New Deal or Raw Deal? How FDR’s Economic Legacy has Damaged America by Burton Folsom Jr. (New York: Threshold Editions, 2008)Until I read this book, I never understood why the New Deal did not end the Great Depression. Burton Folsom attempted to grapple with this issue but has a hidden agenda of his own. He tends to regard any government intervention as a bad thing which I do not always see. The author tends to blame Franklin Delano Roosevelt (FDR) for the centralization and intervention of the federal government that was pioneered by his immediate predecessor Herbert Hoover and by idol Woodrow Wilson as well as his older cousin Teddy Roosevelt. This being said, Folsom sheds much light on several aspects of the New Deal by combining statistics with an anecdote or a story that reveals the human side of bad policy making.Folsom really did not discuss FDR’s economic background which would have enabled us to understand his economic world review. FDR was born to a family of privilege where he really did not work for a living. Franklin’s mother managed the family’s household affairs and gave him allowance until she died in 1941! Franklin Roosevelt was a terrible businessman who lost wealth investing in various ventures that he did not participate in. Franklin’s father had been a gentleman farmer and that had been the occupation his mother wished him to pursue when he was stricken by polio. He did pass the New York State bar and might have been Wall Street rainmaker until his career in politics took off. Since Roosevelt never had to struggle for a living or worry about a roof over his head, he could not empathize why others would value how much they were paid. His only contact with how the other half lived was when he was dating his cousin Eleanor Roosevelt and once in a great while met her in the Lower East Side where he could see poverty at first hand. Thus, how the other half lived was an abstract issue for him.Folsom shows that President Herbert Hoover was not a principled advocate of laissez-faire capitalism but a progressive Republican in favor of a bigger government more in the mold of progressive Democratic President Woodrow Wilson. Hoover approved the Smoot-Hawley tariff (opposed virtually by all economists) because it was good politics, not good economics. This tariff, the highest in American history, increased tremendously the cost of living because American industries did not have to compete with European imports. At the same time, European nations retaliated with their own tariffs so American export markets decreased drastically. Many European governments no longer could afford to pay their World War I loans to the United States so they defaulted. In 1929, American auto industry, concentrated primarily in Detroit, sold five million cars abroad. The next year, Detroit sold 1.5 million cars abroad. Secretary of State Cordell Hull reduced tariffs under President Franklin Roosevelt.President Herbert Hoover responded to the early onset of the Great Depression with disastrous economic regulations. Hoover supported Federal Farm Board, which subsidized cotton and wheat which caused world market prices to go down. Hoover initiated the Reconstruction Finance Corporation on bailouts to failing banks and industries which FDR expanded to state governments. Many agencies associated with the New Deal had their origins in the Hoover Administration. Trying to tell the difference Hoover and Roosevelt economic policies was like the 2012 election in which Mitt Romney tried to explained why his Romneycare program in the State of Massachusetts was different from Barack Obama’s national Obamacare program. In the end there was no ideological difference between Hoover and Roosevelt, Romney and Obama. It was only in retrospect that Hoover, after he was no longer president, did he change his economic philosophy to emphasize non-intervention by the government.The various relief programs became thoroughly politicized under Herbert Hoover and Franklin Roosevelt. They picked economic winners and losers. Most of the money went where it would do Roosevelt the most political good – get the most votes. It definitely helped to be a Democrat and FDR supporter to get the higher paying supervisory positions. FDR got credit for helping people though he picked their pockets through tax increases and though his economic policies hindered recovery. Politicians lobbied to get money spent their way. Political patronage and vote buying resulted from the concentration of money and power in the hands of the federal government. State and local politicians who supported Roosevelt were rewarded with a cascade of federal dollars. After any election, the number of people employed in public works naturally dropped.Although the Works Progress Administration (WPA) is credited in doing much, too much of its money was wasted in boondoggle projects that did nobody any good but garnered votes for FDR and the Democratic Party. Apparently, nobody learns the lessons of history. After Obama spent a trillion dollars on supposed “shovel ready projects,” he moaned that most of it was wasted, but even a Congress dominated by his political party decided enough had been spent or wasted. The book New Deal or Raw Deal also demonstrated that those who opposed FDR were frozen out from patronage and inevitably lost subsequent elections. Federal aid encouraged the expectations of paternal care on the part of Government and weakened spirit of independence. The result was a transfer of money and independence from the private sector to the public sector. As one Republican politician groaned in the 1936 election, “You can’t beat Santa Claus. Six western states had silver bought at 50% above market price. As a result, silver was smuggled from Mexico to take advantage of the opportunity. This was a subsidy to a special interest. In the 1936 election, it was the campaign of “I gave you the subsidy” versus “I will manage the subsidy better.” This has been the dilemma of the Republican Party ever since.Some New Deal programs killed. FDR declared the airlines were making too much profit carrying the airmail. He gave the job to the US Army Air Force. After twelve pilots died in crashes, it was back to private enterprise once more.As George Will, one of the PBS series’ narrators on The Roosevelts by Ken Burns puts it: “The role of the central government from now on would be to secure the material well-being of the American people.” Actually, Herbert Hoover had pioneered the idea earlier so his intervention in the economy was scarcely different from that of Roosevelt. Still even earlier, Presidents Theodore Roosevelt and Woodrow Wilson were also big on government intervention. Franklin campaigned against Hoover for spending too much money and promised to cut the federal budget. In reality, the government did not accomplish this task of securing the welfare f the American people either under Herbert Hoover or Franklin Roosevelt. Throughout the nineteen thirties unemployment remained staggering with a fifth to the sixth of the America people out of work. Until the Great Depression, unemployment had never exceeded 17%. In April 1939, toward the end of FDR’s second term, unemployment was 21%, the highest it had ever been ten years after the start of the Great Depression. At this point, he could no longer blame Hoover.Franklin Roosevelt scapegoated business owners as “princes of property”, "malefactors of great wealth", “economic Royalists,” and heartless “plutocrats.”—proven vote getters. Class assaults launched in the name of the poor against businesses and owners deprived the very poor of jobs. Roosevelt encouraged this class warfare and tore into business in his State of the Union message in January 1936. He condemned the "selfish power" and the old 'resplendent economic autocracy' that was fighting his 'new instruments of public power.' Roosevelt added, "In the hands of a people's Government this power is wholesome and proper. But in the hands of political puppets of an economic autocracy such power would provide shackles for the liberties of the people." It would be the duty of the government to plan the economy instead of letting irresponsible businesspeople and consumers have freedom of choice. Entrepreneurs big and small were discouraged from launching new business ventures and investments, and creating employment. Uncertainty undermined confidence. FDR would scapegoat them and use the money via taxes they might have expended to expand to sponsor his work programsFranklin Roosevelt further punished the business people and collateral damage with consumers by the proliferation of taxes begun under Herbert Hoover that became even more relentless and higher under Franklin Roosevelt. Under presidents Warren and Coolidge Andrew Mellon had reduced income taxes that had generated higher revenues for the federal government because people were no longer safeguarding their cash in tax exempt securities that gave low rates of return. Some historians argued that Prohibition was ended in order for the government to regain a former major source of revenue even it was overall as success. Additional excise taxes were introduced by FDR so the federal taxes became more regressive. Previously excise taxes had been mainly “sin” taxes on cigarettes and alcohol. The taxes were transferring wealth from the pockets of ordinary citizens for the federal government to spend so they became even worse off. President Herbert Hoover asked for a “temporary” tax increase in June 1932, raising the top income tax rate from 25% to 63% and quadrupling the lowest tax rate from 1.1% to 4%. That didn't help inspire confidence in the government or in the Treasury. Folsom left unexplained why Mellon changed his economic policies in his last two years as Secretary of the Treasury in contrast to his previous ten years.Under FDR, according to Folsom the highest income tax rate was 79%, meaning that four out of five earned dollars was confiscated by the government! This was not a good way to encourage people to invest. Franklin’s solution to the inequality of wealth was not to grow the economy but to tax the inequality away. If he had his way, he would have imposed a 100% income tax on all income over $25,000 per year but Congress would not permit it. He almost got away with it during World War II where cartoons joked that you wound up with almost nothing all despite your efforts. FDR proposed taxing “undistributed income” of the corporations which would have left them with less money to invest in the economy.Folsom showed Franklin Roosevelt subverted the law enforcement institutions and courts of law to punish political opponents. “My father,” Elliott Roosevelt observed of his father, “may have been the originator of the concept of employing the IRS as a weapon of political retribution.” President Franklin Roosevelt ordered the IRS to investigate Huey Long of Louisiana, a critic of the left, but came up empty. Andrew Mellon, a critic of the right and the Secretary of the Treasury under three Republican presidents in the 1920s, was tried for income tax evasion but found not guilty. Moses Annenberg, a critic of the New Deal through his newspaper the Philadelphia Inquirer, was sent to jail while the taxes and fines collected from him approximated how much a Democratic competitor of a rival newspaper received in a loan from the RFC (Reconstruction Finance Corporation). FDR felt IRS investigations were good for ten million votes.During the course of World War I under President Woodrow Wilson , US national debt multiplied 27 times to finance the nation’s participation in war, from $1 billion to $27 billion. Secretary of Treasury Mellon brought the national debt down to $16 billion in 1930 but grew it back to $19 billion in 1932 under the impact of the Great Depression. Franklin Roosevelt, who criticized Hoover for spending too much money, increased the national debt to $49 billion by the end of 1941! By the time he died in 1945, the debt had swollen to $258 billion dollars. FDR displayed a penchant for increasing the national debt both during war and peace. FDR’s friend and Secretary of Secretary of the Treasury Henry Morgenthau, Jr. groaned on May 9, 1939, before the House Ways and Means Committee. "We have tried spending money. We are spending more than we have ever spent before and it does not work." "I say after eight years of this Administration we have just as much unemployment as when we started. ... And an enormous debt to boot! I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises." The national debt which had increased under Hoover had doubled under Roosevelt by the time Morgenthau testified. Keynesian economics of priming the pump through public works did not work.After repeatedly punishing industry through heavy taxes, the government under Franklin Roosevelt justified the need for central planning under National Industrial Recovery Act (NIRA) and scapegoated the rich for not paying enough in taxes. The NIRA imposed economy-wide price controls and production regulations on domestic manufacturing which hurt smaller business people, consumers, and workers. Big businesses dominated the making the codes to the advantage of their smaller competitors. Employers could not lower prices to attract customers and workers were forbidden from accepting lower wages to get employment. There would be no free market to determine prices. As a result, price increases meant consumers could buy even less than before and this hurt sales for business people. Employers could not afford to hire people at the higher wages so they hired less.The Schecter brothers, who had voted for FDR, were charged with breaking the regulations against lowering prices under NIRA (National Industrial Recovery Act) regulations. NIRA bureaucrats chilled criticism of government’s action because they could punish at will and it was so expensive to legally oppose them. The purchasers of a live chicken were required by law to blindly reach into the coop to randomly choose a chicken instead of having the freedom to choose whatever chicken they wanted. Recognizing the absurdity of this, one of the Supreme Court justices quipped "what if the chickens are all on the other side?" The Supreme Court came to the rescue of the Schecter brothers by unanimously ruling NIRA, the first New Deal, to be unconstitutional.The Agricultural Adjustment Act (AAA) attempted to do for agriculture what the NIRA tried to do for industry -- imposing price and production controls on agriculture that were laughed out of the US Supreme Court as unconstitutional. People went hungry in the cities while farmers destroyed food. Bribery was wide-spread in administering the program. Aerial photography and having inspectors to inspect the inspectors helped make the goals of the program work. Because less cotton and corn were grown, shortages developed. In 1935, the USA had to pay for high-priced imports of corn and cotton. The New Deal through the AAA and other actions hurt consumers, small farmers, and tenant farmers. Farmers who received subsidies agreed to take land out of land out of production. What they did was to take their poorest land out of production and let go some of the tenant farmers. They used money to invest in machinery and fertilizer which further increased production. Left unexplained is why wheat, corn, cotton, and tobacco farmers received subsidies but not the fruit growers.I did not understand Folsom’s explanation of FDR’s understanding of theory of overconsumption. FDR viewed the massive sale of radios, washing machines, telephones, cars, vacuum cleaners, and refrigerators in the 1920s as deepening the divide of wealth among rich and really masked a decline in the standard of living.Ironically, as blacks increasingly voted Democratic for the first time, they were being betrayed by Franklin Roosevelt during the New Deal and by Herbert Hoover. The new minimum wage law and Social Security did not cover agricultural and domestic workers, the most important occupations for blacks at the time. The labor unions favored by the New Deal excluded blacks from membership for the most part. The 1938 National Labor Relations Act originally contained a provision that forbade racial discrimination. That was removed at the request of the America Federation of Labor. Herbert Hoover signed the for paying the local prevailing wages on public works projects for the Davis–Bacon Act of 1931, a United States federal law that established the requirement of a minimum wage for laborers and mechanics as the prevailing wage that was basically set by union contract. The immediate cause was that a contractor had imported blacks from Alabama to work on a construction project on Long Island that were willing to worker cheaper than the white unionized workers. This law made harder for African-Americans to compete in the labor force by working cheaper when they were excluded from labor unions. Franklin Roosevelt signed additions to the law that clarified its coverage and application.Black tenant farmers were thrown off the land by white farmers benefitting from subsidies. Black tenant farmers were less likely than white tenant farmers to get help from the federal government and black farmers, who owned their own land, could not get loans from Uncle Sam as their white counterparts could. Moderate white southern politicians were willing to support an anti-lynching bill but Franklin Roosevelt chose to oppose this to get political support from more reactionary southern politicians. FDR invited over all the 1936 American Olympic athletes to the White House but not include blacks in his invitation. Jesse Owens, the great runner, recalled this. He observed that Hitler waved at him to acknowledge his victory. The 1963 March on Washington was originally proposed during World War II. The threat to reveal American racial hypocrisy during wartime forced FDR to issue an executive order forbidding racial discrimination in hiring at war factories.What ended the Great Depression? Burton Folsom, Jr. argues that it was optimism generated by business investment World War II and Truman dropping the war against business. Truman had far more practical experience as a businessman and paid off business debts instead of declaring bankruptcy. Hayek argued compared World War II to burning down a home that destruction does not make you wealthier. In a discussion on his book at Hillsdale College https://www.youtube.com/watch?v=_W_SP0xIANk, Folsom explains that twelve million people went to serve overseas while another twelve to fifteen million people were employed in the war industries. The WPA continued for another two after the war began because there was still a vast pool of unemployed. The national debt soared from $40 billions before the war to $260 billion at the end of war so all was subsidized. Democratic Senator Walter George in October 1945 declared tax cuts like the 1920s were needed. Andrew Mellon had argued it might sound counter-intuitive, but the government would collect more revenue if it taxed less. Calvin Coolidge had the lowest unemployment rate and inflation rate of any president of the twentieth century. The surpluses reduced the national debt by a third. Senator Albert Hawkes from New Jersey echoed George. The top personal tax rate was 94% and top corporate tax rate was 90%. George proposed eliminated the excess profits tax so that the corporate tax rate would drop to 38%. Less taxes instead of more spending might work and it did. Businessmen were encouraged to invest. Unemployment dropped off to 3.8% in 1946.Burton Folsom gives us a very good start on understanding how Progressive politicians Herbert Hoover and Franklin Roosevelt and their economic policies made the Great Depression worse instead of ending it. A great deal more research is needed to explain many of the issues raised by Burton Folsom’s book.