The New Deal house of cards

As we see more and more calls for government intervention into everything from health care to internet service, it's worth considering the hidden (and not-so-hidden) costs of nationalizing all our problems. For two generations, FDR and the New Deal have been hailed by many as saving the U.S. from itself. But did it? Or did a charismatic radio president prolong a bad situation by messing around where government is least effective?

The real question about the 1930s is not whether it is wrong to scrutinize the New Deal. Rather, the question is why it has taken us all so long. Roosevelt did famously well by one measure, the political poll. He flunked by two other meters that we today know are critically important: the unemployment rate and the Dow Jones Industrial Average. In his first inaugural address, Roosevelt spoke of a primary goal: "to put people to work." Unemployment stood at 20% in 1937, five years into the New Deal. As for the Dow, it did not come back to its 1929 level until the 1950s. International factors and monetary errors cannot entirely account for these abysmal showings...

The final line in the traditional story is that Roosevelt's government offices were somehow better than their private sector counterparts--when it came to utilities, for example, we learned that only the federal government could electrify backward rural areas. This is a false memory, for there was a company that already planned to light up the South, Commonwealth and Southern. David Lilienthal of the Tennessee Valley Authority set out to gut it, and succeeded. But the battle over electric power was also, literally, a power struggle between coequals, not a contest between a good policeman and a sinning company.

The most useful economic philosophy for understanding what went on is not Keynesianism. It is the public choice theory of James Buchanan and others, which says that government is a competitor that will annihilate what comes in its path.

The largest legacy of the New Deal is not prosperity, but the entitlement mentality. Americans look to Uncle Sam to provide services our ancestors would have thought preposterous. There's plenty of appropriate public discussion about "sustainable ecological practices." It's time we thought about sustainable fiscal policy as well. But that might mean divesting Uncle Sam of some of his nanny-ism and letting the kids work things out for themselves. Horrors!