The U.S. unemployment rate hit 14.7 percent in April, the highest rate since the Great Depression. With economies locked down, millions out of work, and businesses teetering on the verge of collapse, commentators are comparing the coronavirus crisis to the Great Depression, and some are demanding another New Deal-style government expansion to restore the economy. There’s just one massive problem with that: President Franklin Delano Roosevelt’s New Deal didn’t bring America out of the Great Depression — it arguably worsened it. The Great Depression lasted for over a decade in part thanks to the interventionist policies of President Herbert Hoover and FDR. Yet Democrats today are clamoring for more of the big-government programs that arguably extended the Great Depression. Many of these calls for “structural change” follow the idea that government spending will save the economy. In the days of the Green New Deal, the myth that the first New Deal ended the Great Depression holds tremendous sway on the left.
Ironically, FDR won the 1932 presidential election by promising an end to the government spending of his predecessor, Herbert Hoover. Reeling from continuing high unemployment after the 1929 stock market crash and the high tariffs he had signed into law, Hoover pushed broad banking regulations and signed the Emergency Relief and Construction Act, a $2 billion public works bill aimed at revamping the struggling economy. Democrats branded homeless shelters “Hoovervilles,” and FDR defeated Hoover in a landslide.
Once he entered office, however, FDR hypercharged Hoover’s worst policies. The New Deal inserted the federal government into nearly every sector of the economy and increased taxes to ridiculously high levels. FDR did reverse Hoover’s disastrous trade policies, but these other changes kept the economy from bouncing back. “Tax rates were hiked, which scooped capital out of investment and dumped it into dozens of hastily conceived government programs. Those programs quickly became politicized and produced unintended consequences, which plunged the American economy deeper into depression,” they explained. “The National Recovery Administration, which was Roosevelt’s centerpiece, fixed prices, stifled competition, and sometimes made American exports uncompetitive. Also, his banking reforms made many banks more vulnerable to failure by forbidding them to expand and diversify their portfolios. Social Security taxes and minimum-wage laws often triggered unemployment; in fact, they pushed many cash-strapped businesses into bankruptcy or near bankruptcy. The Agricultural Adjustment Act, which paid farmers not to produce, raised food prices and kicked thousands of tenant farmers off the land and into unemployment lines in the cities. In some of those cities, the unemployed received almost no federal aid, but in other cities — those with influential Democratic bosses — tax dollars flowed in like water.
But by 1946, Congress was no longer dominated by tax-and-spend Democrats. The Republicans and conservative Democrats lowered taxes from absurd highs (the marginal income tax rate was 94 percent on all income over $200,000 and an excess-profits tax absorbed more than one-third of all corporate profits since 1943, along with another 40 percent corporate tax on other profits).
Rather than another New Deal — and potentially another Great Depression — the post-war years represented a return to economic normalcy, as entrepreneurs finally had the incentives to get back to work.
The coronavirus crisis may have brought America to the cusp of a new Great Depression, but if Democrats succeed in pushing the Green New Deal or some other “Rooseveltian” scheme, they will only extend this economic malaise. The New Deal didn’t end the Great Depression, and a Green New Deal won’t end the coronavirus recession.