Raw Deal


Franklin Delano Roosevelt is widely credited with saving America from economic ruin. But Jim Powell's new book, FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum), promises to send FDR's inflated reputation crashing like a stock on Black Monday. Powell, a Cato Institute senior fellow and editor of Laissez Faire Books, is also the author of The Triumph of Liberty (Free Press, 2000). Assistant Editor Julian Sanchez interviewed him in October.

Q: Why do you argue that the New Deal made the Great Depression worse?

A: Roosevelt made it more expensive for employers to hire people; he made it harder for employers to raise capital, and tripled federal tax revenues. The securities and exchange regulations shut down capital markets for the better part of a year while the lawyers figured out what they meant. The strongest banks were broken up. Labor laws empowered monopoly unions, which were very anti-black at the time. Starting with the National Industrial Recovery Act, the New Deal kept everything more expensive. FDR forced up food prices. Big landowners benefited, since they were being paid not to farm. Black sharecroppers lost out big time because they depended on the work. If you run through the policies now, they sound totally loony tunes.

New Deal spending wasn't targeted at poverty: The poorest part of the country then was the South, but 10 times more money per capita was spent in Western and Eastern states. The bulk of the spending went to states where the presidential vote had been close in 1932.

Q: Taxation and regulation have increased since the '30s; why have we done so well since?

A: An economy can adapt to a bad policy here and there. Capital will flow from more regulated lines of business to less regulated ones, creating new jobs that at least partially compensate for jobs destroyed by regulations. A bad policy here and there will slow an economy down; the succession of bad policies during the 1930s knocked it down and kept it down. Europe is a good example of New Deal-style programs taken further: They've had double-digit unemployment rates for years now.

Q: Why the disconnect between FDR's reputation and the reality?

A: Political historians focus on political events—personalities, fireside chats, elections, and court packing. They've given FDR a good deal of credit for his good intentions. Evidence about the consequences of his policy has been accumulating in economics journals, which historians don't necessarily read. My book is an attempt to start a public debate about the evidence that's been building for the last 40 years.