Shlaes wrote, "To be sure, Michael Darby of UCLA has argued that make-work jobs should be counted. Even so, his chart shows that from 1931 to 1940, New Deal joblessness ranges as high as 16% (1934) but never gets below 9 percent" [emphasis in original]. After World War II, BLS ceased counting those in work-relief programs as unemployed, as economist Gene Smiley noted in a 1983 Journal of Economic History article.

A 1993 Journal of Economic Perspectives paper by Robert A. Margo, drawing from Smiley's article, presents a table comparing Lebergott's and Darby's unemployment figures...

Media Matters for America previously has documented other conservative media figures and outlets similarly cherry-picking unemployment figures to assert that the New Deal failed to reduce unemployment. Additionally, Colorado Media Matters has pointed out that Independence Institute President and KOA host Jon Caldara parroted other conservatives by claiming that the New Deal was a failure that "plunged us into misery."

So, by CMM's account, Smiley played a central role in bringing to light the adjusted figures. Yet as I've pointed out, the higher figures that Shlaes cites come from Out Of Work by Richard Veddar and Lowell Gallaway, who point out that Smiley endorses the use of the higher figures as well.

As for CMM's case for the New Deal, it is flawed for reasons I discuss in my previous post. CMM argues that, because unemployment fell between Hoover and FDR, therefore FDR's New Deal was responsible for the improvement. Colorado Media Matters thus commits an obvious logical fallacy. Critics of the New Deal argue that, even though unemployment fell relative to its high under Hoover, nevertheless the New Deal hampered economic recovery. Therefore, CMM's criticisms of its opponents are groundless.

Media Matters for America quotes Smiley's 1983 article as well.

So Smiley is a trusted economist, then, in the lights of CMM and its national counterpart. Perhaps Colorado Media Matters should therefore pay attention to Smiley's critique of the New Deal.

I contacted Smiley to verify that he wrote the 1983 paper. Here's what he had to say:

Dear Ari,

Yes, I wrote that article. I'm not exactly sure what you mean by "my take" on the different unemployment rate estimates but I can make a couple of comments. Darby's contention is that if one is trying to understand the speed of the recovery one has to look at the truly unemployed; i.e., those who simply did not have jobs. In the search model he used that is crucial to the speed of the recovery. Thus, he excludes all those employed at federal projects designed to put people to work. Lebergott's estimates (which were much earlier and the first real estimates of unemployment for the 1930s) are generally used to demonstrate the slowness of the recovery under the assumption that if the recovery had been faster private employment would have picked up more quickly and fewer would have been employed at government make-work jobs. Essentially Darby's contention is that if one wants to examine how quickly the private economy was recovering one has to exclude all those employed at government make-work jobs because they were no longer part of the private economy. Darby makes the point that post-WW II unemployment estimates do exclude people employed at comparable government make-work projects. ...

You should probably understand that I am a critic of the New Deal. I have argued extensively that the programs which are commonly accepted to be the New Deal were responsible for the slow recovery of economic activity after the end of the Great Depression in March 1933. I have examined this in my book, Rethinking the Great Depression. For the most part Amity Shlaes and I agree. I read her entire manuscript, The Forgotten Man, before it went to the publisher.

All the best,
Gene Smiley

I do appreciate the fact that Colorado Media Matters accuses its opponents of cherry picking the data. We do need our state jesters.

Sirota's Statistics Fail to Vindicate New Deal

Here I continue my critique of David Sirota's case for the New Deal. Sirota wrote a piece for the January 2 Denver Post. I wrote a reply on January 4 as well as a short letter for the Post, published January 7. (I've also written several other articles on the matter.) Sirota completely ignores my critique of his case in his January 6 follow-up for the Post's Politics West. I continue my case here in the hopes that eventually Sirota will attempt to engage the debate and respond to his critics.

1. Sirota's Smear of Shlaes

The worst aspect of Sirota's follow-up his his unjust smearing of Amity Shlaes, the respected economic historian who wrote The Forgotten Man. Reading Sirota's claims, I doubt that he has read the book. Whether or not he did, he misrepresents its contents.

Sirota claims that Shlaes's books has been "discredited," that she "wholly omits some relevant data and deviously manipulates other numbers," and that she is dishonest.

To back up this claim, Sirota quotes a Slate article by historian Eric Rauchway, which states, "She has unemployment at 20 percent in the 1937-38 recession. ... A third of the people Shlaes counts as unemployed had a job that the New Deal gave them through its relief programs."

Notably, Rauchway does not claim to "discredit" Shlaes's book, though he argues she is pushing an ideology (as is he), and his case is considerably more nuanced than is Sirota's. For example, Rauchway points out a couple of FDR's virtues: he supported freer world trade and he helped repeal Prohibition. Indeed, I recently praised FDR for opposing Prohibition. What Rauchway does not do is demonstrate that the New Deal as a package improved the economy. For example, he praises FDR's union laws without examining the economic case that those laws contributed considerably to unemployment at the time.

To Sirota, Shlaes is dishonest because she uses an unemployment figure of 20 percent during the 1937-38 recession. But Sirota uses practically the same figures to make his case. Sirota writes:

So to end this historical revisionism once and for all -- to compare apples to apples, rather than apples to conservatives' fuzzy math -- let's go to the great equalizer, the Census Data, and specifically Census document HS-29 (available in PDF or Excel formats). Quoting directly from Census data, here are the unemployment rates and total number of official unemployed at the beginning and end of the presidential terms since the Great Depression...

The unemployment rate that this Census data provides for 1938? Nineteen percent. So, if Shlaes uses this figure, she's dishonest, but if Sirota uses the same figure, he's invoking the "great equalizer" of data. Oops.

Notice that Sirota admits that there was a renewed recession in 1937-38. In his first article, he claimed -- without any evidence or economic argument -- that pulling back on the New Deal caused this. As I review, FDR's new wage controls in a period of monetary contraction primarily caused this increased unemployment.

If Sirota would check Shlaes's book, he would find that she neither omits nor manipulates the data. (I quote from the 2008 paperback.) On pages 402-403, Shlaes writes a detailed note about her unemployment figures. She writes:

During the 1920s and the Depression, Washington did not keep the sort of systematic unemployment data that it collects today. ... Still, there were some national numbers to talk about. The Labor Department collected figures, as did the Census Bureau [Sirota's "great equalizer"], the Commerce Department, [etc.] ...

For the 1930s, I have gone with month-by-month figures calculated by Richard K. Vedder and Lowell E. Gallaway, in Out of Work: Unemployment and Government in Twentieth Century America (San Francisco: Independent Institute; New York: Holmes & Meier, 1993 [p. 77]). These authors use [scholar Stanley] Lebergott and government numbers as their basis. Economists on the right such as Michael Darby, Harry Scherman Fellow at the National Bureau of Economic Research, argued later that Lebergott and the BLS both overestimated the number of unemployed by counting as unemployed people who actually had full- or part-time work in make-work programs such as the WPA. But I have gone with the traditional numbers.

So Sirota can argue that Shlaes does not use the best numbers, but he cannot fairly claim that she omitted or manipulated the data.

Neither Sirota nor Rauchway offer month-by-month, or even year-by-year, unemployment figures that they think are properly adjusted to account for federal make-work. Amazingly, Colorado Media Matters (CMM) provides a good citation for this. According to the Darby figures, unemployment dropped steadily from 22.9 percent in 1932 to 9.1 percent in 1937, then bumped back up to 12.5 percent in 1938.

Shlaes does stray from the "traditional numbers" in her "Afterword to the Paperback Edition." On page 393 she writes:

In the very best years of Roosevelt's first two terms, unemployment still stood above 9 percent. Nine percent is better than horrendous, but it hardly is a figure that induces hope.

Indeed, as I've noted, Obama's own economic advisors believe the current recession will peak at 9 percent unemployment without their intervention (even though I think their intervention will only make matters worse). Today we all think that employment approaching 9 percent is a disaster, yet the defenders of the New Deal praise FDR because, using the Darby figures, FDR almost managed to get unemployment down to 9 percent before it spiked back up to double-digits.

Perhaps Shlaes should have explained the Darby figures in more detail and earlier in her book. However, the statistical matter is not nearly as clear-cut as CMM would have us believe. While CMM accuses its opponents of cherry picking the data, CMM itself cherry-picks its sources. The Vedder and Gallaway book came out in 1993, the same year as the paper by Robert Margo cited by CMM. However, Vedder and Gallaway certainly were aware of Darby's work, and they ran his figures through their regressions (see pages 42-43). They write:

Questions have been raised about the basic accuracy of the government unemployment-rate data... Both the [Robert] Coen and the Darby estimates place unemployment at lower levels in the early thirties than the official Bureau of Labor Statistics estimate derived by Stanley Lebergott. We are inclinded to agree with Gene Smiley that the Lebergott/BLS estimates are probably as good as any. (pages 42, 79-80, footnotes omitted)

What is interesting about this is that the reference to Smiley is a 1983 article in the Journal of Economic History -- the same article that CMM cites here and here to advocate use of the lower statistics.

Smiley influenced Vedder and Gallaway, who in turn influenced Shlaes. Smiley, Vedder, and Gallaway are intimately familiar with Darby's figures. Yet Sirota and Colorado Media Matters want us to believe that Shlaes's use of statistics is sinister rather than merely a case of making a reasonable use of limited data.

Even granting the lower figures, Sirota's entire case boils down to the claim that FDR's New Deal worked wonders when it couldn't manage to get unemployment below double digits for most of FDR's first eight years in office. That's a pretty lousy case.

2. Sirota Confuses Correlation with Causation

Sirota's argument is that "the pre-WWII New Deal era saw the single largest drop [in unemployment] in American history." He goes on at length about this point.

But, as I argued in my first reply, it's pretty hard to do worse than unemployment approaching 25 percent. Hoover, with the help of the Federal Reserve, decimated the economy. The fact is that the economy continued to struggle under FDR and never really recovered till the '40s. The question, then, is whether unemployment dropped under FDR because of or in spite of FDR's policies.

Sirota apparently never learned the fundamental lesson of statistics that correlation does not prove causation. He sees that unemployment dropped under FDR (relative to its horrific rate under Hoover), and he concludes that FDR's policies therefore helped reduce unemployment. That Sirota's argument may be seductively simplistic does not change the fact that it is completely wrong.

To get the idea of the sort of logical fallacy Sirota is committing, consider the following examples:

* A patient feels ill, so his doctor bleeds him with leeches. Slowly the patient recovers. Therefore, the blood-letting caused the recovery. QED.

* A woman reporting physical ailments visits Franz Mesmer, who applies magnets to her and stares deeply into her eyes, after which the woman reports improved health. Therefore, to follow Sirota's method, we must conclude that the magnets caused the improved health.

* Jill comes down with a nasty cold. She smokes one pack of cigarettes per day. Over a period of two weeks, Jill mostly recovers from her cold. Therefore, by Sirota's logic, Jill's smoking reduced the severity of her cold.

If Sirota wishes to make his case, he cannot merely claim that unemployment dropped between Hoover and FDR, a fact that everyone acknowledges. (Sirota wrongly claims that Shlaes fails to acknowledge this.) He must demonstrate, using evidence and argument, that the economy improved somewhat because of FDR's policies, rather than in spite of them. He must tackle head-on the arguments and evidence amassed by the critics of the New Deal showing that FDR's policies made matters worse than they otherwise would have been, not better.

3. National Product

Sirota looks mainly at unemployment, but he also mentions economic growth. Growth is tightly tied to employment: with nearly a quarter of the nation out of work, less stuff gets made. So it is not surprising that, with unemployment less than that (but still dramatically higher than normal), production went up relative to the late Hoover years.

Sirota would not be surprised that critics of the New Deal discuss this relative increase in production if he would check their works. Here's what Shlaes has to say on the matter (page 395):

What about the oft-cited rising industrial production figure? The boom in industrial production of the 1930s did signal growth... [but a]t many points during the New Deal, net private investment was not merely low but negative. Companies were using more capital goods than they were buying.

Again the reality is considerably more complex than Sirota acknowledges.

At this point, Sirota has written two articles that utterly fail to make his case that the New Deal helped the economy. Perhaps he'll seriously grapple with the relevant issues in a future article.

4. Sirota's Stereotyping

This is a minor point tacked on at the end. Sirota claims that, after his first column, he received "angry email from conservatives," and he claims to be answering "right-wingers." However, as I pointed out in my first reply, "many critics of the New Deal are not conservatives and many conservatives praise FDR."

In Sirota's simplistic world of angry conservatives and enlightened liberals, where does he fit treatments of Hoover, the Republican president preceding FDR? As I've noted, every critic of the New Deal I'm aware of also excoriates Hoover. But Sirota lacks either the ability or the will to see beyond his ideological blinders. He leads with stereotypes and ad hominem attacks and weakly follows with arguments.

Sirota received at least one e-mail that was neither angry nor from a conservative: my own. (If Sirota wishes to call me a conservative, perhaps he will explain what he's talking about, given that I'm an atheist who supports gay rights, the right to abortion, the re-legalization of drugs, and the total repeal of all censorship.)

On January, 4, I wrote to Sirota:

Dear Mr. Sirota,

I've written a criticism of your recent op-ed on the New Deal here:
[link]

I would be more than happy to publish your reply, which you are welcome to send me via e-mail.

Thanks,
Ari Armstrong

Angry conservative, indeed.

FDR's Patronage and Court Packing

Burton Folsom's review of FDR's systems of "patronage" -- federally supporting favored candidates with tax-funded programs -- and his scheme to pack the Supreme Court are breathtaking. Blagojevich looks tame by comparison. Here are just a couple examples:

When two officials with the RFC [Reconstruction Finance Corporation] and National Emergency Council (NEC) openly supported [Walter] George for Senate [against Roosevelt's pick] they were fired and replaced with men loyal to the president. (page 203)

The Philadelphia Inquirer observed, "The Administrations attempt to dictate the selection of popular representatives, even to the extent of using PWA [Public Works Administration] grants as lures, looks to be a monumental political blunder." (page 204)

As the second quote suggests, FDR overreached on the campaign trail, and his "tampering with the other two branches of government triggered a large opposition" (page 211).

Meanwhile, Folsom notes, FDR sat on an attempt to crack down on lynchings. On this point, however, Folsom makes an odd remark about liberalism:

Black Americans implored Congress to make lynching a federal crime, and thereby create the federal machinery to enforce justice in areas that refused to punish lynch mobs. That would expand government which appealed to liberals, and would improve civil liberties for a persecuted American minority, which also appealed to liberals.

Folsom thinks it odd that FDR failed to support the law against lynching despite its liberal appeal. And it is tragic that FDR failed to use his political capital on such a worthy cause.

However, this idea that "liberals" want to "expand government," presumably meaning that conservatives want to restrict it, puts the debate on false grounds. Beyond the problem with defining liberalism -- I consider myself a liberal in the true sense -- this focus on the mere size of government is misplaced. I do want limited government -- a government limited to protecting individual rights. But that says nothing about the size of government needed to accomplish that goal. If a nation faces a powerful aggressor, the nation's government will have to become quite large to successfully face the threat. Similarly, when large criminal mobs go around murdering people, the government may have to take large-scale actions. The essential is the goal of government. The resources and extent of activity necessary to attain that goal are a different matter.

Three for Freedom

Paul Hsieh writes for the Christian Science Monitor:

... Any government that attempts to guarantee healthcare must also control its costs. The inevitable next step will be to seek to control citizens' health and their behavior. Hence, Americans should beware that if we adopt universal healthcare, we also risk creating a 'nanny state on steroids' antithetical to core American principles. ...

Please help the good doctor earn the widest possible audience.

Next, Brian Schwartz has a nice piece from January 3 in Boulder's Daily Camera:

[Y]ou cannot walk away from an elected politicians who claim "we're all in it together." Politicians "bring people together" with legislation. If you peacefully refuse to cooperate with such legislated "togetherness," you're a criminal and can end up in prison.

Finally, the Denver Post published my letter critical of Hoover and FDR:

... [N]o critic of the New Deal claims the trouble started with FDR. Instead, Republican Herbert Hoover helped launch the Depression with his horribly destructive tariffs and wage and price controls. And the Federal Reserve destabilized the money supply.

FDR inherited unemployment nearing 25 percent, and it never fell below 14 percent through 1940. Hopefully Barack Obama won’t have to push unemployment over 14 percent to be considered as great a president as FDR.

I also briefly summarize the causes of the worsening economic conditions of 1937 and 1938.

I have also written a more detailed reply to David Sirota.

Wage Controls Past and Present

The Denver Post's William Porter thinks it's "good news" that Colorado's minimum wage is going up in this time of economic trouble. But the effect of wage controls is to throw some people out of work, in this case some of those with the least experience trying to gain a foothold in the job market.

This past Wednesday I lamented the automatic increase in Colorado's minimum wage. Yesterday I discussed some aspects of wage controls during the Great Depression. Here I discuss more of the background of wage controls as reviewed by Burton Folsom in his book, New Deal or Raw Deal?

Folsom notes that Congress imposed a minimum wage on Washington, D.C. in 1918 (page 113). The law required women to be paid $71.50 per month. The result? Congress Hall Hotel fired Willie Lyons, a woman working as an elevator operator for $35 per month, and hired a man for the same price. What a great way to help women.

Thankfully, the Supreme Court rejected the law, upholding the right "to freely contract with one another in respect of the price for which one shall tender service to the other in a purely private employment where both are willing, perhaps anxious, to agree."

Folsom notes that wage controls were built into National Recovery Act codes until they were judiciously struck down in 1935 (page 114). Then in 1938 Congress passed a national minimum wage (page 114-15). The intent of the law was protectionism of New England industries, which were losing jobs to the lower-cost South.

The same year saw a return of the minimum wage in Washington, D.C. Folsom reviews, "Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels" (page 115).

Folsom also discusses the fact that Social Security increased the cost of labor, also contributing to unemployment (page 116). Richard Vedder and Lowell Gallaway argue in Out of Work, "[N]early 1.2 million people were added to the unemployment rolls by 1938 because of the increases in labor costs associated with social insurance programs" (page 141).

Folsom, like Vedder and Gallaway, reviews too the harmful effects of union laws (pages 119-121).

Labor is not exempt from the laws of supply and demand. When wage controls push wages above their market rates, the result is unemployment. When politicians try to force businesses to pay employees more than they contribute, the result is that businesses fire people or decline to hire them. And yet we have Colorado "news" columnists proclaiming that wage controls are "good news."

UPDATE: I have reviewed as much of Folsom's book as I intend to. Following are links to previous articles on the Great Depression.

Yes, FDR Made Depression Worse and Longer

Politicians Caused and Worsened the Great Depression

Folsom Reviews FDR's Errors

How Hoover and FDR Damaged Agriculture

'Taxpayers... Bleeding at Every Pore'

Sirota and the New Deal

Sirota and the New Deal

David Sirota praises the New Deal in an article for the Denver Post.

Sirota devotes the majority of his article to ad hominem attacks, empty assertions, and appeals to authority. Sirota starts on the wrong food by tagging critics of the New Deal as "conservative," even though many critics of the New Deal are not conservatives and many conservatives praise FDR. Sirota refers to criticism of the New Deal as "abject insanity," "ridiculous," and "not... remotely serious." He claims that "mainstream economists" laud modern bailouts, " the vast majority of Americans think the New Deal worked well," and professional historians agree the New Deal was swell.

What Sirota scrupulously avoids is any evaluation of the arguments and claims made by critics of the New Deal.

Sirota claims that the economy grew, and unemployment fell, during FDR's first two terms. But this ignores a number of critical facts. Critics of the New Deal lambast not only FDR but his predecessor, Herbert Hoover, who destroyed the economy with his tariffs, wage controls, and other economic controls. Critics of the New Deal also point out that Federal Reserve policy played a major role in causing and prolonging the Great Depression.

FDR did not take office until March 4, 1933. I reviewed the basic unemployment figures of the era back in October. The unemployment rate in 1929 was 3.2 percent. By 1932, it was 23.6 percent. Unemployment hit its peak in 1933, the year FDR took office, at 24.9 percent. So Sirota's point, then, is because FDR did not manage to throw more than a quarter of the nation's population out work, he was therefore a great president whose policies are vindicated. However, FDR never oversaw remotely normalized employment rates prior to the WWII. From 1931 through 1940, the lowest unemployment reached was 14.3 percent in 1937. And this is the basis on which we are to praise FDR?

Sirota does manage to slip in two arguments among his logical fallacies. The first pertains to the worsening conditions of 1937 and 1938:

[T]he right bases its New Deal revisionism on the short-lived recession in a year straddling 1937 and 1938. ... [T]he fleeting decline happened not because of the New Deal's spending programs, but because Roosevelt momentarily listened to conservatives and backed off them.

As Nobel-winning economist Paul Krugman notes, in 1937-38, FDR "was persuaded to balance the budget" and "cut spending and the economy went back down again."

Notably, Sirota declines to specify which "cut spending" might plausibly have harmed the economy.

Meanwhile, Sirota ignores the major causes of the economic problems of those years, specifically wage controls and constrictive Federal Reserve policies.

Richard Vedder and Lowell Gallaway write in their book, Out of Work:

The Wagner Act [of 1935] provided the stimulus for several AFL unions to form the CIO in order to organize the mass-production industries. Significant organization attempts did not begin until the end of 1936. In the first half of 1937, the major automobile companies, excepting Ford, capitulated and recognized the United Auto Workers. Other important industries, most notably steel, were either unionized (U.S. Steel) or avoided unionization by paying union-scale wages. (Page 139, footnote omitted)

Using regression analysis, the authors estimate that, during 1937 and 1938, unionization increased the unemployment rate by about five percent (page 141). The authors also note that Social Security, passed in 1935, also increased the cost of labor and thereby increased unemployment (page 141).

The authors acknowledge that, in 1937, income tax receipts were up "at a time when absolute federal spending was declining" and "the federal deficit contracted sharply" (page 143). Let us grant that it's stupid to raise taxes during a depression. It is true that changes in federal spending can harm the economy, simply because many businesses must adjust their behavior accordingly, and that takes time. But the notion that less forced wealth redistribution somehow damages the economy is absurd. Sirota commits the basic eonomic fallacy of looking at the seen -- the government spending -- and ignoring the unseen -- the business activities that don't exist because resources are forcibly transferred away from them. So Sirota's story of the economic troubles of 1937 and 1938 doesn't bear scrutiny.

On the other hand, there is a straightforward and obvious link between wage controls and unemployment. Especially during a time of (federally induced) deflation, artificially high wages are disastrous. They artificially increase the monetary wages of some at the expense of throwing others -- in the case of the Great Depression, many others -- out of work.

Sirota's second argument is that (even) Milton Friedman praised "the New Deal's Federal Deposit Insurance Corporation." But critics of the New Deal point out that the Federal Reserve is a major cause of the Great Depression to begin with. So let us put Sirota's claim in context.

Vedder and Gallaway point out:

Monetary policy was clearly restrictive. On three occassions between August 1936 and May 1937, the Federal Reserve Board raised reserve requirements, flexing new regulatory muscle provided by the Banking Act of 1935. The doubling of reserve requirements led banks to scramble for reserves, and to rebuild previously existing excess reserves. This, to monetarists such as Milton Friedman, led to a decline in the stock of money and a resulting economic contraction. (Page 144)

Again, contractive monetary policy plus heightened wage controls is a bad mix.

Perhaps in a future article Sirota would care to actually enter the debate rather than restrict his discussion to name-calling, platitudes, and appeals to authority. FDR's policies demonstrably worsened the Great Depression caused by Hoover and the Federal Reserve. The sort of economic ignorance promoted by Sirota only threatens to subject the modern economy to similar turmoil.

Sowell Blasts Smoot-Hawley Tariff

Thomas Sowell's point about Republican Herbert Hoover's Smoot-Hawley Tariff is worth reviewing. Citing Out of Work by Richard Vedder and Lowell Gallaway, Sowell points out:

The Vedder and Gallaway statistics allow us to follow unemployment month by month. They put the unemployment rate at 5 percent in November 1929, a month after the stock market crash. It hit 9 percent in December-- but then began a generally downward trend, subsiding to 6.3 percent in June 1930.

That was when the Smoot-Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences.

Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.

This was more than a year after the stock market crash.

Both Hoover and FDR worsened the economy in a variety of other ways, but Hoover's tariff was a horrible blunder.

Sowll ends on this ominous note: "Barack Obama already has his Herbert Hoover to blame for any and all disasters that his policies create: George W. Bush."

'Taxpayers... Bleeding at Every Pore'

Here I continue my review of Burton Folsom Jr.'s new book, New Deal Or Raw Deal? In Chapter 6, Burton describes employment payments and the Works Progress Administration (WPA). At the end I relate the history to modern events.

As I've reviewed, federal politicians generated the unemployment problem of the Great Depression through trade-killing tariffs, investment-killing Federal Reserve policies, and job-killing wage controls. On top of this, politicians imposed price controls and reduced crops of food and cotton, thereby increasing the costs of food, clothing, and all manner of other goods and services. Most of these controls resulted from the bipartisan efforts of Hoover, FDR, and Congress. And yet we are to take FDR as some sort of national hero for forcibly redistributing wealth to his victims. And how did that work out?

In 1932, Congress under Hoover passed a $300 million Emergency Relief Construction Act to provide money to states claiming to need it. Roosevelt increased the funding under his Federal Emergency Relief Administration. This had two main effects. First, state leaders had a strong incentive to claim need and to perpetuate need. Second, individuals had a strong incentive to stay on tax-funded relief. It turns out that rewarding people for staying in need tends to generate needy people.

Folsom quotes FDR's concession of 1935 "that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber." (This is one bit of advice I wish modern Democrats would heed.) FDR's answer was to repeal the federal controls that had caused and worsened the Great Depression -- we can only wish. Instead, FDR sought to nationalize various industrial projects under the WPA.

While the WPA boasted real achievements, Folsom reviews, it also fostered worthless make-work schemes. Moreover, the project became deeply politicized. Not only were the funds often directed regionally for political reasons, but individuals were "encouraged" to hold the right political views and make the right political donations to keep their tax-funded jobs.

The line about bleeding taxpayers came from Oklahoma Senator Thomas Gore, who alone voted against the WPA -- and got trounced for it come election time. The country got a taste for interest-based politics.

Folsom curtly answers his main question posed as the chapter's title: "Relief and the WPA: Did They Really Help the Unemployed?" Folsom argues that, prior to the New Deal, "charity had been a state and local function." Critics will answer that the magnitude of the Depression demanded Federal action. Folsom proves that the programs were politicized; that doesn't prove they didn't also achieve their objective or that modern programs can be improved, his critics will return. Folsom rests his case with Henry Hazlitt, who points out that tax-funded projects necessarily come at the expense of the activities that otherwise would have been funded directly by those earning the money.

Public works seems to be the main part of the New Deal that President Elect Barack Obama hopes to duplicate. Obama also wants to expand forced wealth transfers to the unemployed and impose harsher wage controls (though the inflation Bush and Obama seem determined to unleash may make such wage controls superfluous).

It is inevitable that Obama's make-work programs will be politicized; his "green" program is inherently so. No doubt the regions and firms with the best political connections will get the most dollars.

Yet, despite all this, do public-works projects help the economy? It is true that widespread malinvestment -- such as that encouraged by the federal government relative to mortgages -- requires a period of painful readjustment. But that's not a problem that can be fixed through public works. Instead, increased federal spending -- which must come from new taxes or deficits -- will only divert resources critically needed elsewhere for recovery. As Folsom quotes Hazlitt, "for every public job created... a private job has been destroyed somewhere else."

(The argument that various public works are justified because they are public goods -- an argument that I find defective -- properly has nothing to do with trying to spend our way out of a recession.)

Poor old Gore -- who was blind, it turns out -- saw clearly the problem of "taxpayers... bleeding at every pore." Well, if Obama and his followers get their way, we ain't seen nothin' yet.

How Hoover and FDR Damaged Agriculture

In the typical vision of the Great Depression, hungry children in tattered clothing sulk in the streets. What is not typically recognized is that FDR's policies reduced and destroyed crops of grains and cotton, thereby increasing the costs of food and clothing. FDR may have rhetorically sympathized with the poor, but his policies greatly harmed them.

Burton Folsom, Jr., describes these problems in Chapter 5 of his book, New Deal or Raw Deal?, which I began to review earlier.

Here's the basic story. Hoover with his Smoot-Hawley Tarriff destroyed American agricultural exports. Then, with the Agricultural Adjustment Act of 1933, Roosevelt paid farmers with tax dollars to stop growing crops on some of their land, artificially propped up the prices of various (politically selected) agricultural products, and unleashed thousands of bureaucrats to enforce the Byzantine controls. The bureaucrats were, of course, paid to reduce agricultural output and increase prices through taxes on food processors that were passed along to consumers.

And yet some people continue to praise FDR as an enlightened, "progressive" president, despite the profound harm of his stunningly stupid programs.

Folsom notes on page 67, "In 1933, the U.S. was plowing under 10 million acres of cotton and killing 6 million piglets; in 1935, the U.S. was importing 36 million (bales) of cotton and 2 million pounds of ham and bacon."

Folsom's chapter on agriculture thus provides important details on the Great Depression. However, the chapter also illustrates Folsom's inability to essentialize and prioritize. Of the 16-page chapter, Folsom devotes the final four-and-a-half pages to reviewing the dispute between FDR's man Rexford Tugwell and Virginia Senator Harry Byrd. It's an interesting story, and it does illustrate the nature of FDR's bureaucratic takeover of America. And yet I found myself wondering why Fosom is so stingy with some elements of the story and so spendthrift with others. The fact that FDR under-tipped for train service is a mildly interesting, peripheral point -- hardly one meriting the four-fifths of a page that Folsom devotes to it as a part of the bit on Tugwell, itself a peripheral story.

Nevertheless, Folsom lays bare the folly of FDR's political controls.

Folsom Reviews FDR's Errors

With my dad I've written an overview of the political follies of the Great Depression. Yet the era deserves much more attention. Within the past few days I received Burton Folsom, Jr.'s New Deal or Raw Deal?, and I'll post some notes about it here.

I was at first concerned that I'd purchased a dud. The book's publisher made a big mistake by including an introduction by Stephen Moore, who brings to the book his widely recognized name -- and his partisanship. Moore blasts "liberal Democrats" for their proposals to control the economy, conveniently omitting the fact that Republican George W. Bush massively expanded Medicare and pushed for hundreds of billions in "bailouts."

Folsom's first three chapters are weak. His first chapter on the FDR mythology lays out the established view in unnecessary detail. The second chapter on FDR's background is basically useless in understanding FDR's presidency, though Folsom places great weight on the fact that FDR was a lousy businessman and a great politician. The first two chapters easily could have been combined and condensed.

Folsom's third chapter explains some of the causes of the Great Depression. I learned an interesting detail about the Smoot-Hawley Tarrif, which Folsom concurs was a major cause of the Depression. The tax scheme, which reduced exports "from $7 billion in 1929 to $2.5 billion in 1932," encouraged various European nations to repudiate their war debts to the United States; "if we wouldn't let Europeans trade with us, how could they raise the cash to repay us?"

Folsom points to the failure of the Federal Reserve without indicating that the institution by its nature tends to disrupt the rational economic planning of producers.

The most important part of Chapter 3 is Folsom's review of FDR's "underconsumption" theory, which Folsom describes in his first chapter as the view that "workers did not have adequate purchasing power during the 1920s to buy the products of industrial America." Folsom quotes, and disproves, FDR's economic analysis of the '20s, an analysis rooted in the false doctrine of "underconsumption." FDR's economic beliefs also led him to follow in Hoover's footsteps and try to "improve" the economy through wage controls, though the effect of such controls was to maintain high rates of unemployment. I wish Folsom had done more to explain the ideological roots of this "underconsumption" theory, which is essentially Marxist at root.

Folsom is better at delving into the facts of particular programs. Folsom's Chapter 4 is a great review of the insanity and economic harm of FDR's National Industrial Recovery Act, or NRA. The measure encouraged businesses to cartelize and set prices. Folsom reviews example after example of how the federal government cracked down on business owners for selling goods and services less expensively than their competitors demanded. The NRA led to Byzantine regulations and police-state enforcement. The NRA, effective from 1933 till the Supreme Court declared it unconstitutional in 1935, displays FDR's penchant for central economic "planning." Not deterred by the Supreme Court's rebuke, FDR soon returned with Guffey-Snider Act, which set coal prices and eventually undercut the United States coal industry. FDR even dreamed of an international cartel, which he and his advisors would control. The good news for us today is that few seem interested in repeating this particular sort of insanity.

I'll continue my notes on Folsom's book in a later post...

Politicians Caused and Worsened the Great Depression

The following article originally was published December 8, 2008, by Grand Junction's Free Press. Links have been added here.

Politicians caused and worsened the Great Depression

by Linn and Ari Armstrong

Do we really want a new New Deal? The answer depends on whether we think Roosevelt's New Deal made things better or worse during the Great Depression.

The Progressives count FDR a national savior and see Barack Obama as the Second Coming. Yet, while the term "progressive" evokes concern for the poor and community spirit, it names the politics of taking people's wealth by force and controlling their lives.

Progressive sophistry extends to the New Deal. For example, in a column for the New York Times, Paul Krugman writes, "Now, there's a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it's important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans."

Beyond the fact that left-wing academics and newspaper columnists hardly prove more reliable, a large body of scholarly work shows the destructiveness of the New Deal and earlier policies.

Historians Paul Johnson and Jim Powell take a dim view of FDR, as does Amity Shlaes in her book The Forgotten Man. Shlaes is an economist at the Council on Foreign Relations. In a recent column, George Will cites other scholars critical of the policies of FDR and Hoover. Economists Richard Vedder and Lowell Gallaway criticize FDR in their book Out of Work. This book was published through the Independent Institute of California, but Krugman might address its arguments rather than smear its authors.

So let us look at some of the relevant facts in the space available. While natural disasters can disrupt the economy, in large, prosperous economies such as ours the most powerful threat to economic health comes from ill-informed and special-interest-serving politicians. Economists who follow von Mises point out that inflationary spending skews the flow of capital, leading to painful readjustment.

Monetary politics played an important role in causing the Great Depression. Especially since the Federal Reserve Act of 1913, the federal government has largely controlled the banks. In 1927, Benjamin Strong, governor of the Federal Reserve Bank of New York, cut his bank's lending rate to provide what he deemed a shot of whiskey to the stock market. Then, in 1928 and 1929, the Federal Reserve sharply increased rates, sucking the wind out of the economy.

The Federal Reserve also contributed to the easy lending behind the modern mortgage crisis. The government, intent on preventing a deflationary spiral, is keeping lending rates low and spending trillions in new money. However, not only does this prevent healthy economic adjustments, it leads to harmful inflation. Central planners have a hard time maintaining a steady money supply.

The Smoot-Hawley Tariff Act that Hoover signed in 1930 devastated international trade. However, Hoover supported the tariff in 1929 before the crash. Amity Shlaes cites a telegram from a General Motors executive: "Passage bill would spell economic isolation United States and most severe depression ever experienced."

Thankfully, today few seem interested in imposing that sort of protectionism. However, Obama wants to restrict trade under the protectionist covers of "strong labor standards and strong environmental standards."

The policies of Hoover and FDR devastated the labor market. Now the unemployment rate in Colorado approaches 6 percent. In 1933 it was 25 percent nationally. After falling, it spiked up to 19 percent by 1938, long after FDR took office in 1933.

The left claims the problem is that FDR didn't spend enough of other people's money in his massive welfare and make-work schemes. But the reality is that Hoover and FDR caused the high unemployment through a series of policies and laws that kept the monetary wages of some artificially high. These wage controls worked in concert with the deflationary monetary policies of the late '20s and mid '30s to keep a huge portion of the population out of work. It is of little consolation that FDR "brought real relief" to those he first helped deprive of employment.

Today the auto industry wants taxpayers to foot the bill for its failure. Notably, this industry remains strangled by the union favoritism started by Hoover and perfected by FDR.

When politicians "stimulate" the economy, they do so by distributing wealth from some to others. So when Obama or Governor Ritter claim to "create" jobs in the "new energy economy" or other sector, remember that they're destroying other jobs and replacing them with politically-correct ones. The proper remedy for government-induced unemployment is not more corporate and personal welfare, but rather a repeal of the policies that damaged the employment market.

Politicians caused the modern mortgage crisis through easy-lending policies (see our November 10 article), and they caused they Great Depression through a series of central controls (only some of which we've reviewed here). Will Americans keep getting suckered by political "solutions" to the economic problems caused by politicians? Or will we finally demand economic liberty?

Prohibition Free for 75 Years

To celebrate the 75th anniversary of the repeal of Prohibition, I wrote a letter to the Rocky Mountain News that the paper published today. Here I extend my comments.

I summarize in the letter, "Then, like today, Republicans promoted statist controls of both economy and social life. Democrats ramped up the economic controls but promised to liberate people in their personal choices."

The paper edited out the next line: "Prohibitionist Republicans alienated many freedom-minded voters -- including arch-capitalist Ayn Rand -- and Roosevelt trounced Hoover in the presidential contest."

I called the Ayn Rand Institute to verify the claim about Rand. Jeff Britting, archivist for the organization, said that Rand voted for FDR in his first presidential election because of his opposition to prohibition. However, Britting noted, Rand later became more political and became a vocal critic of FDR and the New Deal. The information is contained in unpublished audio recordings from the 1960s. Apparently Rand expressed concern about the expansion of state power as well as the problem of organized crime.

While poking around on the internet, I also found the claim that Isabel Paterson voted for FDR the first time around. Biographer Stephen Cox noted that this information is contained in Paterson's letter to Lillian Fischer, dated September 8, 1932. Cox writes:

She had voted for Roosevelt. She didn't like him, but at least he was opposed to prohibition. She made no comment on the fact that his platform favored certain economic policies that she approved, such as a balanced budget and a deep cut in federal spending. Once the New Deal got underway, she reminded people about his unkept campaign pledges; during the election, however, she seems to have taken them no more seriously than he did. [The Woman and the Dynamo, page 165, endnotes omitted.]

The parallels between then and now are striking. Bush, like Hoover, dramatically expanded the power of the federal government. Bush, like Hoover, alienated many voters with his commitment to social controls.

Note that I am not arguing that FDR won because of Prohibition; I am arguing that Prohibition was an important contributing factor. Likewise, Republicans did not get trounced during this last election solely because of their social conservatism and faith-based politics. As I have stated, I think McCain hammed the final nail in his own electoral coffin when he rushed to the District of Columbia to push through Bush's bailout. This proved to the American people, most of whom opposed the bailout, that, like Hoover, modern Republicans are enemies of economic liberty.

I do not think that Obama will be as destructive as FDR was. (Nor do I think people like Paterson or Rand could have predicted just how bad FDR would turn out to be.) Those decades of the 20th Century were dominated by the rise of Communism. My dad is currently reading The Haunted Wood, and he reports that FDR's government contained Soviet-friendly officials. Those were the ideas of the era. Today, the collapse of Communism continues to inform people's basic worldviews, and free markets continue to attract many. But this is an aside. Despite the many differences between the times, Bush is in many important respects Obama's Hoover.

Also edited out of the letter was this bit about Hoover:

Hoover complained about the violent police raids, crime, disrespect for the law, and international smuggling associated with Prohibition, but he praised its "high purpose" and hoped "it was the final solution of the evils of the liquor traffic." He wanted to return control to the states while achieving "elimination of the evils of this traffic."

These claims come from two sources. The first quotes some of Hoover's comments on Prohibition. The second is Hoover's acceptance of nomination speech on August 11, 1932. What struck me about this speech is Hoover's wishy-washiness. He seems to want to maintain a general policy of Prohibition while restoring power over the matter to the states.

I was also struck by FDR's condemnation of "the saloon" even as he forcefully demanded the repeal of the 18th Amendment:

And talking about setting a definite example, I congratulate this convention for having had the courage fearlessly to write into its declaration of principles what an overwhelming majority here assembled really thinks about the 18th Amendment. This convention wants repeal. Your candidate wants repeal. And I am confident that the United States of America wants repeal.

Two years ago the platform on which I ran for Governor the second time contained substantially the same provision. The overwhelming sentiment of the people of my State, as shown by the vote of that year, extends, I know, to the people of many of the other States. I say to you now that from this date on the 18th Amendment is doomed. When that happens, we as Democrats must and will, rightly and morally, enable the States to protect themselves against the importation of intoxicating liquor where such importation may violate their State laws. We must rightly and morally prevent the return of the saloon.

But, if FDR hated "saloons," he had no aversion to alcohol. He said of the Volstead Act on March 13, 1933:

To the Congress:
I recommend to the Congress the passage of legislation for the immediate modification of the Volstead Act, in order to legalize the manufacture and sale of beer and other beverages of such alcoholic content as is permissible under the Constitution; and to provide through such manufacture and sale, by substantial taxes, a proper and much-needed revenue for the Government. I deem action at this time to be of the highest importance.

I was unable to nail down the details about the quote, "I think this would be a good time for a beer." Wikipedia links the quote to the Volstead amendment. Yet others link the quote to the 21st Amendment.

I got the information about Colorado's wine industry from a web page hosted by the Colorado Wine Industry Development Board. I found it ironic that, while the state government once destroyed the wine industry, now it actively promotes it through dedicated tax funds.

Yet the evening wears on, and I have not yet made my own toast to the repeal of Prohibition.