Topical Depression

The New Deal began 75 years ago this week, but its mythology is still fresh. Many Americans still believe that when Franklin Roosevelt was inaugurated on March 4, 1933, the United States began to come out of the Depression. Not so, declares The Forgotten Man: A New History of the Great Depression (HarperCollins, 2007), a splendidly written history of governmental economic intervention during 1930s America.

Author Amity Shlaes, a syndicated columnist for Bloomberg News and a senior fellow in economic history at the Council of Foreign Relations, has also worked at The Wall Street Journal and written books on German reunification and taxes in America.

WORLD: You've made a splash with The Forgotten Man. What's it about?

SHLAES: The thesis of this book is not especially controversial for economists, but it is controversial for historians who have not kept up with the economic findings. The argument is that the government made the Great Depression worse, both under Hoover and Roosevelt. That is a relatively new argument for historians. There is a school of economic thought called Keynesianism, invented by John Maynard Keynes, which says that government should spend to stimulate the economy when there is no money in the private sector. We learned a Keynesian history of the 1930s. We learned that for want of government spending, the Depression was bad, and that Roosevelt came along, spent, and made things better.

WORLD: You write that the governmental mishandling began with President Herbert Hoover.

SHLAES: Hoover is berated for not spending and for being too laissez-faire, but both those attacks on him are poorly thought-out. When Herbert Hoover was president, the government was really tiny, 3-4 percent of GDP, whereas now the federal government alone is about 20. So, even if Herbert would have spent the whole government budget, it wouldn't have been the whole stimulus that could have changed things.

WORLD: But he wasn't laissez-faire anyway.

SHLAES: He was not. He loved to intervene. If he lived today, he would be a McKinsey consultant. He was the smartest guy in the room; he came in and fixed everything. The thing he did that was most profoundly damaging was that he mistrusted the stock market. He thought it was like a bad child, and he should berate it. There were a lot of rogues in the stock market, but the stock market is also an expression of our economic growth, and there was more growth there than Hoover saw, and less inflation.

WORLD: So myth No. 1 concerns Herbert Hoover. He's often seen as a Republican, small-government conservative, but in many ways he was the exact opposite. There was continuity from him to Franklin Roosevelt.

SHLAES: Some of the New Dealers acknowledged that: "We're doing what Herbert did." Herbert and Franklin should have trusted the private sector more.

WORLD: I like the way you use their first names.

SHLAES: Well, you do get to know them. Hoover was extremely compelling. He really wanted to do good. In World War I he rescued the Belgians by giving them food when they were starving on the other side, behind enemy's lines, because Germans were in Belgium.

WORLD: Franklin Roosevelt's most famous line was, "We have nothing to fear, but fear itself." You write about government officials intimidating business during the 1930s and experimenting so much that businesses had reason to fear.

SHLAES: Roosevelt's experimentation scared the markets. Today, we watch business television and know unknowns are bad for the stock market. Roosevelt was king of the unknowns. One day he would be for big business, the next day he hated big business. The lingo of Roosevelt was extraordinarily hostile by modern terms. He said things John Edwards would not say. For example, "We seek an instrument of unimagined power in government." When markets hear that, they go under their shell. They say, let us wait this one out.

WORLD: You quote Secretary of Labor Frances Perkins speaking of FDR's "conflicts of logic and feeling, which so often beset, but kept him flexible."

SHLAES: I liked Roosevelt a lot-some of what he did. He's a wonderful man, you'd want to have dinner with him, you'd want him to be your president. He had a nice voice on the radio, and the radio was a new medium. It was like he was IM-ing people when all the other candidates were using some older means of communications. But, there were many Roosevelts, and that was the problem. One day, he'd say that he wouldn't betray future generations. Another day, he would do it.

WORLD: Untrustworthy?

SHLAES: Just mercurial. We all know people like that. Humans move from impulse to impulse, and they are not always consistent. There's the philanthropic impulse, the honesty impulse. Roosevelt cared a lot about balancing the budget, but he was the first great non-budget balancer.

WORLD: Back in 1933 a National Recovery Administration had the federal government setting prices and wages. The Supreme Court in 1935 declared that to be unconstitutional, and you quote Justice Brandeis telling Roosevelt, "This is the end of this business of centralization. I want you to go back and tell this president that we're not going to sit back and let this government centralize everything. It's come to an end." It wasn't the end, it was just the beginning.

SHLAES: In some ways it was the end. They never got control of the business sector of the economy again, the way they had it with the NRA. And because the NRA was so soundly defeated by the Supreme Court, today business is not regulated the way agriculture is regulated. I love this quote of Brandeis. For one thing, you can't imagine a Supreme Court justice, nowadays, in the cloakroom grabbing Karl Rove-but it was someone more junior than Karl Rove-and telling him, "You go back and tell Bush this and that." It's kind of fun to see that Brandeis was so direct.

WORLD: Did Roosevelt save America from revolution?

SHLAES: The standard story is that America would have gone communist or fascist, had FDR not been there. But I had no sense that Americans wanted revolution. The Democratic platform in 1932 was as placid and moderate as could be. Americans didn't really want revolution; they just wanted to have growth back.

WORLD: You note the romantic affairs of Harold Ickes, Rex Tugwell, and other New Dealers. How much did personal lives interplay with political lives?

SHLAES: I just think that if you leave out the private life, sometimes you miss the story. There was this hypocrisy of the New Dealers that they lived well, even as they advocated life as a proletariat, basically, and that's worth noticing. I think Washington is a true crucible. It's too hard for people to live there and they do often fall apart under the pressures of being in government.

WORLD: Your sympathy for Rex Tugwell comes through.

SHLAES: I liked Tugwell. Tugwell was a collectivist, so he was wrong. But he was an honest man, and he knew that his ideas weren't working out. One of the best books that I discovered was Government Project, the study of a farm that Tugwell had caused to be created a collective farm, right down to the detail, what color the houses were, how many cows, and so on. Later, one of his students went and saw that the farm didn't work. The people didn't want to share the chickens, they wanted their own chickens. There's a famous line in the book, well at least to me famous, where someone's observing and says, "I like the idea of the collective chicken coop, but I always keep forgetting, which chicken is my chicken." That's the essential collective problem. And worse, they trash the community house. So Tugwell's student writes this up, and Tugwell writes the intro: "Here's the story of my collective farm, my animal farm. It is not a nice story."