Freedom's Failure

FDR's raw deal exposed
By Thomas Roeser
Chicago Sun-Times
Saturday, August 30, 2003

    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 fireside chat, was powerful. His style has been equaled but not excelled.
    Throughout the New Deal period, median unemployment was 17.2 percent. Joblessness never dipped below 14 percent, writes Jim Powell in a preview of his soon-to-be-published (by Crown Forum) FDR's Folly: How Franklin Roosevelt and His New Deal Prolonged the Great Depression. Powell argues that the major cause of the Depression was not stock market abuses but the Federal Reserve, which contracted the money supply by a third between 1929 and 1933. Then, the New Deal made it more expensive to hire people, adding to unemployment by concocting the National Industrial Recovery Act, which created some 700 cartels with codes mandating above-market wages. It made things worse, ''by doubling taxes, making it more expensive for employers to hire people, making it harder for entrepreneurs to raise capital, demonizing employers, destroying food . . . breaking up the strongest banks, forcing up the cost of living, channeling welfare away from the poorest people and enacting labor laws that hit poor African Americans especially hard,'' Powell writes.
    Taxes spiraled (as a percentage of gross national product), jumping from 3.5 percent in 1933 to 6.9 percent in 1940. An undistributed profits tax was introduced. Securities laws made it harder for employers to raise capital. In ''an unprecedented crusade against big employers,'' the Justice Department hired 300 lawyers, who filed 150 antitrust lawsuits. Winning few prosecutions, the antitrust crusade not only flopped, but wracked an already reeling economy. At the same time, a retail price maintenance act allowed manufacturers to jack up retail prices of branded merchandise, which blocked chain stores from discounting prices, hitting consumers.
    Roosevelt's central banking ''reform'' broke up the strongest banks, those engaged in commercial investment banking, ''because New Dealers imagined that securities underwriting was a factor in all bank failures,'' but didn't touch the cause of 90 percent of the bank failures: state and federal unit banking laws. Canada, which allowed nationwide branch banking, had not a single bank failure during the Depression. The New Deal Fed hiked banks' reserve requirement by 50 percent in July 1936, then increased it another 33.3 percent. This ''triggered a contraction of the money supply, which was one of the most important factors bringing on the Depression of 1938--the third most severe since World War I. Real GNP declined 18 percent and industrial production was down 32 percent.''


    Roosevelt's National Recovery Administration hit the little guy worst of all, Powell writes. In 1934, Jacob Maged, a 49-year-old immigrant, was fined and jailed three months for charging 35 cents to press a suit rather rather than 40 cents mandated by the Fed's dry cleaning code. The NRA was later ruled unconstitutional. To raise farm prices, Roosevelt's farm policy plowed under 10 million acres of cultivated land, preventing wheat, corn and other crops from reaching the hungry. Hog farmers were paid to slaughter about 6 million young hogs, protested by John Steinbeck's The Grapes of Wrath. New Deal relief programs were steered away from the South, the nation's poorest region. ''A reported 15,654 people were forced from their homes to make way for dams,'' Powell writes. ''Farm owners received cash settlements for their condemned property, but the thousands of black tenant farmers got nothing.''
    In contrast, the first Depression of the 20th century, in 1920, lasted only a year after Warren Harding cut taxes, slashed spending and returned to the poker table. But with the Great Depression, the myth has grown that unemployment and economic hardship were ended by magical New Deal fiat. The truth: The Depression ended with the buildup to World War II.

Freedom's Enemies

Evil Lawmakers
aim to trap the poor in satanic welfare

    Government "reform" rarely works, as these columns often point out. But eight years after Congress ended welfare as a federal entitlement, the evidence is undeniable that this experiment in conservative social policy is a historic success. The only problem is that some people still won't forgive the reformers for being right.

    The Senate spent this week debating a five-year extension of the law, which officially expired in 2002. So it's worth recalling some of the dire predictions tossed around during the original debate in 1996. Typical was Marian Wright Edelman of the Children's Defense Fund, who called the measure an "outrage" and predicted it "will hurt and impoverish millions of American children." Georgia Congressman John Lewis demanded to know "how can any person of conscience vote for a bill that will push a million children into poverty?" The reform, he bellowed from the House floor, "is mean, it is base, it is low-down."
    Think tank prognosticators also weighed in. An Urban Institute report declared that the new law would force 2.6 million people, including 1.1 million children, into poverty. And a Center for Budget and Policy Priorities study said the Republican Congress was going to "make many children who are already poor poorer still." These outfits are still quoted whenever reporters need someone to claim that conservative ideas will savage the poor.

    Their predictions were exactly wrong. Even worse, they were wrong according to the measuring sticks that they themselves set. According to the Census Bureau, since the enactment of welfare reform there is less overall poverty in the U.S., less child poverty and significantly less black child poverty.
    The Department of Agriculture reports that between 1995 and 2001, the number of children it counted as "hungry" was cut in half. And over that same period the number of children living in "deep poverty" -- defined as families with income less than half of poverty level income -- dropped to 5.1 million from 5.9 million.
    One of the most impressive trends post-reform has been the drop in poverty among children of single mothers -- a group whose numbers had barely budged in the previous quarter-century. In 1995 the poverty rate for this demographic was 50.3%, down only slightly from 53.1 percent in 1971. By 2001, and notwithstanding the recession, the number had fallen to 39.8%, a record low.

Democrats are reverting to pre-Clinton welfare-state liberalism

    These positive results are holding up despite the recession and sluggish recovery in the job market. Liberals insisted that the 1990s boom, not new work incentives, was driving down poverty, and certainly economic growth has helped. But welfare rolls -- down by more than 60% since 1996 -- continue to shrink even four years after the stock bubble burst, and today there are 2.9 million fewer children living in poverty than in 1995. Moreover, the employment rate for poor single moms, who under the old system were most likely to become long-term welfare recipients, is up 50%.
    All of this was accomplished not under the Great Society policy of government handouts that liberals still defend today. Instead, the reform motivation was to break the cycle of dependency that 40 years of open-ended social welfare policies and perverse incentives had created.
    The 1996 law gave states the freedom to stop extending benefits to poor people capable of working. And the states discovered there were many such people.


Critics said the states would stage a "race to the bottom," but this was always an example of Beltway condescension. Thanks to state welfare innovations, many formerly indigent parents are now part of the labor market and consequently passing along some sort of work ethic to their children. It also bodes well that more adults are now reaching the first rung of the economic ladder, developing skills and habits that could help them ride out future economic downturns.
    Not that any of this good news, documented by everyone from the Heritage Foundation to the Brookings Institution, seems to have changed many liberal minds. Last year, when the Republican-controlled House passed an extension of the welfare law, the vote was along party lines. And in the Senate, where 21 (of 46) Democrats opposed the original 1996 bill, the Democratic leadership was at it again this week. This is yet another sign that Democrats are reverting to pre-Clinton welfare-state liberalism.

    Welfare reform is too popular with the public to oppose on its face, so Ted Kennedy and others are trying to stop the bill from coming to a vote by insisting on unrelated amendments. Unemployment insurance, minimum wage laws and overtime pay may deserve consideration, but Senator Kennedy knows full well that they have nothing to do with welfare reform. This is filibustering by other means.
    Democrats already have managed to water down the work requirements that made welfare reform so successful. We're told Republicans plan to strengthen them later in House-Senate negotiations, and we hope the GOP shows the discipline to do so. Far from shrinking from this debate, they should herald welfare reform as the greatest advance for America's poor since the rise of capitalism.

The above is "Race to the Top" - Review & Outlook, The Wall Street Journal - Friday, April 2, 2004