While the Depression began as a typical Recession under President Hoover, the anti-business, class warfare policies of FDR's New Deal turned a short-term economic downturn into a decades-long worldwide malady.
As Dr Thomas Sowell points out in his column entitled Changes In Politics:
Make no mistake, the political rhetoric of FDR was great. For those who admire political rhetoric, as so many of Barack Obama's supporters seem to, FDR was tops. For those who go by actual results, FDR's track record was abysmal.
Although the Great Depression of the 1930s began under Herbert Hoover, unemployment during Hoover's last year in office was not as high as it became during each of the first five years under FDR.
During the eight years of FDR's first two terms as president, there were only two years in which unemployment was lower than it had been under Herbert Hoover-- and not by much.
Experts will tell you that the two major contributing factors to The Great Depression were bank regulations and trade barriers. The FDR policies, rather than solving the problems confronting the nation, exacerbated the flaws already inherent in the system.
As Jim Powell, author of FDR's Folly: How Roosevelt And His New Deal Prolonged The Great Depression, points out:
FDR didn't do anything about a major cause of 90 percent of the bank failures, namely, state and federal unit banking laws. These limited banks to a single office, preventing them from diversifying their loan portfolios and their source of funds. Unit banks were highly vulnerable to failure when local business conditions were bad, because all their loans were to local people, many of whom were in default, and all their deposits came from local people who were withdrawing their money. Canada, which permitted nationwide branch banking, didn't have a single bank failure during the Great Depression.
FDR's major banking “reform,” the second Glass-Steagall Act, actually weakened the banking system by breaking up the strongest banks to separate commercial banking from investment banking. Universal banks (which served depositors and did securities underwriting) were much stronger than banks pursuing only one of these activities, very few universal banks failed, and securities underwritten by universal banks were less risky.
As banking failures today look to derail an economy struggling to recover, the answers we hear from Sen Obama bear an eerie resemblance to the failures that prolonged the worst economy in our nations history.
The trade barriers erected by FDR, ostensibly to protect American business and industry, worked instead to destroy world commerce, increase business failure, and prolong unemployment.
FDR didn't do much about a contributing factor in the Great Depression, the Smoot-Hawley tariff which throttled trade. Indeed, he raised some tariffs, while Secretary of State Cordell Hull negotiated reciprocal trade agreements which cut tariffs only about 4 percent. FDR approved the dumping of agricultural commodities below cost overseas, which surely aggravated our trading partners.
Even so, the major contributor to the prolongation of the Great Depression was FDR's tax policy. He throttled business growth by raising taxes on businesses and corporations to the point that they could not remain in business. This contributed, of course, to increased unemployment. Unemployment during the Great Depression did not decline even during the first two years of World War II.
FDR tripled taxes during the Great Depression, from $1.6 billion in 1933 to $5.3 billion in 1940 Federal taxes as a percentage of the gross national product jumped from 3.5 percent in 1933 to 6.9 percent in 1940, and taxes skyrocketed during World War II. FDR increased the ta x burden with higher personal income taxes, higher corporate income taxes, higher excise taxes, higher estate taxes, and higher gift taxes. He introduced the undistributed profits tax. Ordinary people were hit with higher liquor taxes and Social Security payroll taxes. All these taxes meant there was less capital for businesses to create jobs, and people had less money in their pockets.
In addition, FDR increased the cost and risk of employing people, and so there shouldn't have been any surprise that the unemployment rate remained stubbornly high. Economists Richard K. Vedder and Lowell E. Gallaway, in their 1997 study Out of Work: Unemployment and Government in Twentieth-Century America, reported: “New Deal policies (and some Hoover-era policies predating the New Deal) systematically used the power of the state to intervene in labor markets in a manner to raise wages and labor costs, prolonging the misery of the Great Depression, and creating a situation where many people were living in rising prosperity at a time when millions of others were suffering severe deprivation. . . . Of the ten years of unemployment rates over 10 percent during the Depression, fully eight were during the Roosevelt administration (counting 1933 as a Roosevelt year).” Vedder and Gallaway estimated that by 1940 unemployment was eight points higher than it would have been in the absence of higher payroll costs imposed by New Deal policies.
I would ask you to re-read that last section. Do the policy failures of FDR sound familiar to any political rhetoric being advocated today? Sen Obama perfectly mirrors the failures of FDR. His answers, of higher taxes on businesses, corporations and the "rich" [those successful individuals who create jobs in a free market economy] would create the exact results as FDR in turning a Recession into the Great Depression.
That same anti-business, class warfare rhetoric re-emerged in 1976, with the Presidency of James Carter. The answers he sought to relieve an inherited Recession, much like FDR, prolonged and deepened what should have been a temporary downturn. Double digit inflation, double digit unemployment and double digit interests rates -- an economic situation believed by many contemporary economists to be impossible -- were the legacy of failure of President Carter.
On both the economic, and sadly, the international security front, we are still paying today for the failures of President Jimmy Carter.
These are exactly the same tax and business policies being advocated today by Sen Barack Obama, and the Democratic Party. In their eagerness to strip away any and all policies of the Bush Administration, the lessons of the Great Depression and the failed policies that prolonged it, are lost on them. In their eagerness to portray Bush as a modern-day Herbert Hoover, they are blinded to the failures of Franklin Roosevelt.
To once again quote the brilliant Dr Sowell:
Senator Obama's rhetoric today is the anti-business and class warfare rhetoric that worked so brilliantly in a political sense for FDR in the 1930s. But Obama is following an opposite course from FDR when it comes to recognizing threats to American national security.
Senator Obama has repeatedly tried to deal with national security threats with rhetoric. He tried to dismiss the threat of a nuclear Iran with because Iran is "a small nation"-- even though it is larger than Japan, which launched a devastating attack against the United States at Pearl Harbor.
FDR had the good sense to begin urging greater military preparedness in 1940, more than a year before the United States was attacked. He said, "If you wait until you see the whites of their eyes, you will never know what hit you."
Cutting the military budget and taking foreign policy problems to the United Nations are Obama's version of "change."
We cannot afford an Obama presidency. His economic policies will bankrupt the American economy, destroy business, and turn America into little more than a third-world nation.
His national security policies will leave this country undefended, and vulnerable to another attack by our enemies that will leave this nation crippled -- the exact result envisioned by Osama bin Laden on 9-11.
bubble burst then.
A series of government missteps and non-steps over a several year period, including FDR's first two terms, made the event unique in American history. The Smoot-Hawley tariff of 1930 was one of those things. As Dave says, the traditional Democratic hostility towards big banks, going back to Jacksonian days and Old Hickory's successful effort to destroy the Bank of the United States, was an aggravating factor. Indeed, one of the sharpest stock market downturns of the Depression occured in 1937, during FDR's SECOND term.
Fed Chairman Bernanke has studied the period intensely during his career in the academy, and his expertise seems to be serving the nation well.