July 8, 2007

Culture Of Entitlements Started With FDR

George Will reminds us of when we began moving towards federal bankruptcy, and why, in today's column about Franklin Delano Roosevelt. Long admired as the man who saved America from economic disaster and potential revolution, FDR also begat the large-scale government spending programs that failed to reolve the economic crisis, but instead set us on the path for another:

In 1937, during the depression within the Depression, there occurred the steepest drop in industrial production ever recorded. By January 1938 the unemployment rate was back up to 17.4 percent. The war, not the New Deal, defeated the Depression. Franklin Roosevelt's success was in altering the practice of American politics.

This transformation was actually assisted by the misguided policies -- including government-created uncertainties that paralyzed investors -- that prolonged the Depression. This seemed to validate the notion that the crisis was permanent, so government must be forever hyperactive.

In his second inaugural address, Roosevelt sought "unimagined power" to enforce the "proper subordination" of private power to public power. He got it, and the fact that the federal government he created now seems utterly unexceptional suggests a need for what Amity Shlaes does in a new book. She takes thorough exception to the government he created.

Republicans had long practiced limited interest-group politics on behalf of business with tariffs, gifts of land to railroads and other corporate welfare. Roosevelt, however, made interest-group politics systematic and routine. New Deal policies were calculated to create many constituencies -- labor, retirees, farmers, union members -- to be dependent on government.

Will's prinary point isn't to discredit FDR, a president faced with an unprecedented catastrophe when elected to office, but to explore the failures of government imposition of scarcity. In the Depression, everything became scarce -- goods, food, even work itself. Rather than attempt to bolster capital investment in the economy, FDR decided instead to assume federal control of the economy and ration on the basis of scarcity.

In taking that approach, FDR deliberately grew the federal government into a huge bureaucracy in order to control the economy down to the smallest level. At the end of his first term, the federal government surpassed the spending of all states and localities inside the US combined, for the first time in peacetime history -- and it has done so continuously since.

Seeing jobs as a scarce resource, FDR provided Social Security to get older workers to retire and free up jobs for young adults. Given the restless nature of unemployed youth, this could be seen as a completely different kind of security program. It may have been intended to head off a Bolshevik overthrow of the US, considered a real threat at the time. That, at least, would be a reasonable basis for what turned into a Ponzi scheme over the next few decades.

However, it didn't work as promised. By 1938, the Depression had only lengthened and deepened. Despite all of the WPA programs, Social Security, and other top-down solutions offered by FDR in his scarcity-management program, unemployment rose again to over 17% -- meaning one in six American workers had no job. In desperation and faced with an antagonistic Congress, FDR attempted to pack the Supreme Court in order to bypass the legislature -- certainly another pattern that would arise again in American politics. Wendell Wilkie scolded FDR for his attempt to rule by fiat, and the notion died.

What saved us from the Depression? World War II. Even before our entry, the US began tooling up for war as the "arsenal of democracy". We skirted the legal strictures of neutrality through the Lend-Lease Act and began providing military supplies for Britain, and later the Soviet Union. FDR also started building up the American military, seeing clearly that war would soon come to the US from one direction or the other. Unlike FDR's other economic policies, this buildup utilized the private sector for competition and ingenuity -- and it put America back to work.

Ever since, we have struggled with the legacy of the overmighty federal government. FDR's radical approach to economic disaster, which ultimately failed, remains a millstone on our economy and our liberties. It's time to rethink the FDR approach and return to a streamlined and properly scaled federal government.


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Comments (28)

Posted by Cornellian | July 8, 2007 9:19 AM

Ain't gonna happen. There is exactly zero support among Congressional Democrats for a reduced federal government, and support among Congressional Republicans pretty much adds up to Ron Paul - and that constituency of one isn't getting any bigger. The federal leviathan is here to stay.

Posted by english teacher | July 8, 2007 9:22 AM

the republicans just had six years to implement a "streamlined and properly scaled federal government" and look what happened. i'm not disagreeing with you about the size of government question. all i'm saying is if you want to go back to what we were doing under clinton and reducing the defecit, balancing the budget, and reforming welfare, you might ought to look somewhere else beside the republican party.

Talk about using federal money to create constituencies. Would that also include the Department of Faith Based Initiatives?

Posted by Marshall | July 8, 2007 9:28 AM

The idea is great. However it may take a revolt of the young and restless who are given the opportunity to pay for the financial sins of their fathers and grandfathers to change it. I can be done, ideas have consequence. We just need to grow the idea.

Posted by G. Mitchell | July 8, 2007 9:58 AM

If you want to reverse the trends that began in the late 19th century and accelerated in the 1930’s, I think it will take a constitutional convention. We haven’t had one of those since the original Constitution was adopted. You would have to have a sustained demand from voters akin to what happened recently with the opposition to the comprehensive immigration bill. It would be an extreme long shot but a series of amendments that negated the bogus “general welfare” and “living” constitution concepts so Article I Section 8 could be enforced, eliminated the income tax system, and placed an enforceable limit on the percentage of GDP the government could commandeer would control and shrink the Leviathan. The probabilities of that happening are not zero but very small. Sadly, Cornellian is probably correct.

Posted by bulbasaur | July 8, 2007 10:02 AM

english teacher, Bill Clinton did not tax us into prosperity. Surely you know that JFK himself repudiated in the harshest terms the policies that Bill Clinton shamelessly and recklessly implemented 30 years later?

Surely you know that JFK wisely implemented the very economic policies which would be repeated some 20 years later by President Ronald Reagan?

Posted by ajacksonian | July 8, 2007 10:03 AM

From what I've read and remembered from my history courses and such, the 1937 Recession was more the cause of those unemployment numbers, where the number of those employed in 1936-37, just before it, had nearly equaled the 1929 number of employed... the US, by 1939, had basically pulled out of that recession with employment numbers growing and a new look forward. If you look back at the 1939 NYC World's Fair documents, and the perspective of the folks attending it, and the companies, it was not that of a 'gloom and doom' but one of renewed prosperity. WWII hadn't even started for the US, although it had been going on in China for some years and was not seen as a part of a global conflict at that point in time.

If memory serves, many of the problems of economic growth were from interference by government to limit and control industrial output. That meant that capacity was not put back online quickly nor was it used effectively: why produce more goods at lower cost if government sets the output amount and price? Things like paying farmers not to grow wheat *also* hurt things during the dustbowl, which has still to be placed firmly on just poor agricultural practices and not in with the larger shifting weather patterns of that era, which also would see the worst hurricane to hit the US in 1935.

Social security was aimed to remove older workers and open up jobs, but that was because the number of possible jobs was seen as a set amount: it was a fixed commodity, not something that could be expanded by industrial production increases. That economics of scarcity concept probably did more to hurt the understanding of the job market in the US than anything else and has taken decades to finally get questioned. Social security was also seen as a temporary remedy, not a long-term sociological change... yet we are now stuck with a remedy that now puts productive older adults with decades more life out on the golf course. The capital investment in skills, capability and sheer working knowledge that is walking around on retirement is staggering and is a first for mankind. Never have so many, with so much in the way of skills and personal wealth had so little work to do. I am all for folks planning on a retirement on their own schedule, resources and outlook... not on a mandated time to leave the workforce because an age-time has been reached. Should we pay no respect to the dot com millionaires who were in on the ground floor of high tech, and many of whom have started businesses and philanthropic arrangements? And to someone who sees joy in life by working, why have them leave the workforce?

What is apparent is that the concept of what work *is* and how it will be done are constantly changing. We no longer have the concept that only one job will be for an individual for their entire life. Now going through three or more careers in a lifetime is expected, along with high mobility to change climate and settings so one only need stay in their hometown if they want to. As we shift to a more robotocized working system for things like farming, the labor intensive industry of today will shift over the next decade to one of automated cropping. The first demonstrator RoboFarm with very little human interaction is now up and running in California. Again that will change labor and ideas of work, just as the shift of steel making and heavy industry out of the US and a focus on high-level manufacturing has done so.

And we will still be *stuck* with this antiquated notion of a 'retirement age' even as work becomes a persistent part of life, where one changes their view on work, leisure and productive time and compensation away from that of the clock punching era of the steel mills of the 1930s. Those waging Jihad want a world of the 7th century... I have problems seeing the government labor controls as any different: stuck in an era now gone.

Posted by grognard [TypeKey Profile Page] | July 8, 2007 10:09 AM

Both political parties are addicted to big government, access to the treasury means you can hand out the goodies for reelection. When the Republicans came into power they did away with the pay as you go process and immediately began to spend, the Rove inspired idea being that spending in key districts wins elections. Forget the Contract with America and a balanced budget amendment, it was a cynical and complete betrayal of fiscal responsibility that the Republican party supposedly stood for. The only difference between the parties is that the Democrats are at least willing to tax for their follies. The only real strategy for putting at least some brakes on government spending is to vote for gridlock, historically when the government was divided spending was at least somewhat restrained.

Posted by Jeanette | July 8, 2007 10:14 AM

Lots of luck trying to streamline the government now with everyone thinking the government owes the a living.

Posted by RKV | July 8, 2007 10:27 AM

Two questions Captain.

1) What took George Will and Amity Shlaes so long to figure this out?

Jim Powell (author of "FDR's Folly") had it nailed since 2003. Two nobel laureates in Economics agree with his analysis. A first year economics student can tell you that when you raise the price of a good or service you reduce demand (e.g. impose a tax on labor [FICA aka Social Security]). Simply put, Federal policies which raised the cost of labor in the middle of the Depression increased unemployment.

2) Why should conservatives carry FDR's water?

He and his policies should be discredited, not apologized for. Your comments are way too kind to him. FDR was likely the most cynical and manipulative President in the history of the Republic. His willing accomplices in the press made the public grateful for government policies which in reality, only made the Depression worse. We will continue our bondage (what else can you call a situation where citizens pay a third of their income to the government?) until we can overcome the ideas we inherited from the so-called New Deal.

Posted by Cornellian | July 8, 2007 10:28 AM

We have a choice today between tax and spend Democrats and borrow and spend Republicans. The only governments we ever get that have even the most minimal concern for fiscal restraint are divided governments, and that's why I'm an independent.

Posted by rbj | July 8, 2007 10:56 AM

"FDR attempted to pack the Supreme Court in order to bypass the legislature"

Actually, he wanted to pack the Court because the then existing Court kept pointing out that his programs had a defect: they were unconstitutional.

Ah, to get back to that Court (minus the Plessy decision)

Posted by Lew | July 8, 2007 11:53 AM

And this is the great tragedy of American history; that in their struggle to improve upon the original Constitution handed to them, our fore bearers cut out its heart of limited Federalism and gave us the modern integrated bureaucratic megastate. Central government has evolved from "necessary evil" to "preferred option" whenever a problem comes into view or can be rationalized into existence.

It began with the debate over "internal improvements" in the 1820's and proceeded through the Civil War and the "Progressive Era" of TR and finally reached its crescendo with "The Great Depression" and WW2 and its progeny "The Great Society". The Federal Government has step-by-step gradually freed itself from any limits imposed by the Constitution, and is now capable of literally anything that can be rationalized into expediency or utility.

Worst of all however, is the pervasive conviction that now we are stuck with it, and that our only "reasonable and practical" option is to find ways to make it work. And looking at the spate of wannabe leaders parading in front of us like swimsuit models, none of them think we've got any choice either. According to them, the best we can do is polish the brasswork while the ship slowly sinks beneath the waves.

Have a nice day!

Posted by NoDonkey | July 8, 2007 12:47 PM

It's full speed ahead for the gravy train - the next hugely expensive, underperforming sector to go government will be health care.

Run by the same incompetent, corrupt Democrat clowns who have run public "education" into the ground. We'll pay sky high taxes and won't get to see our Jordanian/Egyptian specialist for 6 months (and that's if he doesn't decide to go for the 72 virgins in the interim).

And when we get it, the same people who tell us to just shove it when it comes to our concerns about our atrocious public schools, will tell us to shut up and keep shoveling those tax dollars over to the unionized/bureacratized "universal care" leviathan.

And, like with public schools, to get actual health care or education, we'll have to pay extra in the private sector.

Posted by bayam | July 8, 2007 12:54 PM

FDR kept the US from drifting into the same form of extremism that afflicted most of Europe during the worldwide depression of the 30's. it's easy to take foregranted how many Americans at that time had started to question the future of capitalism.

A key problem that FDR did effectively address- the massive transitions between boom and bust that capitalism tends to produce. In the past, major economic policy shifts were dictated by JP Morgan and other powerful bankers behind closed doors. The transition of that power to the federal government has allowed the economy to generally remain more stable.

My guess is that when China's economy dwarfs that of the US, then references to the wonders of unfettered capitalism will sound outdated. China's economy is driven by a Communist government- don't kid yourself about who's in charge. I don't like this new reality, but the future is unfolding in front of us now.

Posted by viking01 | July 8, 2007 2:23 PM

Not just entitlements... dependency.

FDR and colleagues realized that there were limits to direct taxation to bloat his government so they devised an alternate plan. That plan 1935's Social Security was a HUGE tax disguised as a contribution toward one's future withheld from one's current paycheck. The citizens were no longer over a barrel simply to pay their current tax year obligation they were beholden to following whatever Social Security rules were in place and could be put in place to get their money back, potentially, at some future date.

It became a pyramid scheme which takes from the current taxpayers to pay off the current beneficiaries and to derive interest (instead of the wage earner) on any remainder. You started paying in before the retirement age was changed? Too bad. So sad. Government is here to help so don't make noise or you might get audited or not get your check. One of those "gap" participants whose benefits are less? Pardon that government oversight. We're sure you can learn to live with it. Don't forget to ignore that period when drug addicts and alcoholics qualified for SSI disability. Remember big government is here to help! Be mindful that if you've just started paying into Social Security that you'd best have a retirement backup plan expecting in 40 years that your SSA investment will be a total loss. More eventually taking out than paying in? Pay no attention to that man behind the curtain.

I do agree with posters who observe that both Democrats and Republicans often cannot avoid the money grab. Just as Grassley stampedes towards corn / ethanol loot as an airhead grinning Lugar running towards a photo-op the typical lawyer-politician's raison d'etre is always money or ego. Whether for campaign sustenance or self enrichment. Whenever in a political forum with candidates claiming to be Republicans be sure to ask about defunding public (now hippie) broadcasting and decentralizing the failed federal education bureaucracy. If you suspect the politician is lying (wise assumption) and their BS meter is pegging be careful as that politician may be trying to pull a Lindsey Graham on you.

Posted by Lew | July 8, 2007 2:43 PM

As a student of history for over 60 years, I've often wondered what any one of us would have done in their shoes.

In 1929, the state of economics simply wasn't up to the task of managing an economy of the scale and complexity of America or the increasingly interconnected world of finance. Politics however, having become obsessed with its self-assigned duty to solve all problems and micromanage its way to nervana, demanded it. As a result almost everyone who was forced to touch the problem, made it worse.

Enter FDR. Knowing what he knew and what he heard and saw all around him, what would any of us do? Answer: everything we thought might work and devil take the consequences. The short term catastrophe was so colossal that it would easily have blinded any of us to long term effects. As John Meynard Keynes said at the time, "In the long run, we're all dead!"

In a sense one could say the same thing about our other greatest President, Lincoln. In desperately trying to save the Republic he knew from his idealistic youth, he was inevitably forced to ally with those bent on its destruction. The moderates that he needed to carry out his war to save the union, simply weren't there when he needed their support on moderate policies in the border states. So he had to find "men with iron in them" and changed the war aim to one of abolition, knowing full well that he was joining those who saw no limits on Federal power. I've often thought that when he mentioned "a new birth of freedom" at Gettysburg, that he was really trying to put a better face on the Faustian bargain that he'd made the year before.

The point I'm trying to make is that its easy for us now to say that our fore bearers threw out the baby with the bathwater, but when they did it they were trying desperately to keep the whole ship from sinking from all that damned water. Would any of us have done something else? After all, where would the baby go if the ship sank?

And that's why I refer to it as the "Tragedy" of American history, because it seems almost a realization of all that the classic Greek playwrights were trying to warn us about. That our short term strength would inevitably prove our long term destruction and all our attempted virtues would prove our downfall. The more we struggle to improve, the further we get from perfection.

Don't get me wrong, I don't believe in fate. But I do believe that we are never as smart as our egos lead us to believe, and none of us would be harmed by a little bit more humility.

Posted by Bob Smith | July 8, 2007 2:58 PM

Capitalism tends to produce boom and bust? Absent government intervention? Do you have some evidence for that, or is that some socialist talking point? Even if it were true, "grow 15/lose 5" is much, much better than a slow and steady "grow 5" under a "government managed" regime.

Posted by viking01 | July 8, 2007 3:45 PM

Were Keynesian theories of big government economics true we would have been buying wheat from a thriving USSR instead of the reverse. UK socialized medicine would be more than a bleak waiting line disguised as a terrorist cell. North Korea would be a gourmand's paradise. Alas.

The greatest asset and gift the Founders of this nation gave our people and this world is the concept of limited government and the potential for self-determination thereby. Sink or swim ... free enterprise still beats monarchical, bureaucratic or judicial fiat any day of the week.

Posted by patrick neid | July 8, 2007 4:46 PM

it's not a coincidence that it was called the "New Deal". and a new deal it was as the government went malignant.

government always starts off a beneficial parasite that folks empower to task a few things. slowly but ever so relentlessly government grows until it is a benign tumor ever expanding until it turns into a malignant cancer. the New Deal was the start of this phase.

will it kill us? absolutely. thankfully history gives evidence that it can take a long time. however, the prognosis is terminal. there is no going back. everyday, one cell at a time, the cancer grows. the people who favor this process are the cancer cells themselves.

Posted by Ensign | July 8, 2007 5:19 PM

Right on, Captain Ed, ajacksonian, Lew, and vikingo1!

Cornellian and patrick neid, I know it seems like the end is inevitable. And yes, the chance of stopping it seems very small, G. Mitchell. But if the people awake, then the government cancer can be stopped. It will take a few decades, at least. But it can be done if y'all keep speaking out and others get courageous enough to join the fight.

While following the NoNais movement, I have met many, many people who are fed up with "the culture of entitlements." Their numbers are growing every day. Don't give up!

Posted by Ensign | July 8, 2007 5:29 PM

Of course, there's more to stopping this than just speaking out. We need good legislation passed, and good legislators to get it passed. Let's keep working on that!

Just for the record, I'm one of the "young adn restless" you talk about, Marshall.

Posted by jaeger51 | July 8, 2007 5:41 PM

Hear hear. Some time ago, PJ O'Rourke had a good test for govt. programs and departments. Considering they are all funded by your tax money and your mothers, and considering if you won't pay taxes you will be thrown in jail, and if you won't go to jail, the govt. will shoot you....the baseline for looking at any govt. program is would you have your mother shot for not contributing? Govt. should be about police and fire and army and a certain amount of inspections. THAT'S IT!

Posted by Patrick | July 8, 2007 8:58 PM

A few quick things I remember from my grad school course in economic History.
One of the things that got us out of the depression (or at least the aforementioned 1937-38 recession) was World War II, but not the war production. Investment funds started pouring in as everyone began to realize war was imminent. That provided the money to build the factories to employ the people to produce the goods to win the war.
Also, in a paper by Ben Bernanke (Might have been Claudia Goldin, there were two similar papers, but Bernanke is more recognizable now) They traced the initial recovery in America -and other coutnries hit by the depression - to the abandonment of the gold standard, which was an FDR policy (don't know if it was the first hundred days). Moving away from a fixed exchange rate improved capital flows(I think that's how it worked) and voila. So FDR (sort of) helped pull America out of the depression, but the New Deal didn't.

I learned so little in Grad school, I feel compelled to speak whenever I can fit something in, even if no one else cares or understands ;-)

Posted by Don | July 9, 2007 8:59 AM

Capitalism tends to produce boom and bust? Absent government intervention? Do you have some evidence for that, or is that some socialist talking point? Even if it were true, "grow 15/lose 5" is much, much better than a slow and steady "grow 5" under a "government managed" regime.

note the chart from 1890 to 1940, in an era of much less regulation than today that business did move in a cycle (certainly not 15 and 5). As for the joys of removing government intervention, take a look at the Salad years after the abolition of the Bank of the United States and before the creation of the Federal Reserve:

Posted by JohnSal | July 9, 2007 12:03 PM

I agree with Lew that the Great Depression was just that, great. Our understanding of economics and public policy was close to non-extistent. Thus, any active government intervention in the economy was almost bound to fail. Furthermore, in 1932 the two Presidential candidates firmly believed that government programs, properly applied, could solve societal problems. Unfortunately, FDR and his crew, while trying to head off the perceived threat of communism and fascism in the U.S., wound up borrowing altogether too much from the empty intellectual cupboards of these two ideologies. We are still paying the price.

Also, from what I have read, it was not really WWII that "saved us from the Depression." An examination of economic performance and unemployment until the moment that U.S. involvement in the war began shows no significant improvement. WWII saved us from many of the societal stresses of the depression only in the sense that male unemployment obviously declined and women were encouraged to work. But many goods were strictly rationed. The policies after the end of the war, open monetary policy and, especially, the G.I. Bill, created the conditions for the post-war economic boom and allowed us to recover from the Great Depression.

Posted by viking01 | July 9, 2007 1:15 PM

One other influence on the decline of the dollar's buying power besides government bloat is FDR's Emergency Banking Act of 1933. Before that time the US Dollar was backed by metal having actual hard value instead of politicians' promises. Since the Gold Standard was abolished all the government had needed to make more money is a printing press and sufficient quantities of paper. That New Deal and Social Security sure is going to cost a lot of money. No worry, we'll just print more.

Ever wonder why a house that cost $40,000 in the early 1970s might bring an asking price of $150,000 to $200,000 or more today? Demand is certainly a factor yet the fact that a house has real value and the currency has the value of a government promise minus what's left after entitlement spending. Speaking of devaluation of currency has Peanut Carter been visiting his friends Hugo Chavez or Fidel lately?

Posted by Lew | July 9, 2007 9:23 PM

Exactly right JohnSal, the problem was that they established the Federal Reserve System about 50 years before they knew what to do with it. In fact I've often thought that if you could narrow the responsibility for the catastrophe of both the Great depression and World war II down to one small set of people, you would eventually get down to the Board of Directors of the New York Federal Reserve Bank in 1928-32. That little group of narrow minded short sighted "gentlemen" turned a garden variety stock market panic into a 10 year depression that collapsed an entire world. And to this day, almost nobody even knows who they were.

The other little bit of irony that I always enjoy telling people, is that the original fiddler and diddler who couldn't keep his hands off the economic levers of his time was NOT Franklin Delano Roosevelt, but Herbert Hoover. Hoover was a world renowned engineer who made his bones organizing war relief in Europe during WW1 and was Secretary of Commerce before he got elected in 1928. He was the guy who started experimenting with all kinds of relief programs and welfare schemes, long before Roosevelt came along and continued and expended on what Hoover started.

Its amazing and sometimes even frightening what most people don't know about their own history.

Posted by Adjoran | July 10, 2007 2:20 AM

FDR did not abandon the gold standard. He barred the private ownership of gold except in jewelry and certain other specific uses.

The reasons for this were to stop speculation and prevent a run on the nation's gold supply. People who convert currency to gold tend to hoard the gold, which would have made an already dire situation even worse. We didn't technically come off of the gold standard until Nixon's second term.

However, we had been on a "fractional standard" for some 30+ years before, since we did not have enough reserves to back the outstanding currency at that time. Which is also why any talk of a return to the gold standard is silly: even at present high prices, we cannot cover the currency we already have outstanding, and we have no practical way of getting enough gold to do so. The alternative of reducing currency in circulation is economic suicide - deflation being destructive of economies almost overnight.