The Big Lie About The Great Depression

In her vital and fascinating new book, "The Forgotten Man: A New History of the Great Depression," Amity Shlaes tells a story about national icon President Franklin Delano Roosevelt. Shortly after FDR took office, Shlaes explains, he began arbitrarily tinkering with the price of gold. "One day he would move the price up several cents; another, a few more," writes Shlaes.

One particular morning, Shlaes relates, FDR informed his "brain trust" that he was considering raising the price of gold by 21 cents. His advisers asked why 21 cents was the appropriate figure. "It's a lucky number," stated Roosevelt, "because it's three times seven." Henry Morgenthau, a member of the "brain trust," later wrote: "If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened."

Ignorance of basic economics -- and the concurrent attempt to obfuscate that ignorance by employing class-conscious demagoguery -- remains the staple of the Democratic Party. For over 60 years, Democrats and their allies in the media and public school system have taught that the Great Depression was an inevitable result of laissez-faire economic policies, and that only the Keynesian policies of the FDR government allowed America to emerge from the ashes. The Great Depression, for the left, provides conclusive proof that when it comes to economics, government works better than business.

This point of view has a sterling reputation. That reputation, unsurprisingly, was created by FDR himself. FDR turned the Great Depression into a morality play -- a morality play in which those in favor of individual initiative were the sinners, while those who relied on government were the saints. "We have always known that heedless self-interest was bad morals," Roosevelt intoned in 1937. "We know now that it is bad economics."

This, as Shlaes convincingly shows, is hogwash. The Depression lasted nearly a decade longer than it should have, due almost entirely to governmental meddling under both Herbert Hoover and FDR. High tariffs and government-sponsored deflation followed by enormous taxation and unthinkable government expenditures turned a stock market stumble into a decade-long nightmare. Only the devastation of World War II lifted America out of the mire, solving the drastic unemployment problem and providing a legitimate medium for FDR's pre-war wartime policies.

Nonetheless, the myth of a grinning FDR leading America forth from the soup kitchens remains potent. And today's Democrats rely desperately on that fading falsehood, hoping to bolster their bad economics with worse history. Hillary Clinton routinely hijacks Rooseveltian language, most recently disparaging the "on your own society" in favor of a "we're all in it together society." John Edwards' "two Americas" nonsense drips of FDR's class warfare. Never mind that Keynesian economics does not work. Never mind that it promotes unemployment, discourages investment and quashes entrepreneurship. For Democrats, the image of government-as-friend is more important than a government that actually protects the rights that breed prosperity.

"The impression of recovery -- the impression that a President was bending the old rules and, drawing upon his own courage and flamboyance in adversity and illness, stirring things up on behalf of the down-and-out -- mattered more than any miscalculations in the moot mathematics of economics," novelist-cum-economist John Updike recently wrote, defending FDR from Shlaes' critique. "Business, of which Shlaes is so solicitous, is basically merciless, geared to maximize profit. Government is ultimately a human transaction, and Roosevelt put a cheerful, defiant, caring face on government at a time when faith in democracy was ebbing throughout the Western world. For this inspirational feat he is the twentieth century's greatest President, to rank with Lincoln and Washington as symbolic figures for a nation to live by."

For Updike and his allies, image trumps reality. The supposed harshness of the business world matters more for Updike than the fact that profit incentives promote economic growth, efficiency and creativity. The "caring face" of government is more important for Updike than creating a framework that produces jobs and affordable commodities. Updike's sporadically employed father liked FDR because FDR made him feel "less alone." No doubt Updike's father would have felt less alone if he had been steadily employed by a private enterprise -- the kind of enterprise stifled by Roosevelt.

"We are beginning to wipe out the line that divides the practical from the ideal," FDR announced in 1937, as unemployment stood at 15 percent, "and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world." Today's Democrats continue to embrace the vision, even at the cost of a prosperous reality.

For over 60 years, Democrats and their allies in the media and public school system have taught that the Great Depression was an inevitable result of laissez-faire economic policies, and that only the Keynesian policies of the FDR government allowed America to emerge from the ashes. The Great Depression, for the left, provides conclusive proof that when it comes to economics, government works better than business.

This is a natural consequence of letting 1 guy steer the boat for so long. Eventually deeds morph into myths.

BE CAREFUL WHAT YOU ASK FOR YOU JUST MAY GET IT

(more debunking of the FDR myth) This is an excerpt from a larger story posted by a Freeper in Jan 07

Most modern economists have not yet realized what Henry Hazlitt already knew in the 1930s that FDR’s New Deal made the Great Depression last longer and deeper. It is a myth that Franklin D. Roosevelt “got us out of the Depression” and “saved capitalism from itself.” However recently a few modern macroeconomists have finally come to this conclusion as witnessed by an article in the August 2004 Journal of Political Economy entitled “New Deal Policies and the Persistence of the Great Depression: This is a big deal, since the JPE is arguably the top academic economics journal in the world.
“Real gross domestic product per adult, which was 39 percent below trend at the trough of the Depression in 1933, remained 27 percent below trend in 1939,” and “ private hours worked were 27 % below trend in 1933 and remained 21 % below trend in 1939.”
This should come as no surprise to anyone who has studied the reality of the Great Depression without a preconceived political agenda. The U.S. Census Bureau of statistics shows that the official unemployment rate was still 17.2 % in 1939 despite seven years of “economic salvation” at the hands of the Roosevelt administration (the normal, pre-Depression unemployment rate was about 3 percent). GDP was lower 10 years later, in 1939 than in 1929 ($847Billion vs. $857Billion), as were personal consumption expenditures ($67.6 billion in 1939 vs. $78.9 billion in 1929), and Net private investment was minus a total $3.1 billion from 1930-40.
Most people including most economists are surprised-even shocked-to discover these facts, primarily because are brain washed to accept the Ivy League Socialist leftist propaganda at face value. They can’t seem to understand the fact that the recovery from the Great Depression was “very weak”: simply because this data contrasted sharply with neoclassical theory and popular beliefs; that state that there should have been a booming robust economy. The weak recovery is puzzling to the Socialist Neoclassical economists because the large negative shocks that they believe caused the 1929-33 downturn, including monetary shocks, productivity shocks, and banking shocks-become positive after 1933.” Thus, according to neoclassical theory, the economy during a depression is somewhat dead but is then “shocked” back into becoming a living breathing dynamic economy by the sharply lowered interest rates, the dramatic money supply increases and the massive demand augmentation by government spending.. The monetary base increased more than 100 percent between 1933 and 1939,” making the case that such a “monetary shock” should have returned the economy to normalcy, according to some well-known macroeconomists who once proclaimed that “positive monetary shocks should have produced a strong recovery, with employment returning to its normal levels by 1936.” However, it was just those very same, easy money policies of the mid to late 1920s that created all the Over-investment, that inevitably resulted (as it always has and will) in the great Bubble followed by the Great Depression in the first place. The only wise thing that should have been done was to allow the liquidation of unprofitable and overcapitalized businesses to occur., as was done in 1919-1920 (President Harding stopped Hoover, then secretary of commerce, from implementing, those very same policies that he eventually implemented as President in 1930) that held that even sharper recession of 1919-1920 too less than two years. Instead, the Fed beginning after the 1929 crash drastically increased the monetary base by 100 percent in less than five years, causing more of the same overcapitalization problems that were the main source of the depressions problems in the first place.

What produced the Great Depression was unrestricted buying on “margin”. Everybody, EVERYBODY, got into the Market not as a long term investment, but on a “flipping” basis, where the last person in line gets stuck with the check. Too many people were buying with a lack of hard money to back up their purchases, so when the market naturally corrected itself, it fell apart.

You're confusing the '29 Crash with the Great Depression. These are related, but entirely distinct events with distinct causes. Following WWI there was a severe market crash caused, in part, by overexpansion. However, the 1919/20 crash did not turn into an extended depression because the government of 1921, under Harding, didn't try to manipulate its way out of a market correction.

Loose monetary policy fueled the '28//29 bubble, but tight monetary policy, along with the 1930 tariff, extended the crash into a depression. From there, FDR made the depression near permanent with the New Deal and the "National Recovery Act," which was essentially a coup d'etat of the national economy.

So, no, the Great Depression has nothing to do with today's real estate bubble. If there's a more serious crash, it does not correlate that a severe or long depression will follow. That's up to whoever gets elected in '08. Be afraid, very afraid of a democratic government during a downturn.

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