The conventional wisdom is that Franklin Roosevelt’s New Deal got the United States out of the Great Depression. The most obvious objection to this view would be epistemological in nature. How do we know what would have happened without the New Deal? Strictly speaking, we cannot know this through empirical means. This feature of evaluating public policy presents a major problem for any kind of political consequentialism.
A related question is what constitutes a solution. How should a delayed recovery but healthier economy be compared to a faster recovery with negative consequences in the long run? It should not be assumed that the solution that produces the fastest recovery is the best solution.
On the website of the Ludwig von Mises Institute, David Gordon reviews Burton Folsom’s New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America.
Should the government create jobs because businessmen are too reluctant to invest?
Folsom ably dispatches this Keynesian canard. If businessmen were reluctant to invest, precisely the antibusiness attitude of the Roosevelt administration was in large part responsible. Roosevelt supported confiscatory rates of taxation; small wonder, then, that investors were reluctant to embark on new projects.
A similar point about regime uncertainty has been made by Robert Higgs.
But how to explain the popularity of Roosevelt?
…Folsom has a deeper explanation. Roosevelt manipulated welfare programs, especially jobs under the WPA, to gain votes…Folsom here uses to good advantage a long-forgotten book, Who Were the Eleven Million? by David Lawrence, the founder and editor of US News & World Report. Through a county-by-county analysis of the 1936 election, Lawrence showed that voting for Roosevelt varied directly with the patronage and jobs extended.
Gordon does find fault in Folsom’s book for ignoring the Austrian view of business cycles. This is interesting because in contemporary discussions about the current financial meltdown, the majority of “pro-market” economists do not seem to find much fault with the Fed either. But one does not have to completely subscribe to the Austrian Business Cycle Theory (ABCT) to observe the highly political role the Fed currently plays in the management of the crisis. Neither does one have to be an Austrian economist to question the rationale for central banking and a fiat currency.