The New Deal and Recovery

by | Sep 2, 2020 | Money & Banking

I hope to introduce my readers to evidence casting doubt on the view that New Deal programs ended, or mostly ended, the Great Depression.

“FDR’s New Deal Worked. We Need Another One.”

So says the headline of one of Noah Smith’s recent Bloomberg columns. The subheadline adds that “Claims that the programs adopted in the 1930s lengthened the Great Depression don’t hold up.” For good measure Smith adds that such claims are only encountered “in certain right-wing circles and among a few contrarian economists.”

Far from being novel, Smith’s rhapsodic view of the New Deal represents today’s conventional wisdom, hundreds of instances of which might be gathered from the popular press and elsewhere. Here are a few:

Without Roosevelt’s intervention, the economic recovery that lasted from 1933 to 1937 would have been weaker and shorter — not unlike our own recovery after the Great Recession” and “Any who doubt the New Deal’s effectiveness need only look at the double-dip recession of 1937, after a conservative backlash in Congress scaled down relief spending.” (David Weiman, Imagining a World Without the New Deal, The Washington Post, August 12, 2011.)

“President Roosevelt enacted the New Deal, a fiscal and legislative tour de force that…ultimately set the conditions for America’s economic recovery in time to mobilize the country for World War II.” (The New Deal’s lessons can guide us into a post-pandemic economy” Sherri Goodman and Greg Douquet, The Hill, May 14, 2020.)

“FDR and his team launched the New Deal to help get the country back on its feet. They succeeded, yet the myth persists that the New Deal had little effect on economic recovery and only World War II ended the Depression.” (Did the New Deal Cure the Great Depression? Richard Walker, The Living New Deal, December 15, 2015.)

“I think to really get the economy running again, we’ll need either some sort of New New Deal or we’ll just have to wait a decade or more.” (Mathew Jackson, quoted in A Stanford economist says we’re headed for a crisis worse than the Great Depression. Here’s his plan for getting people back to work and spending on businesses., Marguerite Ward, Business Insider, April 21, 2020.)

Believe me, I could locate and insert a dozen more, all from the last several years, in half as many minutes.

A Republican ‘Lost Cause’?

Smith’s suggestion that only “right wingers” imagine that New Deal policies hindered recovery from the depression has also become standard fare. In his 2018 book Winter War, for instance, Eric Rauchway traces modern denials of the New Deal’s success to post-Goldwater Republicans who, having swallowed Herbert Hoover’s self-serving memoirs hook, line, and sinker, have gone on to concoct a myth that treats Hoover’s anti-New Deal crusade much as certain Civil War revisionists treat the Confederacy; that is, as a lost but nonetheless righteous cause.

Rauchway’s tale is handy for putting critics of the New Deal in a bad light. It’s also very misleading. One doesn’t have to be a Herbert Hoover fan to conclude that New Deal programs, taken as a whole, failed to achieve a lasting recovery from the Great Depression. Indeed, for most of the postwar period—starting long before Barry Goldwater ran for president—conventional wisdom had it that the New Deal didn’t end the Great Depression. Instead, WWII was supposed to have done so. Nor was this a “right wing” perspective. It was shared by many to the left of center, including several former New Dealers themselves. Whether their view was sound—and particularly whether WWII itself really ended the depression—is a question I’ll take up later. The point is that one needn’t be a post-Goldwater Republican, or a Republican of any sort, to entertain doubts about the New Deal. Plenty of Democrats have done so, as have many who owe no allegiance to either party.

Nor does one have be unaware of the economic record of the 1930s to wish to take the New Deal down a peg or two from where so many recent commentators place it. As a matter of fact, many economists and economic historians, of different political leanings (or none that are readily discernible) have done so. These experts maintain, not that the New Deal was rotten through-and-through, but that big chunks of it were counterproductive, and that the damage done by these undid much of the good done by the rest. Because of this the U.S. economy was still depressed when the Japanese bombed Pearl Harbor. These experts agree, in other words, with the view of the New Deal that many once took for granted, rather than the one that has come into vogue mainly since 2008. I happen to be one of them.

My Aim

In the series of posts to follow, I hope to introduce my readers to evidence casting doubt on the view that New Deal programs ended, or mostly ended, the Great Depression. I’ll also address here and there some other popular misconceptions (as I see them) about the New Deal. I don’t expect to win everyone over to my view of things. I’m not that ambitious. I merely hope to convince you that those who claim the New Deal held up recovery don’t deserve to have their opinions dismissed out of hand, or attributed to purblind partisanship.

I had better mention now several other things I’m not trying to do. I’m not offering a verdict on Roosevelt’s presidency. Nor am I necessarily holding him responsible for what I regard as the New Deal’s shortcomings. Like all presidents, FDR had to make compromises; and while some New Deal policies reflected his own preferences, others didn’t. If I do occasionally criticize FDR, it’s because he himself championed a policy I consider misguided.

I’m also not trying to suggest that Hoover’s policies were better, let alone that the Great Depression would have ended sooner had he won a second term. For all I know a second Hoover administration would have botched things even more—perhaps a lot more—than FDR’s did.

Nor am I setting out to prove that all New Deal policies were bad. I don’t think they were; and I especially don’t think so about most New Deal programs aimed at offering relief, through temporary jobs or otherwise, to the unemployed.

I’m hardly the first person to offer a critical overview, informed by academic writings but aimed at general readers, of the New Deal’s economic consequences. Some others who have done so include Thomas Hall and David Ferguson (whose book I review here), Gene Smiley, and Cato Senior Fellow Jim Powell. While I’ve profited from the works of these as well as many other writers, I consider my views different enough from theirs to justify this separate attempt. Nor do I consider it useless to repeat many things they’ve already said. On the contrary: misconceptions about the New Deal are themselves hardy perennials that must be cut-down afresh every season.

There’s also this to be said for my effort: it won’t cost a thing for anyone to consider.

A Personal Note

Since defenders of the New Deal like to pretend that its critics are all Republicans or right-wingers, I’d better lay some of my cards down.

Because I work at an avowedly libertarian think tank, it goes without saying that I generally like free markets; nor is it any secret that I especially believe that governments have made a mess of monetary institutions and monetary policy. But just as Cato is itself nonpartisan, I’m neither a Republican nor a Democrat. Nor can I be said to be a Herbert Hoover fan. Had I been around to vote for in the November 1932 presidential election, based on what everyone knew about the two candidates then, I’m pretty sure I’d have voted for FDR, if only because he promised me cheaper imports and untainted hooch.

Perhaps more importantly, I’m not opposed to countercyclical economic policies, provided they serve to keep aggregate spending stable, or to revive it when it collapses. (Naturally I also believe governments should foster private-market arrangements that can help achieve these ends.) Unlike some “New Classical” economists, I take for granted that many money prices, and nominal wages especially, aren’t perfectly flexible, especially when they need to flex downwards.  Consequently I don’t consider it prudent to count on deflation to quickly restore full employment if spending dries up for some reason. If you think this makes me a “Keynesian” you need, first of all, to brush up on your history of economic thought. But you also need to allow that, if I find fault with some New Deal policies, it can’t be because of my “anti-Keynesian” beliefs.

On the contrary: I believe that the New Deal failed to bring recovery because, although some New Deal undertakings did serve to revive aggregate spending, others had the opposite effect, and still others prevented the growth in spending that did take place from doing all it might have to revive employment. That bias may have played some part in my reaching these conclusions I can’t reasonably deny. But if that possibility concerns you, I hope it only makes you scrutinize my arguments more carefully, instead of rejecting them out of hand.

This post first appeared first on Alt-M.

George Selgin is a Professor of Economics at the University of Georgia's Terry College of Business. He is a senior fellow at the Cato Institute. His writings also appear on His research covers a broad range of topics within the field of monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is the author of The Theory of Free Banking, Bank Deregulation and Monetary Order, and several other books. He holds a B.A. in economics and zoology from Drew University, and a Ph.D. in economics from New York University.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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