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Trickle-down economics good, FDR bad

The Forgotten Man

A New History of the Great Depression By Amity Shlaes

Harper/Collins / 464 pages / $26.95

"The people of my district still have Franklin Roosevelt's picture on the walls of their homes," a Chicago congressman declared in 1960. "They remember the black days of the Depression, and how Roosevelt led them out of it." Historians tend to agree that Roosevelt provided masterful leadership in the two great crises of the 20th century - the Great Depression and World War II - and deserves to be ranked among the nation's greatest presidents.

Amity Shlaes, a syndicated columnist for Bloomberg and former member of the editorial board of The Wall Street Journal, aims to knock FDR off his pedestal. The Depression, she argues, should have ended much earlier. The New Deal's "collectivist social ideal," endless experimentation and the persecution of corporate executives created uncertainty in the stock market, depressed private investment, reduced productivity, destroyed the "intimate" relationship between small businessmen and their customers and discouraged the poor from finding "their own response to joblessness and hunger." If Roosevelt had really wanted a thriving peacetime economy, Shlaes concludes, he would have called off government competition with it.

The Forgotten Man is not a new history of the Great Depression. The book's initial premises repeat the conventional wisdom. By signing the protectionist Smoot-Hawley tariff and failing to press the Federal Reserve Board to pump more money into the economy, Shlaes agrees, Herbert Hoover helped make a depression out of a downturn. And the New Deal did not end the depression until the beginning of World War II.

Shlaes then repackages criticisms and canards, first leveled at the New Deal in the 1930s. Her forgotten men - Father Divine; Bill W., the founder of Alcoholics Anonymous; and the Schechter brothers, the butchers from Brooklyn who brought down the New Deal's National Recovery Administration, are in the book to press the dubious proposition that no matter how catastrophic the crisis, "the people" neither wanted nor needed government to help them pull through. Since she maintains that "the Republicans had been right so often about the economy" but did not "get credit for it," the real heroes of her book are Calvin Coolidge; Andrew Mellon, the banker and erstwhile secretary of the Treasury; and Wendell Willkie, the president of Commonwealth and Southern, a utility holding company which was supplanted by the Tennessee Valley Authority. Like them, Shlaes believes that unrestricted individual competition is at the heart of capitalism. And that when stocks plunged and assembly lines lay idle, government should have done little or nothing - and let the market find its bottom and climb back.

The Forgotten Man bludgeons with blunt ideological instruments. Shlaes greets every tax cut with amity and every increase with enmity. With the exception of the Securities and Exchange Commission, every New Deal measure seems to her a misstep on the slippery slope toward socialism.

And Shlaes' treatment of the New Deal reforms of 1935 is not exactly fair and balanced. Social Security gave welfare a new name, she suggests, and companies should not have been compelled to pick up the tab. The pro-union National Labor Relations Act, or Wagner Act, "the most coercive" New Deal law, declared war on profitability and productivity. Raising wages without increasing output, she proclaims, was costly for consumers. But calling corporate profits "excessive" - and taxing them - was "wrong," she implies, because CEOs created jobs by reinvesting the money.

Shlaes' Roosevelt is not merely misguided. He is mendacious, manipulative and cynical. Around 1936, as hard times held on, the president "wagered that by spending enough cash and creating enough new laws he could at least give the impression of recovery." He wanted a "permanent crisis," an economy of "distributed scarcity," so that he could make the federal government into "an instrument of unimagined power" for his party and himself. Roosevelt relished "squeezing cash for the poor out of the well-to-do." He designed a graduate corporate tax "to punish big business." And he ordered Justice Department officials to prosecute Mellon, Samuel Insull and other malefactors of wealth, even though he knew they had paid their taxes legally.

Franklin D. Roosevelt was no saint. And the New Deal was inconsistent, and, at times, ineffective. But it helped millions of Americans mitigate the ravages of the Depression. And it helped preserve and even strengthen capitalism. With the New Deal largely intact, the economy has flourished in the 60 years since Roosevelt died. The lesson of the Great Depression, God help us, is not: "You can get through it." At long last, laissez-faire and trickle-down economics, Shlaes' old acquaintances, should be forgot. And never brought to mind.

Glenn C. Altschuler is the Thomas and Dorothy Litwin professor of American studies at Cornell University.

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