It is no surprise that the liberal agenda of academia has spread across civilized society. Academia has made it a point to spread the bad news of America to the rest of America so that we can truly change the racist, sexist, misogynistic nation that is the United States.
We are not going to talk about methods or success rates of this tactic today, but what we are going to talk about is the false liberal talking point that it was the actions of FDR and the New Deal, not the pent-up demand and market occurrences, that softened and eventually ended the depression. Here, I will prove how this theory, which is what it is, is incorrect and completely ignores all aspects of what actually happened during the depression. So without further ado, let’s get into it.
The Great Depression is often characterized as a period between the late part of 1929 and the beginning of World War II, when it eventually ended due to out-of-this-world government spending from the war. Nothing could be further from the truth. The fact is that the Great Depression began in the months before Black Tuesday, when the stock market crashed and sent the country into panic, and ended when the war was over in 1945.
Let’s go through what we just said. First, that the Great Depression (which we will abbreviate with GD from now on) started on Black Thursday. While a stock market crash is very significant, it doesn’t decide the fate of the entire country. Business is conducted as usual, and the only people affected are the shareholders (of course, this is only generally true in the short run, but that’s neither here nor there). However, what does affect a country are rising interest rates from the Federal Reserve after five years of having very low interest rates. In 1924, the Federal Reserve thought that the economy should be stimulated due to the stagnation of business growth (another story for another time). The Fed quickly lowered their interest rates to promote growth, which obviously led to a lot of irresponsible borrowing. As a result, the economy was plunged into the heart of the roaring 20’s. However, the reverse situation is true as well, and when the economy is booming, the Fed raises their rates. They began to do this leading into 1929, and eventually created a panic among shareholders who had invested using borrowed money, leading to a massive selloff and thus Black Thursday.
Now let’s move on to the end of the GD, which we determined to be the end of WWII. We chose this date because despite the massive government spending throughout the war, the country was still in a depression. There was still rationing among citizens and massive unemployment in the private sector.
Why, you ask, was there rationing among citizens if there was minimal unemployment during the war and GDP continued to rise? The reason is because even though these facts are true, most, and sometimes even all of the spending came from the federal government. The GDP measurement system had been switched to the expenditures approach, and therefore measured overall expenditures in the country to measure GDP. However, the catch was that the federal government was included in this measurement. The federal government continued to spend domestically and overseas, and the factors that led to the low unemployment was the massive enlistment in the military and the draft. Women were also hired by manufacturers who contracted for the U.S. military to provide bullets, helmets, clothing, and other supplies.
In short, the reasons for rationing during times of low unemployment was because no value was being provided in the private sector. There was no production, and when there’s no production, the private sector is failing. In very real terms, we had “full” employment and nothing to eat.
Back to the point, FDR did not save America with the New Deal. He didn’t even stop the bleeding. Yes, with his programs we now have the Hoover Dam and the many Tennessee Valley dams that provided life for the impoverished who lived there before. But would America really be worse off economically if he hadn’t done these things? If FDR hadn’t made the Federal Reserve lower their interest rates and bail out failing banks, would America be worse off? If FDR didn’t “create” (I use quotation marks because it’s not creating jobs when the job is to work for the federal government) the jobs that he did in the Civilian Conservation Corps, the Recovery Administration, or the Tennessee Valley Authority, would the Great Depression have lasted longer? If FDR didn’t pass the National Industrial Recovery Act or the Social Security Act, among others, would America have crumbled from beneath his feet? These are very real questions that we need to ask ourselves, because economists have to look at both sides of the equation.
So let’s analyze the New Deal’s effect on the economy. First, we’ll start with something that many people don’t know about, which is Executive Order 6102, passed by FDR on April 5, 1933, forbidding the ownership of gold coins, bullion, and gold certificates, except in small quantities specified by the government. In other words, the federal government now had the right to confiscate gold from its own citizens. This order was upheld by the Supreme Court, and the market was quickly flooded with Federal Reserve notes, inflating our currency and creating new suffering for our country.
The New Deal policies that “created” jobs and led to extremely low unemployment are greatly exaggerated. While there were many jobs in the government to be had, there was no production in the private sector. Agriculture was on the downturn, manufacturing suffered massive losses from the inflation of the U.S. dollar, and so on. The only things that were produced were the many dams built by the federal government, which at the time didn’t provide any value to the economy.
The problem with Keynesian economists analyzing the New Deal is that they concern themselves with only one side of the equation. When they heard that the government was “creating” jobs, they stopped and rejoiced, without any consideration for what that was doing for the overall economy. Austrian economists examine the whole equation. They realize that for every job created, that job elsewhere cannot exist. When the government “created” jobs building the Hoover Dam, they were also effectively taking jobs away from the private market. The labor market is very much a zero-sum game between the government and the private sector (this is why the recession of 1920 ended in 18 months, but that’s another topic for another time).
Let’s not forget the reasoning behind the massive government spending of the 1930’s: increase the money supply in the economy so that people are able to afford goods again. The economy was looked at as an overall being; an engine. In order to get the engine going again, we just needed a spark, or pour gasoline into it. This is, of course, imagery to create a picture of the economy as a car, with many parts working together to make it work (the people). However, here the car cannot go anywhere without the gasoline or oil (government stimulus).
This fallacy was created by an economist named John Maynard Keynes, a British scholar who had great influence among American economists. His multiplier rule, which stated that an increase in spending will increase the overall GDP by even more than what was initially spent, was greatly revered by American economists and was proposed as a solution to the GD. However, what the late Sir Maynard Keynes ignored is that GDP, while a measurement of overall production in the economy, is not the only number that matters, especially when government spending is considered.
During the GD, many people had jobs “created” by the government, thus creating a very low unemployment rate, but these jobs were not easing the depression. Why? Because most if not all of these jobs were unproductive, and if nothing is being produced, then there cannot be economic growth.
This is why the depression did not end for another ten years or so after the New Deal was established. What the Great Depression has taught us is that the government, no matter how large, cannot fix economic recessions or depressions. The reasoning is simple, and leaves little to the imagination after an understanding of what really happened during the GD. So the message being taught by academia and the message largely accepted by society is false, that FDR did not “save” America with the New Deal, and that the New Deal actually extended the depression, although we’re not sure by how long. The next time you hear this message, you will be at least be equipped with some facts from that era to prove your point, that FDR hurt America with the New Deal, and that no, WWII did not stop the GD either. It just made the suffering worse.