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The New Deal in Retrospect

Many people refer to incoming president Barack Obama as the next FDR. The myth of Franklin Roosevelt — primarily that he cured the Great Depression through his extreme interventionism — is starting to be exposed. In this review (The Disaster Called the New Deal) of Burton Folsom’s book New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America, David Gordon of the Ludwig von Mises Institute shows us the good and bad.

Did the New Deal cure unemployment? “In May 1939, Treasury Secretary Henry J. Morgenthau Jr., one of Franklin Roosevelt’s best friends, testified before the House Ways and Means Committee: ‘I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot.'”

Some today say that Roosevelt didn’t spend enough, that the stimulus was not powerful enough. Folsom refers to Henry Hazlitt: “Every dollar of government spending must be raised through a dollar of taxation,” Hazlitt emphasized. If the WPA builds a $10 million dollar bridge, for example, ‘the bridge has to be paid out of taxes… Therefore,’ Hazlitt observed, “for every public job created by the bridge project a private job has been destroyed somewhere else… All that has happened, at best, is that there has been a diversion of jobs because of the project.”

Reviewer Gordon has a problem with this book in that Folsom ignores Austrian economic theory, including its theory of the business cycle. Still, I believe Gordon thinks this is a book worth reading.

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One Comment

  1. Rothbard December 11, 2008

    Hazlitt is correct that government expenditures have to be paid through taxation; either direct or indirect. Many modern economists argue that deficit spending doesn’t matter and seem to have convinced themselves that inflation isn’t a monetary phenomena. Inflation is the most regressive tax of all.

    Even the evil socialist, Keynes (in quoting Lenin) had enough sense to realize what monetary inflation brings: “There is no subtler or surer means to overturn the existing basis of society than to debauch the currency. This process engages all the hidden forces of economics to the side of destruction in a manner that not one in a million can diagnose.”

    Most Americans are so dumbed down they don’t even know what inflation is. They think inflation is a rise in prices as given by the fraudulent CPI. Wrong. Inflation is an increase in the money supply; the rise in prices is the result of the inflation. The FED doesn’t fight inflation; the FED is the cause of inflation and they have been inflating like mad the last few months with much more to come.

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