Review: "The Forgotten Man" by Amity Shlaes
Lil Tuttle |
What happens if government intervenes in a nation's economic crisis and makes it worse? Amity Shlaes tells such a story in her book, "The Forgotten Man: a New History of the Great Depression" (HarperCollins).
School children are generally taught this standard history lesson about the Great Depression: The 1920s was a period of false growth, high living and low morals brought to a halt by the 1929 stock market crash. The crash led to crippling inflation and the nation's economic collapse. President Franklin D. Roosevelt took control and ushered in the New Deal to revive and save the nation.
Drawing upon original records by and about the era's major public and private players, Shlaes provides an insightful, and markedly different, account of that period of American history.
The 1920s was a decade of true economic gain during which the radio, telephone, and automobile dramatically improved American life. Between 1927 and 1929, the Dow Jones Industrial average (DJI) doubled from 168 to — a rise that reflected the DJI's best effort to quantify the value of American electrification and industrialization. The 1929 stock market crash (in which the DJI plunged from 343 on August 1st to 230 on October 29th) was a necessary correction of a too-high stock market. However, it alone did not cause the Great Depression.
The "annihilating event" behind the Depression was deflation (not inflation), which neither Herbert Hoover nor Franklin Roosevelt fully understood. Both presidents blamed business and businessmen: Hoover for "uncontrolled speculation" and FDR for businessmen's greed and selfishness. Both presidents "preferred to control events and people" and "overestimated the value of government planning."
What made the depression "great" was unbridled government intervention in the marketplace. Hoover ordered wages kept artificially high (which increased business losses and unemployment), instituted new trade tariffs (which sparked retaliatory tariffs by Canada and Europe), and imposed a "class tax" (the top tax rate jumped from 7% to 63%, choking investment capital). By 1932, the economies of at least 8 other nations were on the rebound, but the U.S. economy languished.
Entering office in 1933, FDR made "different but equally disastrous errors." He created myriad new federal regulatory, aid and relief agencies: some useful, some inspiring, and some ultimately so harmful that they delayed the nation's economic recovery for a decade. In one year alone, his National Recovery Act produced 10,000 pages of new federal laws — an amount exceeding the entire legislative output of the federal government in the preceding 144 years!
FDR set consumer prices and imposed an array of new taxes on individuals and businesses, some of which were retroactive and deliberately vindictive. His justice department aggressively persecuted and prosecuted successful industrialists whose chief crime was resistance to his New Deal programs. His administration's war on private investment capital caused it to flee the U.S.
FDR also carved out favored political constituency groups — namely farmers, big labor unions, and senior citizens — and bestowed upon them unprecedented government largess. Although he would eventually press for passage of the old-age Social Security pension program for political reasons, FDR initially resisted it for budgetary reasons, telling his Secretary of Labor Frances Perkins:
Ah, but this is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can't do that. We can't see the United States short in 1980 any more than in 1935.
FDR didn't get all he sought. His attempts to nationalize the utilities and health care industries were unsuccessful, as was his effort to change, by decree, the structure of the U.S. Supreme Court.
FDR's relentless experimentation with the nation's economy created uncertainty, uncertainty turned to insecurity, insecurity became fear, and fear paralyzed the private sector. America was simply a bad place to invest.
In January 1938 — nearly 10 years after the stock market crash — the DJI stood at only 121 and the unemployment rate was again soaring to 1931 levels: 17.4% and climbing to 20% within months. FDR's New Deal programs were losing in the courts and wearing thin with the electorate, even among disillusioned classic liberals in his own Democratic party. In mid-term elections that year, Republicans won 80 House seats, 8 Senate seats, and 11 governorships.
Whatever good intentions FDR may have had, Americans and the U.S. economy were worse off for the New Deal. Editors of the Economist in London would later conclude that "institutional obstructions to a free flow of capital" caused the U.S. to make no economic progress in the decade of the 30s. Employment in America didn't reach 1929 levels again until World War II, and the stock market didn't reach its 1929 high until a decade after FDR's death.
The Forgotten Man — "The Forgotten Man" was a familiar theme in the popular culture of this era. Yale philosopher and classic liberal William Graham Sumner created the "Forgotten Man" within a larger argument for classic liberalism and against the new socialism that was sweeping Europe. Sumner defined this man as the individual coerced to pay for others' dubious social projects:
As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine . . . what A, B, and C shall do for X.
But what about C? There was nothing wrong with A and B helping X. What was wrong was the law, and the indenturing of C to the cause. C was the forgotten man, the man who paid, "the man who never is thought of."
FDR appropriated the Forgotten Man theme and successfully redefined him to fit his evolving liberal-progressive political agenda. In the 1932 campaign, his Forgotten Man was the one "at the bottom of the economic pyramid" — the poor man in need of government aid. In his reelection strategy four years later, FDR's Forgotten Man wasn't a man at all; it was the constituency interest groups — large voter blocks — to whom he granted special government privilege, notably farmers, big labor unions, and the elderly.
Whereas Sumner's classic liberalism emphasized the individual, his God-given natural and property rights, and the free-market economy, FDR's liberal-progressivism emphasized special interest groups, their government-granted rights, and a government centrally-planned economy. His new political strategy would become his party's standard for decades to come.
In 1940 a former Democrat and FDR ally, Wendell Willke, ran as the GOP presidential nominee against FDR reminding the nation of the original Forgotten Man. "Whose forgotten man?" Willke asked in his convention acceptance speech. "Is it enough for the free and able-bodied man to be given a few scraps of cash — is that what the forgotten man wanted us to remember?"
Willke argued no, that classic liberalism was about the primacy of the individual and his freedom — that economic growth, not government, would lift the U.S. out of its troubles — and that wealth redistribution was a loser's game. Alluding to home and abroad, he contended it is "from weakness that people reach for dictators and concentrated government power."
Although Willke won 22 million votes (more than any GOP candidate before him), FDR had built a powerful political machine of voters under obligation to him, including millions of newly registered Social Security workers. These constituencies, a promised truce in his assault on business, and a looming world war gave FDR the votes he needed for an unprecedented third term.
(Note: Ms. Shlaes was a guest speaker at a Conservative Women's Network event co-hosted by The Heritage Foundation and the Clare Boothe Luce Policy Institute.)