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Did FDR End The Great Depression?

Posted by | May 8th, 2012

Below, is a very insightful article, by Burton Folsom Jr. and Anita Folsom, which was posted, online, at The Wall Street Journal, on April 12, 2010:

“He got us out of the Great Depression.” That’s probably the most frequent comment made about President Franklin Roosevelt, who died 65 years ago today. Every Democratic president from Truman to Obama has believed it, and each has used FDR’s New Deal as a model for expanding the government.

It’s a myth. FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II.

Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.

What about World War II? We need to understand that the near-full employment during the conflict was temporary. Ten million to 12 million soldiers overseas and another 10 million to 15 million people making tanks, bullets and war material do not a lasting recovery make. The country essentially traded temporary jobs for a skyrocketing national debt. Many of those jobs had little or no value after the war.

No one knew this more than FDR himself. His key advisers were frantic at the possibility of the Great Depression’s return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer—and on Oct. 28, 1944, about six months before his death, he spelled out his vision for a postwar America. It included government-subsidized housing, federal involvement in health care, more TVA projects, and the “right to a useful and remunerative job” provided by the federal government if necessary.

Roosevelt died before the war ended and before he could implement his New Deal revival. His successor, Harry Truman, in a 16,000 word message on Sept. 6, 1945, urged Congress to enact FDR’s ideas as the best way to achieve full employment after the war.

Congress—both chambers with Democratic majorities—responded by just saying “no.” No to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.

Instead, Congress reduced taxes. Income tax rates were cut across the board. FDR’s top marginal rate, 94% on all income over $200,000, was cut to 86.45%. The lowest rate was cut to 19% from 23%, and with a change in the amount of income exempt from taxation an estimated 12 million Americans were eliminated from the tax rolls entirely.

Corporate tax rates were trimmed and FDR’s “excess profits” tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945.

Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call “supply-side economics.” If the tax bill “has the effect which it is hoped it will have,” George said, “it will so stimulate the expansion of business as to bring in a greater total revenue.”

He was prophetic. By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. The U.S. began running budget surpluses.

Congress substituted the tonic of freedom for FDR’s New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.

The Great Depression was over, no thanks to FDR. Yet the myth of his New Deal lives on. With the current effort by President Obama to emulate some of FDR’s programs to get us out of the recent deep recession, this myth should be laid to rest.”

Mr. Folsom, a professor of history at Hillsdale College, is the author of “New Deal or Raw Deal?” (Simon & Schuster, 2008). Mrs. Folsom is director of Hillsdale College’s annual Free Market Forum.

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7 thoughts on “Did FDR End The Great Depression?

  1. Diana Hartman

    This article is spot on.  WWII brought on an unprecedented effort to meet the war objectives.  The objectives were to rid the world of Nazism and totalitarianism in the Pacific theater.  As such, America had the manufacturing hub and resources to meet the wars objectives – to win.  However, prior to and during the war, FDR implemented policies that were foreign to America.  In one sense, a person cannot blame him.  He had to unify the government and private sector to meet those ends, and hence, the War Board.  At the time, it was spectacular on America’s part.  But, these should have been temporary measures, given the fact that we had never really mobilized for a war of such magnitude.  FDR was keen enough to know that food would be distributed worldwide, etc.  Noble enough.  But, the poison set in and never left the bloodstream of America.

    FDR is noted for the unconstitutional establishment of the administrative state.  It was war time, what did we know?  We didn’t understand the economics of war at that time, nor really how to unify on a domestic front to meet the war needs.  However, once the war was won, the administrative state should have been eradicated from American history.  Sadly, it was not.

    The administrative state gave way to government bureaucracies that created law, when they were unelected officials.  Increasingly, these agencies gave way to socialistic objectives, which was actually the objective of FDR and his fellow progressives.  More and more, private business enterprises came under the scrutiny of the federal government.  Point in fact.  Did you know that advertising agencies were frowned upon in the 1940′ and 50’s.  To make headway, the government absorbed them into an elite government agency, which promoted American’s values and business enterprises with taxpayer dollars.  That was the beginning of fascism.  For those of you who are interested, I will email you the journal article.  Fascinating, to say the least.

    Indeed, the tax rate was cut and businesses flourished and America held it’s ground as THE global leader.  However, there were chinks in the chain, from the get go.  Our new administrative state, actually supported unions and and gave way to domination over private enterprise.  Theodore Roosevelt, a Republican, was the primary driver of this bus.  And, then he went on to federalize land in the West for so-called preservation purposes.  There is a moral to this story, trust me.

    In the wake of Civil Rights, which I believe was a good thing, had it been kept at that, we seemingly lost our rights.  Civil rights gave way to the welfare state, the administrative state enlarged to procure income equalization, thinking this was actually the right to life, liberty and property.  Obviously, Madison thought otherwise.  As the administrative state grew, our civil liberties were at odds with the socialists, who, by the way, had been active since the 1840’s – it started with German immigrants to this country.  Anyway, to support the welfare state, government bloated at an alarming rate.  All the sudden we had new administrative agencies, like the Department of Education, who were suppose to advocate for the poor.  In reality, they advocate for teachers’ unions and income equalization.  And, this might explain why our kids are dumbed down.

    The sad reality is that when the Civil War ended, the federal government became pappa for us all.  Progressives who were disillusioned with the Industrial Revolution fell prey to unions and the government, and, once FDR was elected, their visions of socialism were partially realized in our country.  Both parties, since that time, have given way to all forms of social welfare, using the U.S. Chamber of Commerce (except now – there is a conservative at the helm) to promote all the ideals of fascism and socialism.  Both parties bicker and give handshakes across the aisle cutting deals, adding to a staggering debt, which someone must eventually pay.

    As Jesus took the Cross, so must we.  We fight relentlessly on principle and don’t back down to anyone.  Our country is great, first and foremost, due to God and our faith in him.  When we back down from these principles, morality declines accordingly, and we are left in the dark.  Renew your faith in God.  Renew your faith in America’s greatness.  Renew your faith in Madisonian objectives of a the right to procure wealth, as the result of hard work and ingenuity.  And, this being said, I will quote Madison, whom I respect enormously, “it can be said that everyone has a right to his property and a property to his rights.”  That’s constitutionalism folks.

    1. markross Post author

      Thank you for the comment Diana!

      I agree with every word, except perhaps this one line:
      “We didn’t understand the economics of war at that time.”

      No doubt, World War 2 was like nothing before in history, in regards to war; but people, throughout history, were well aware of the economic, as well as the personal sufferings, that war could bring to a nation. 

      Please consider Justice Joseph Story’s (appointed by President James Madison) words from his Commentaries on The Constitution of The United States:

      “War, in its best estate, never fails to impose upon the people the most burthensome taxes, and personal sufferings. It is always injurious, and sometimes subversive of the great commercial, manufacturing, and agricultural interests. Nay, it always involves the prosperity, and not unfrequently the existence, of a nation. It is sometimes fatal to public liberty itself, by introducing a spirit of military glory, which is ready to follow, wherever a successful commander will lead; and in a republic, whose institutions are essentially founded on the basis of peace, there is infinite danger, that war will find it both imbecile in defence, and eager for contest. Indeed, the history of republics has but too fatally proved, that they are too ambitious of military fame and conquest, and too easily devoted to the views of demagogues, who flatter their pride, and betray their interests. It should therefore be difficult in a republic to declare war; but not to make peace.”

  2. Diana Hartman

    Yes, but the liberals had another agenda for America, and they knew it would take some time for the stranglehold to take effect. They have been patient for their renewal of unconstitutionalism. Now, it’s the brotherhood…frightening.

  3. Jackie Durkee

    More government = less economic success; therefore more war = more government = less economic success. Both the Republicans and the Democrats know this now, hence both sides are trying to get their big slice of the “big government” pie, and none of them “really” care about how it affects the rest of Americans. Just my opinion.

    1. markross Post author

      I totally agree with you Jackie! And, the Founders were well aware of the history, and desire to wage wars for political purposes, by the BIG GOVT types; particularly Kings, and Executives. That is precisely why The Founders put the subject of declaring war into the hands of Congress, and wrote that Congress shall have the Power to Provide for our Common “Defence.”

      War enriches a few, who are fortunate enough to win Government contracts; but, ALL of the money that is put toward the war effort, comes from We, The People. Therefore, all the money and resources that are being pulled away from other productive sectors of the economy, in order to fund a war effort, is an economic drain, and hurts other sectors of the economy, which, otherwise, would be far more productive.

      Among several other reasons, that is why war should be as Limited as possible, and only waged in Defense, and when all other avenues have failed.

      “Never was so much false arithmetic employed on any subject as that which has been employed to persuade nations that it is their interest to go to war. Were the money which it has cost to gain, at the close of a long war, a little town or a little territory, the right to cut wood here or to catch fish there, expended in improving what they already possess, in making roads, opening rivers, building ports, improving the arts and finding employment for their idle poor, it would render them much stronger, much wealthier and happier. This I hope will be our wisdom.” – Thomas Jefferson

  4. Pingback: The Housing Bubble Did Not Cause This Sluggish Economy - Democrats, Republicans, Libertarians, Conservatives, Liberals, Third Parties, Left-Wing, Right-Wing, Congress, President - Page 2 - City-Data Forum

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