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The Big Lie About The Great Depression
Townhall.com ^ | June 27, 2007 | Ben Shapiro

Posted on 06/27/2007 5:10:50 AM PDT by Kaslin

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.


TOPICS: Business/Economy; Editorial; Government; US: District of Columbia
KEYWORDS: economics; fdr; greatdepression; liberalhack; oldschoollibtard; roosevelt
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To: HEY4QDEMS
Dredging up mistakes from 75 years ago that I can do nothing about is pointless IMO.

To paraphrase a guy named Santayana, those who are ignorant of the mistakes of the past are destined to repeat them.

61 posted on 06/27/2007 8:57:28 AM PDT by Terabitten (Virginia Tech Corps of Cadets - E-Frat '94. Unity and Pride!)
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To: SoCal Pubbie; Aquinasfan

As Aquinasfan posted, Milton Friedman saw the bank failures and the Depression itself as a monetary failure. Add to that the tariff, which further cut of monetary flows, and it’s rather obvious how the Crash turned into a depression.

I’d add one key element that is often overlooked, especially, regards the late 1932/ early 1933 bottoming out. There was a five month lag between the national election of ‘32 and the launch of the government (Admin and Congress) in March of ‘33. During this time — and by design — nothing happened. There was complete political atrophy at all levels.

FDR used this period as his excuse to radicalize his agenda, so he overturned his campaign promises and set up the “100 days” scheme.


62 posted on 06/27/2007 9:09:11 AM PDT by nicollo (all economics are politics)
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To: gridlock

My Grandparents survived the depression. Obviously not fun, but it was very different back then. They always said, “We had no money, but we did eat good.” Why? Well they were able to grow their own food and everyone did that. Some may not have been able to grow their own food, but someone in their family did so food was never a problem. Today if we had a depression, it would be a disaster as no one would even have food.


63 posted on 06/27/2007 9:10:07 AM PDT by napscoordinator
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To: Oberon
What amazes me is how reluctant people are to look at government policies to explain big market moves. Instead they are quick to blame their neighbor, and this is on an internet site where people are supposed to be critical of too much government intervention.
64 posted on 06/27/2007 9:39:09 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Moonman62
What amazes me is how reluctant people are to look at government policies to explain big market moves.

Are you thinking of the commoditization of mortgages as investment instruments, driven by Fannie Mae and Freddie Mac?

65 posted on 06/27/2007 9:49:18 AM PDT by Oberon (What does it take to make government shrink?)
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To: 50sDad
What produced the Great Depression was unrestricted buying on “margin”.

No, that produced the stock market crash of 1929. The Depression was another issue entirely.

66 posted on 06/27/2007 10:35:31 AM PDT by Ditto (Global Warming: The 21st Century's Snake Oil)
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To: Oberon
Are you thinking of the commoditization of mortgages as investment instruments, driven by Fannie Mae and Freddie Mac?

I would add that to the list. I think the most important change in this country was the captital gains exemption for homeowners that went into effect in 1997. There are other events and policies I would put on the list. One would also have to consider that the real estate boom affected other markets around the world.

67 posted on 06/27/2007 11:17:13 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: nicollo
Be afraid, very afraid of a democratic government during a downturn.

Jimmy Carter. 1976-1980.

68 posted on 06/27/2007 12:09:23 PM PDT by ModelBreaker
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To: Kaslin; Moonman62; Mase
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."

That's why the gold standard worked so well, because it stopped the government from messing with the dollar. LOL!

69 posted on 06/27/2007 1:13:43 PM PDT by Toddsterpatriot (Why are protectionists, FR Conspiracy Theorists and goldbugs so dumb?)
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To: Toddsterpatriot
That's why the gold standard worked so well, because it stopped the government from messing with the dollar.

At least you could get a good suit and a pair of shoes with an ounce of the yellow metal back then.

70 posted on 06/27/2007 1:54:24 PM PDT by Mase (Save me from the people who would save me from myself!)
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To: Toddsterpatriot

All during Germany’s hyperinflation of the 1920’s their currency was backed by gold. Of course, they kept adjusting the exchange rate, but that didn’t stop them from bragging about it.


71 posted on 06/27/2007 1:56:25 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Kaslin

Tag for reference.


72 posted on 06/27/2007 3:11:04 PM PDT by neb52
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To: nicollo
There's an interesting debate here. Many of the responders are quite liberal and slam Shlaes for her political connections to AEI and the WSJ, but Douthat's own comment looks sound to me.

You would have gotten relief programs, fireside chats, and rhetoric about government action in any case. That was part of what the country wanted and what governments do in time of crisis. That was also enough to make a lot of us hate FDR.

But the particular experiments, the "the counterproductive attempts at centralized planning and the relentless scapegoating of business" weren't necessary and "helped keep unemployment well above ten percent until World War II intervened."

When people talk about these things a lot of the time they aren't so focused on the details. It's just a left-right thing, and we love or hate politicians based on where they are on the political spectrum, not on the specific details of their policies.

But the point isn't so much to slam FDR for being a liberal or Reagan for being a conservative -- that's not going to change now -- but to ask whether changes in their policies might have brought better results.

73 posted on 06/29/2007 12:54:00 PM PDT by x
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To: x
You are right, perhaps we confuse -isms too often, and would do well to distinguish better between and among them.

That some or even much of the New Deal was inconsequential or beneficial in some way does not mitigate its overall negative impact. Conversely, its failures do not invalidate its successes. So, great post at the Ross Douthat blog.

To my mind, the worst of the New Deal was its price/wage controls and other economic interventions (the Blue Eagle in all its forms). So, too, were the Wilson, Truman, and Nixon price controls. But none of those others are much blamed for the horrible legacies of those policies. None of them should escape it.

By ranting about Social Security we miss the real failure of the New Deal in its price/wage controls. Similarly, by calling Truman “brave” for Hiroshima or the ‘48 election, we excuse his own back-ass abuse of price/wage controls, which ruined so much innovation and competitive force in the American economy of the Forties, Fifties, and beyond. In damning Wilson’s League of Nations we forget the horrible impact of his nationalization of the economy during WWI. In elevating Nixon’s China policies, or blaming all things on Watergate, we lose sight of his role in the energy “crisis” and general economic retardation of the 1970s.

With these confused and mixed legacies, the good and bad of an Administration get mixed as well, and the particulars go bland. There should be no — zero — excuse for any central fixing of prices. None. And no “good” achieved by way of some corollary policy can excuse it. The worst of the 20th century comes of these malicious attempts to control markets through some central order as to how much something should cost or who much someone should get paid.

We might also recognize those Presidents who avoid or crush movements for such interventions. For starters, we must thank our current President for squashing all talk of price control over gasoline. Hillary called for it in ‘05. Another person in office might have taken it on. The negative can be just as strong as the positive act.

74 posted on 06/29/2007 6:38:14 PM PDT by nicollo (all economics are politics)
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To: nicollo
You make a good case against Wilson's, Truman's, and Nixon's policies. I notice that Wilson isn't quite as highly esteemed as he once was, and wonder if the same thing is happening to Truman. There may also be a reaction against Nixon as well.

There's more discussion of Shlaes's book at Greg Mankiw's blog. That's right, the former Chairman of the President's Council of Economic Advisors has a blog. The world has changed.

John Updike's review of Shlaes's book is here.

I didn't realize before how similar Updike and Garrison Keillor are. They're both small town boys who grew up idolizing the New Yorker magazine and building their lives around it. They're also both sentimental and nostalgic yellow dog Democrats.

To be facetious I could say that for Updike, and Keillor, and probably Dan Rather and Bill Moyers waiting around with your neighbors for government cheese builds character and community.

All the more so if there's only one variety available and it's produced by a cooperative of Norwegian bachelor farmers and lovingly approved by a federal inspector.

Waiting in line they feel solidarity, connectedness, brotherhood, peace. If there's dirt or sweat in the cheese, that makes it all the more authentic and human.

To nip into the supermarket and choose between forty varieties of cheese -- or to send one's assistant to do it, which is what I suspect they do -- is alienating and artificial.

Well, it's a trade-off. One of the blog posters supports the New Deal as a trading of well-being for "more democracy."

I like the response of one of Douthat's correspondents:

I was taken by Updike's claim that:

"Business, of which Shlaes is so solicitous, is basically merciless, geared to maximize profit. Government is ultimately a human transaction..."

This resonated with me because every time I go to Starbucks they mercilessly beat me and take all my cash, while at the DMV there's no wait in the line for hugs.

In a lot of ways it's a generational thing. Updike reflects the Depression-era mentality pretty well.

75 posted on 06/30/2007 9:28:23 AM PDT by x
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To: Kaslin

War, specifically WW II wiped out the depression. All the new deal efforts were for naught.

The economy was rebuilt from scratch during the war.


76 posted on 06/30/2007 9:30:53 AM PDT by bert (K.E. N.P. +12 . Happiness is a down sleeping bag)
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To: Kaslin

FDR was a diehard communist. He believed the federal government should control all things and his actions proved it.


77 posted on 06/30/2007 9:48:35 AM PDT by CodeToad
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