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WSJ Reminds Us That FDR Did NOT End The Depression

22 April 2010 2 Comments

Great article from WSJ that clearly shows that FDR did not end the Great Depression.  Don’t tell this to Obama, the progressives and most public school teachers who each year tell our young that FDR’s New Deal brought us out of the Great Depression.

As the WSJ article states about the New Deal:

Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.

So, after several years of New Deal crap, unemployment was still at 20%.  Ok, check.

What about World War II?  The article goes on…

We need to understand that the near-full employment during the conflict was temporary. Ten million to 12 million soldiers overseas and another 10 million to 15 million people making tanks, bullets and war materiel do not a lasting recovery make. The country essentially traded temporary jobs for a skyrocketing national debt. Many of those jobs had little or no value after the war.No one knew this more than FDR himself. His key advisers were frantic at the possibility of the Great Depression’s return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer—and on Oct. 28, 1944, about six months before his death, he spelled out his vision for a postwar America. It included government-subsidized housing, federal involvement in health care, more TVA projects, and the “right to a useful and remunerative job” provided by the federal government if necessary.

FDR never had the chance to implement the New Deal version 2.  He died, and Truman attempted to follow through with the plans.  Thankfully, the Democrat-led Congress (both the House and Senate) rejected the New Deal v2.

Instead, Congress reduced taxes. Income tax rates were cut across the board. FDR’s top marginal rate, 94% on all income over $200,000, was cut to 86.45%. The lowest rate was cut to 19% from 23%, and with a change in the amount of income exempt from taxation an estimated 12 million Americans were eliminated from the tax rolls entirely.

Corporate tax rates were trimmed and FDR’s “excess profits” tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945.

In 1946, the unemployment rate was 3.9% and the Federal government was bringing in larger revenues with lower taxes. Duh.

If Americans had a real understanding of FDR and the New Deal, I think today would look a lot different.

2 Comments »

  • Amateur Financier said:

    Hum, interesting concept. If I may play Devil's advocate for a moment or two, here's how I've heard the New Deal, WWII, and the eventual economic recovery. Here's the spin I've heard:

    The New Deal WAS making a difference in the unemployment level, dropping it substantially for FDR's first term. Then, after being re-elected, he got side-tracked by trying to *gasp* balance the budget, cutting spending on his (successful) New Deal programs, leading unemployment to rise back up.

    Following WWII, the key to the country's growth was the returning soldiers being able to go back to school and advance their prospects due to the GI Bill and other bonuses provided by the government for their service. This sudden increase in the number of educated, hard-working men returning from war effectively created the American middle class and led to the economic boom following the war.

    Am I saying that this is the complete, unambiguous truth? No, of course not. Does it mean that there is usually more than one explanation for the historical events we observed, and it's near impossible to determine which is correct (or more likely, how much each conflicting explanation contributed to the events that occurred)? Very possibly.

    (We could also have plenty of side discussions over the possibility of bias in both the traditional (arguably liberal) version of events and the WSJ's opinion post (arguably conservative), as well as whether, given the much lower marginal tax rates currently in existence, lowering taxes further would show similar results to those attributed to past tax cuts, but this response is getting long enough already.)

  • marty said:

    Who is WSJ ???