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How FDR's New Deal Harmed Millions of Poor People
http://www.cato.org/dailys/12-29-03.html ^

Posted on 12/29/2003 9:55:56 AM PST by Stew Padasso

December 29, 2003

How FDR's New Deal Harmed Millions of Poor People by By Jim Powell

Jim Powell, senior fellow at the Cato Institute, is author of FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003).

Democratic presidential candidates as well as some conservative intellectuals, are suggesting that Franklin Delano Roosevelt's New Deal is a good model for government policy today.

Mounting evidence, however, makes clear that poor people were principal victims of the New Deal. The evidence has been developed by dozens of economists -- including two Nobel Prize winners -- at Brown, Columbia, Princeton, Johns Hopkins, the University of California (Berkeley) and University of Chicago, among other universities.

New Deal programs were financed by tripling federal taxes from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and so-called "excess profits" taxes all went up.

The most important source of New Deal revenue were excise taxes levied on alcoholic beverages, cigarettes, matches, candy, chewing gum, margarine, fruit juice, soft drinks, cars, tires (including tires on wheelchairs), telephone calls, movie tickets, playing cards, electricity, radios -- these and many other everyday things were subject to New Deal excise taxes, which meant that the New Deal was substantially financed by the middle class and poor people. Yes, to hear FDR's "Fireside Chats," one had to pay FDR excise taxes for a radio and electricity! A Treasury Department report acknowledged that excise taxes "often fell disproportionately on the less affluent."

Until 1937, New Deal revenue from excise taxes exceeded the combined revenue from both personal income taxes and corporate income taxes. It wasn't until 1942, in the midst of World War II, that income taxes exceeded excise taxes for the first time under FDR. Consumers had less money to spend, and employers had less money for growth and jobs.

New Deal taxes were major job destroyers during the 1930s, prolonging unemployment that averaged 17%. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring.

Other New Deal programs destroyed jobs, too. For example, the National Industrial Recovery Act (1933) cut back production and forced wages above market levels, making it more expensive for employers to hire people - blacks alone were estimated to have lost some 500,000 jobs because of the National Industrial Recovery Act. The Agricultural Adjustment Act (1933) cut back farm production and devastated black tenant farmers who needed work. The National Labor Relations Act (1935) gave unions monopoly bargaining power in workplaces and led to violent strikes and compulsory unionization of mass production industries. Unions secured above-market wages, triggering big layoffs and helping to usher in the depression of 1938.

What about the good supposedly done by New Deal spending programs? These didn't increase the number of jobs in the economy, because the money spent on New Deal projects came from taxpayers who consequently had less money to spend on food, coats, cars, books and other things that would have stimulated the economy. This is a classic case of the seen versus the unseen -- we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.

For defenders of the New Deal, perhaps the most embarrassing revelation about New Deal spending programs is they channeled money AWAY from the South, the poorest region in the United States. The largest share of New Deal spending and loan programs went to political "swing" states in the West and East - where incomes were at least 60% higher than in the South. As an incumbent, FDR didn't see any point giving much money to the South where voters were already overwhelmingly on his side.

Americans needed bargains, but FDR hammered consumers -- and millions had little money. His National Industrial Recovery Act forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food. Moreover, FDR banned discounting by signing the Anti-Chain Store Act (1936) and the Retail Price Maintenance Act (1937).

Poor people suffered from other high-minded New Deal policies like the Tennessee Valley Authority monopoly. Its dams flooded an estimated 750,000 acres, an area about the size of Rhode Island, and TVA agents dispossessed thousands of people. Poor black sharecroppers, who didn't own property, got no compensation.

FDR might not have intended to harm millions of poor people, but that's what happened. We should evaluate government policies according to their actual consequences, not their good intentions.


TOPICS: Business/Economy; Constitution/Conservatism; Crime/Corruption; Culture/Society; Government
KEYWORDS: baddeal; editorial; fdr; newdeal

1 posted on 12/29/2003 9:55:56 AM PST by Stew Padasso
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To: Stew Padasso; 4ConservativeJustices
ping!
2 posted on 12/29/2003 10:03:33 AM PST by Ff--150 (What is Is)
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To: Stew Padasso
Great post, thanks. I would also point out FDR's constant meddling in the stock market, which undoubtedly made investors very nervous, not knowing what he was going to pull out of his hat next.
3 posted on 12/29/2003 10:03:39 AM PST by inquest (The only problem with partisanship is that it leads to bipartisanship)
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To: Stew Padasso
Thanks for posting this.
4 posted on 12/29/2003 10:08:55 AM PST by Grampa Dave (Kaddaffi, "I will do whatever the Americans want because I saw what happened in Iraq. ")
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To: Liz
Conrad Black must be doubly depressed with this coming out re his adored and loved FDR.
5 posted on 12/29/2003 10:10:41 AM PST by Grampa Dave (Kaddaffi, "I will do whatever the Americans want because I saw what happened in Iraq. ")
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To: Stew Padasso
Boy! This would infuriate my yellow-dog democrat elder relatives...they are convinced FDR could walk on water.
6 posted on 12/29/2003 10:17:59 AM PST by Maria S ("…the end is near…this time, Americans are serious; Bush is not like Clinton." Uday Hussein 4/9/03)
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To: Stew Padasso
New Deal taxes were major job destroyers during the 1930s, prolonging unemployment that averaged 17%. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring.

Thanks for the post. I am often needing ammo to shoot at the Rat FDR worhsippers.

7 posted on 12/29/2003 10:21:52 AM PST by Blood of Tyrants (Even if the government took all your earnings, you wouldn’t be, in its eyes, a slave.)
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To: Maria S
Ha! I can top that. Some people I know are convinced that FDR could urinate lemonade, would drink it if offered, and then deny that it wasn't lemonade!
8 posted on 12/29/2003 10:25:43 AM PST by Blood of Tyrants (Even if the government took all your earnings, you wouldn’t be, in its eyes, a slave.)
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To: Stew Padasso
Democratic presidential candidates as well as some conservative intellectuals, are suggesting that Franklin Delano Roosevelt's New Deal is a good model for government policy today.

The erroneous notion that the New Deal was good for America has become an urban legend. It will take a hundred years before enough study and facts emerge to even begin to dispel the myth of the New Deal and give it its rightful description of a "Raw Deal". Much of it perpetrated on Americans by the communists/socialists in FDR's administration.

9 posted on 12/29/2003 10:26:05 AM PST by elbucko
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To: Blood of Tyrants
Well said.
10 posted on 12/29/2003 10:27:41 AM PST by elbucko
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To: robertpaulsen
ping.
11 posted on 12/29/2003 11:11:37 AM PST by tacticalogic (Controlled application of force is the sincerest form of communication.)
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To: Stew Padasso
This is a classic case of the seen versus the unseen -- we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.

I just love reading and saving articles like this. You cannot tax the people into prosperity. Our elected officials refuse to acknowledge this fact. Billy Clintoon is 100% disingenuous when he says his tax increase helped the soaring economy when he was in office. It's disgusting to note, that with all those taxes coming in during those 8 years, the skunk gutted the military at the same time and did it with a smile.

12 posted on 12/29/2003 11:35:22 AM PST by Pagey (Hillary Rotten is a Smug and Holier- than- Thou Socialist)
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To: All
I was looking for this book for 20 years. The first 8 years of his administration unemployment never dropped below 14%. This was not a "natural" part of the business cycle, but solely the result of insane policies developed by fdr. The book is a wonderful compilation of those policies. Why libs admire him is beyond my conprehension.
13 posted on 12/29/2003 11:48:59 AM PST by genghis
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To: Stew Padasso
FDR's policies weren't much different from Musslolini's. FDR was a fascist, i.e. centralized government control of private enterprise. My favorite anecdote is about a chicken farmer who went to jail for picking out the best chickens from several different coops to sell to his customers. This violated one of those famous fascist Acts of FDR's.
14 posted on 12/29/2003 11:56:02 AM PST by seowulf
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To: Stew Padasso
This is a classic case of the seen versus the unseen -- we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.

Exactly.....the unseen consequences described very well by Hazlitt. He uses the example of the broken window where people will say that it will stimulate business because a glassmaker will have some work to do. What you don't see is the business suit, food, or other items the window owner will now NOT BUY in order to pay for the window repair.

There is no increase in business....the money just got spent in different way.

15 posted on 12/29/2003 12:04:28 PM PST by Lizavetta (Savage is right. Extreme liberalness is a mental disorder.)
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To: elbucko
Ahh, the "Raw Deal"...as many people called it. There's also a great research paper done by the Reserve Bank of Minnesota, that comes to the same conclusion; that FDR's New Deal postponed the recovery...and actually extended the misery.

What's amazing about the New Deal is how many progressives give credit to FDR for his foresight in creating this huge central government, when in reallity, FDR was doing nothing more than copying what was already going on in socialist Europe at that time. FDR's administration (Brain Trust) was filled with utopian social-ites, such as his chief economic advisor (Rexford Tugwell) who openly praised communism for being "able to produce goods in greater quantities than capitalism, so as to spread such prosperity as there is over wider areas of the population." When liberals talk about the "tripling" of the deficit under Reagan, they should immediately be reminded of FDR's administration, whose New Deals created far more debt. When FDR entered the WH, the deficit was around $2.2 billion (1933); within 10 years that deficit would increase to $57.4 billion. While WWII can take some responsibility for these numbers, this deficit was substantial even before the war began.

The fact is, FDR's New Deals did nothing more than control and restrict the competitive sector while the government practically subsidized the entire labor force through "work programs" and HUGE marginal tax rates. Such a threat to free enterprise where these programs that even reknowned Democrats of the day objected to them. William Green, President of the AFL, declared that FDR's Civilian Corps "smacks of Facsism, of Hitlerism, of a form of Sovietism." Grace Abbott to the DNC Labor leader, John L. Lewis told the NAACP in 1940 that, "Mr. Roosevelt made depression and unemployment a chronic fact in American life." Even Gottfried Harberler, Professor of Economics at Harvard and President of the American Economic Association called the failure of the New Deal a policy disaster "unparalleled in other countries."

It was Churchill who summed it up nicley in 1937 when he said, "the Washington administration has waged so ruthless a war on private enterprise that the US is actually leading the world back into the trough of depression." And Churchill was right as by 1938 the country was experiencing a recession within a depression with unemployment climbing back up to 20%. If FDR's New Deal was responsible for ending the Depression, it sure wasn't working...and even by the end of the decade, with the war ecomomy reving up, unemployment was still as high as 17.2%. Compare any of the economic indicators from when FDR first took office to the end of the decade and you will see that the New Deal not only didn't help the economy, it stalled it, creating the longest depression in this country's history.
16 posted on 12/29/2003 12:14:01 PM PST by cwb (ç†)
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To: cwboelter
Interesting synopsis. However, didn't Churchill go along with socialistic programs in England after WWII? Social security comes to mind.

I may be wrong...seems to me I heard it somewhere?

17 posted on 12/29/2003 12:30:08 PM PST by what's up
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To: Stew Padasso
Commerce Clause bump.
18 posted on 12/29/2003 12:39:52 PM PST by tacticalogic (Controlled application of force is the sincerest form of communication.)
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To: what's up
I'm not too familiar with what Churchill did in England after the war with regards to SS. I think his opposition at this time was with what FDR was doing with the NRA, AAA and the every other alphabet program that was intent on controlling productivity and wages. They had been fighting this depression for years now, and FDR just continued to go in the same direction...even while at odds with the USSC. By the time Churchill made this comment, this new recession was just starting (Spring 1937) and in full swing by October.
19 posted on 12/29/2003 12:54:28 PM PST by cwb (ç†)
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To: Stew Padasso
It is an excellent book that I'd recommend to anyone. Unfortunately, those who need to read it won't. One thing the author does not cover, is what kicked off the recession that led to the Great Depression, because it happened under Hoover's watch. They raised the top income tax bracket from 25% to 65% in one fell swoop. You won't learn any of this in gradeschool folks... college either for that matter.
20 posted on 12/29/2003 1:00:50 PM PST by kylaka
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To: kylaka
I will likely read it. We've got to develop a more common understanding of what really happened to limited government, and I will be willing to carry the message.

Calling Ann Coulter. Maybe this book will be like the information learned from the Venona decrypts that in effect exonerated Joe McCarthy; that is, the Rosenbergs were really, really guilty, there were traitors in the government. First, academics establish the basic facts. That won't stop liberals from spewing the lies. The Treason model is Ann Coulter nukes their lies with an entertaining polemical history.

21 posted on 12/29/2003 1:19:17 PM PST by NutCrackerBoy
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To: NutCrackerBoy
"the Rosenbergs were really, really guilty, there were traitors in the government"

There still are traitors in government.

22 posted on 12/29/2003 2:38:28 PM PST by kylaka
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To: Grampa Dave
Many in his organization wonder how he wrote the 1200 page FDR book while supposedly running the company store.
23 posted on 12/29/2003 3:29:52 PM PST by Liz
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To: what's up
Churchill was defeated just as the war ended.
24 posted on 12/29/2003 7:16:44 PM PST by DeaconBenjamin
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To: Stew Padasso
See Also:

FDR's Raw Deal Exposed ^
      Posted by Cathryn Crawford
On News/Activism ^ 08/30/2003 1:59:46 PM CDT with 369 comments


Chicago Sun-Times ^ | 9.30.03 | Thomas Roeser
FDR's Raw Deal Exposed August 30, 2003 BY THOMAS ROESER For 70 years there has been a holy creed--spread by academia until accepted by media and most Americans--that Franklin D. Roosevelt cured the Great Depression. That belief spurred the growth of modern liberalism; conservatives are still on the defensive where modern historians are concerned. Not so anymore when the facts are considered. Now a scholar at the libertarian Cato Institute has demonstrated that (a) not only did Roosevelt not end the Depression, but (b) by incompetent measures, he prolonged it. But FDR's myth has sold. Roosevelt, the master of the...
 

25 posted on 12/30/2003 2:47:00 PM PST by Stultis
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To: Stew Padasso
And also:

Great myths about the great depression [Thomas Sowell] ^
      Posted by aculeus
On News/Activism ^ 10/09/2003 8:22:38 AM CDT with 83 comments


townhall.com ^ | October 9, 2003 | Thomas Sowell
They say "truth will out" but sometimes it takes a long time. For more than half a century, it has been a "well-known fact" that President Franklin D. Roosevelt got us out of the Great Depression of the 1930s. That view was never pervasive among economists, and even J.M. Keynes -- a liberal icon -- criticized some of FDR's policies as hindering recovery from the depression. Only now has a book been written in language that non-economists can understand which argues persuasively that the policies of the Roosevelt administration actually prolonged the depression and made it worse. That book is...
 

26 posted on 12/30/2003 2:49:30 PM PST by Stultis
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To: cwboelter
Thank you for a most informative reply regarding my remark about the "Raw Deal". In particular, I was not aware of Churchill's criticisms of FDR's horrendous policies.

Also...

. FDR's administration (Brain Trust) was filled with utopian social-ites, such as his chief economic advisor (Rexford Tugwell) who openly praised communism for being "able to produce goods in greater quantities than capitalism, so as to spread such prosperity as there is over wider areas of the population."

Interesting. I have often thought that FDR brought his Wash DC administration from his governor's administration in Albany. Among these were the finest group of socialists, socialite fashionable communists and more insidious, communist agents loyal only to Moscow. That certainly was a bullet America dodged by virtue of the US (and USSR) having to deal with the belligerents in Berlin and Tokyo. As for socialism's ability to produce prosperity, nothing could be further from the facts as was revealed when the Soviet Union collapsed. The real, "Dirty Little Secret" of socialism, is that it always produces a shortage of necessities.

Buck.

27 posted on 12/30/2003 3:06:46 PM PST by elbucko
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To: cwboelter
I think it was the problems of the New Deal that inspired Freidrich A. Hayek to write in 1944 one of the most influential books of the 20th Century, The Road to Serfdom.

I am glad that Hayek lived long enough to see Margaret Thatcher and Ronald Reagan embraced the lessons learned from this book and caused the great economic boom of the 1980's in the UK and USA, respectively.

28 posted on 12/31/2003 6:48:32 AM PST by RayChuang88
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To: DeaconBenjamin; what's up

Yes, Churchill and his Conservative Party was voyed out. Britain's slide into socialism was presided over by a new, Labour Party, socialist government


29 posted on 02/01/2005 12:36:58 PM PST by free_european
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To: Stew Padasso
I always love to trip up liberals by asking them who was responsible for this quote:

"The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America. Work must be found for able-bodied but destitute workers. The federal government must and shall quit this business of relief."

Hint: It wasn't Ronald Reagan, it was none other than FDR himself.

30 posted on 02/01/2005 12:39:34 PM PST by dfwgator (It's sad that the news media treats Michael Jackson better than our military.)
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To: Stew Padasso

More great and important work from the Cato Institute.


31 posted on 02/01/2005 12:56:04 PM PST by Protagoras (No one is fit to be a master and no one deserves to be a slave. GWB 1-20-05)
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To: Stew Padasso

Another one of the big legacies was income tax witholding, i.e. right out of the paycheck before even being paid. The effects of this cannot be over-emphasized. Citizens paying their taxes voluntarily, after-the-fact, gave a level of control that was lost forever. "Tax revolts" (of which I am not advocating, mind you) were no longer possible.

Incidentally, revenues were far, far higher than anticipated, simply because so many citizens had previously declined to report all of their income, and of course it was impractical to audit millions, of course. Income tax witholding set the course for a lot of things that people take for granted to day.


32 posted on 02/01/2005 1:12:35 PM PST by Freedom4US
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To: cwb

If you think FDR's "New Deal" was raw, just wait until you have to live under "The New World Order!"


33 posted on 02/01/2005 2:25:09 PM PST by Paperdoll
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