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What Would Happen if Democrats Passed Another New Deal to 'Fix' This Depression-Level Unemployment?

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The U.S. unemployment rate hit 14.7 percent in April, the highest rate since the Great Depression. With economies locked down, millions out of work, and businesses teetering on the verge of collapse, commentators are comparing the coronavirus crisis to the Great Depression, and some are demanding another New Deal-style government expansion to restore the economy.

There’s just one massive problem with that: President Franklin Delano Roosevelt’s New Deal didn’t bring America out of the Great Depression — it arguably worsened it. The Great Depression lasted for over a decade in part thanks to the interventionist policies of President Herbert Hoover and FDR. Yet Democrats today are clamoring for more of the big-government programs that arguably extended the Great Depression.

Senate Minority Leader Chuck Schumer (D-N.Y.) and House Speaker Nancy Pelosi (D-Calif.) are reportedly working on a “Rooseveltian” coronavirus relief bill echoing the New Deal. The New York Times‘s Michelle Goldberg wrote an op-ed wondering, “Will There Be a New New Deal?” Sen. Ed Markey (D-Mass.), a co-sponsor of the Green New Deal resolution in the Senate, told The Times, “I do think there’s an F.D.R. moment. Like 1933 — which would be 2021 — we can see that it is now time to discuss universal child care, universal sick leave and a guaranteed income for everyone in our society.”

Rep. Alexandria Ocasio-Cortez (D-Grow Yucca in NYC) gained fame for mashing many far-left big-government ideas into one. Her Green New Deal was originally more about changing the economy than about saving the climate, and now that there’s a true economic crisis, a whole host of Democrats have openly talked about not allowing the crisis to go to waste. (Yes, this includes the ostensibly moderate presumptive nominee Joseph Robinette Biden Jr.)

Many of these calls for “structural change” follow the idea that government spending will save the economy. In the days of the Green New Deal, the myth that the first New Deal ended the Great Depression holds tremendous sway on the left.

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It seems crucially important to rebut this myth, as my old Hillsdale College professor Burton Folsom did in his book New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America.

Ironically, FDR won the 1932 presidential election by promising an end to the government spending of his predecessor, Herbert Hoover. Reeling from continuing high unemployment after the 1929 stock market crash and the high tariffs he had signed into law, Hoover pushed broad banking regulations and signed the Emergency Relief and Construction Act, a $2 billion public works bill aimed at revamping the struggling economy. Democrats branded homeless shelters “Hoovervilles,” and FDR defeated Hoover in a landslide.

Once he entered office, however, FDR hypercharged Hoover’s worst policies. The New Deal inserted the federal government into nearly every sector of the economy and increased taxes to ridiculously high levels. FDR did reverse Hoover’s disastrous trade policies, but these other changes kept the economy from bouncing back.

As Folsom and Jim Powell wrote at the Foundation for Economic Education (FEE), the New Deal worsened the economic problems, prolonging the Great Depression.

“Tax rates were hiked, which scooped capital out of investment and dumped it into dozens of hastily conceived government programs. Those programs quickly became politicized and produced unintended consequences, which plunged the American economy deeper into depression,” they explained.

“The National Recovery Administration, which was Roosevelt’s centerpiece, fixed prices, stifled competition, and sometimes made American exports uncompetitive. Also, his banking reforms made many banks more vulnerable to failure by forbidding them to expand and diversify their portfolios. Social Security taxes and minimum-wage laws often triggered unemployment; in fact, they pushed many cash-strapped businesses into bankruptcy or near bankruptcy. The Agricultural Adjustment Act, which paid farmers not to produce, raised food prices and kicked thousands of tenant farmers off the land and into unemployment lines in the cities. In some of those cities, the unemployed received almost no federal aid, but in other cities — those with influential Democratic bosses — tax dollars flowed in like water,” Folsom and Powell wrote.

Economic recessions were nothing new, and the U.S. pulled out of a devastating recession in 1920-1921, when President Warren Harding curtailed former President Woodrow Wilson’s war socialism and allowed the economy to bounce back of its own accord. The Great Depression was not inevitable.

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FEE identified four causes of the Great Depression, two of which trace back to FDR’s New Deal:

  1. The government’s “easy money” policies caused an artificial economic boom and a subsequent crash.
  2. President Herbert Hoover’s interventionist policies after the crash suppressed the self-adjusting aspect of the market, thus preventing recovery and prolonging the recession.
  3. After Hoover left office, Franklin Delano Roosevelt’s “New Deal” expanded Hoover’s interventionism into nearly every aspect of the American economy, thus deepening the Depression and extending it ever longer.
  4. Labor laws such as the Wagner Act struck the final blow to the remaining healthy sectors of the economy, dragging the last remaining bulwarks of productivity to their knees.

If the New Deal had ended the Great Depression, why did high unemployment persist through 1939 (17.2 percent) and into the 1940s — years after FDR started the New Deal? In 1939, Treasury Secretary Henry Morgenthau said, “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!”

So, if the New Deal didn’t end the Great Depression, what did? Many claim World War II did it, but as the war drew to a close, both FDR and his vice president, Harry Truman, feared the war’s end would lead to another round of depression. In January 1944, Roosevelt promised a “Second Bill of Rights,” including the “right” to “a decent home,” “adequate medical care,” “a useful and remunerative job,” and “protection from the economic fears of old age, sickness, accident, and unemployment.”

This flipped the Founders’ conception of rights on its head. Rather than negative rights — essential freedoms the government could not take away — Roosevelt pushed positive rights — handouts the government must provide — on steroids.

FDR died in the last year of the war, preventing him from unveiling his new New Deal. President Truman was on board for most of the new reforms, however. As the war drew to a close, Truman gave speeches about a full employment bill and pushed a national health care program and a federal housing program.

But by 1946, Congress was no longer dominated by tax-and-spend Democrats. The Republicans and conservative Democrats lowered taxes from absurd highs (the marginal income tax rate was 94 percent on all income over $200,000 and an excess-profits tax absorbed more than one-third of all corporate profits since 1943, along with another 40 percent corporate tax on other profits).

Rather than another New Deal — and potentially another Great Depression — the post-war years represented a return to economic normalcy, as entrepreneurs finally had the incentives to get back to work.

The coronavirus crisis may have brought America to the cusp of a new Great Depression, but if Democrats succeed in pushing the Green New Deal or some other “Rooseveltian” scheme, they will only extend this economic malaise. The New Deal didn’t end the Great Depression, and a Green New Deal won’t end the coronavirus recession.

Voters should learn from history and soundly reject Democrats’ shameful attempts to capitalize on this current crisis.

Tyler O’Neil is the author of Making Hate Pay: The Corruption of the Southern Poverty Law Center. Follow him on Twitter at @Tyler2ONeil.

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