The Great Depression of the 1930s was by far the greatest economic calamity in U.S. history. In 1931, the year before Franklin Roosevelt was elected president, unemployment in the United States had soared to an unprecedented 16.3 percent. In human terms that meant that over eight million Americans who wanted jobs could not find them. In 1939, after almost two full terms of Roosevelt and his New Deal, unemployment had not dropped, but had risen to 17.2 percent. Almost nine and one-half million Americans were unemployed.
On May 6, 1939, Henry Morgenthau, Roosevelt’s treasury secretary, confirmed the total failure of the New Deal to stop the Great Depression: “We are spending more than we have ever spent before and it does not work. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!” (For more information, see “What Caused the Great Depression?“)
In FDR’s Folly, Jim Powell ably and clearly explains why New Deal spending failed to lift the American economy out of its morass. In a nutshell, Powell argues that the spending was doomed from the start to fail. 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.
More specifically, Powell observes, 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.
Powell notes that the process of capturing tax dollars from some groups and doling them out to others quickly politicized federal aid. He quotes one analyst who discovered that “WPA employment reached peaks in the fall of election years. In states like Florida and Kentucky — where the New Deal’s big fight was in the primary elections — the rise of WPA employment was hurried along in order to synchronize with the primaries.” The Democratic Party’s ability to win elections became strongly connected with Roosevelt’s talent for turning on the spigot of federal dollars at the right time (before elections) and in the right places (key states and congressional districts).
Powell’s book is well researched and well organized. His chapter titles are a delight. He synthesizes a mass of secondary sources (and some primary sources) in making a strong and persuasive case that the New Deal was a failure and that the Roosevelt presidency, at least in its first two terms — was a disaster. Powell covers all the major New Deal programs; he draws on the research of historians both “liberal” and conservative; and he is nuanced — this is no hatchet job — in that he concedes that some of Roosevelt’s policies, such as tariff revision, were more economically sound than, say, his industrial and agricultural policies.
FDR’s Folly takes its place on the shelf alongside Gary Dean Best’s Pride, Prejudice, and Politics and his more recent Retreat from Liberalism as liberating revisionist works that challenge the long-standing adulation of Roosevelt given by almost all historians. In the most recent Schlesinger Presidential Poll (1997), the historians and “experts” chosen by Arthur Schlesinger, Jr., collectively ranked Roosevelt as the greatest president in American history, even though every other American president had lower unemployment rates than Roosevelt did for his first eight years in the White House. As late as 1999, David Kennedy won the Pulitzer Prize for a book (Freedom from Fear) that largely praised the New Deal as a legislative program and Roosevelt as its author.
With the dawning of the 21st century, we may be witnessing the final departure of Roosevelt’s loyal academic propagandists and those targeted recipients of his federal largess. In such a climate, Jim Powell has given us, with FDR’s Folly, a refreshing, must-read account of the New Deal.
A new proposal under discussion by the Senate Finance Committee is a perfect example of the folly of trying to centrally design the economy — in this case by a ham-handed attempt at price controls.
The proposal, from Sen. Ron Wyden (D-OR) and under consideration by Chairman Chuck Grassley (R-IA), would change the Medicare Part D prescription drug rebate to penalize drugs whose prices rise faster than the rate of inflation.
It’s ironic the proposal targets Part D, one of the few islands of economic sanity to be found in the health care sector, which, beset by rampant government intervention, suffers from a wide variety of perverse unintended consequences.
Part D is one of the few government health care programs to successfully foster price-based productivity increases. In most parts of the economy, over time, prices go down and quality goes up, due to increases in productivity. The underlying mechanism driving this is competition.
One sign of how successful Part D has been in wielding competition is that in its first decade of existence, it cost over 40% less than what the Congressional Budget Office estimated it would, a historical and underappreciated achievement.
Tacking on feel-good, one-off pricing rules like Wyden’s “faster than inflation” penalty could easily disrupt the market-based dynamics that enabled Part D to flourish in the first place.
It’s just silly to think that something as complex, distributed and organic as a worldwide market for pharmaceutical drugs could be controlled by something as ramshackle as a “faster than inflation” rule.
Consider the variety of pricing mechanisms that exist in well-functioning markets. In retail, there are coupons, package deals, membership plans and other discounts. In the stock market, there is the “continuous auction,” providing ongoing price discovery that can react to new information in a matter of seconds.
Amazon’s server rental business offers clients a tremendous range of pricing options, split by eighteen datacenter regions, dozens of server types, and several tiers of availability.
There is a whole world of financing, from store-offered, no interest payment plans to credit cards to mortgages. Stores employ all manor of psychological pricing tricks, such as charging 99 cents instead of $1. One of the more incredible such tricks, which would be hard to believe without the well-established research backing it up, is that prices that contain fewer syllables (when read out loud) are more attractive than those with more syllables. For instance, $28.16 (five syllables) is better than $27.82 (seven syllables).
The incredible diversity in pricing practices stems from the decentralized nature of the market. You could never ask a single committee, or even a large organization, to come up with this level of creativity and variety on its own. It’s only from the organic interaction between millions of businesses and billions of customers, each expertly seeking their own interests, that it can ever arise.
You might compare Wyden’s “faster than inflation” proposal to the fences in Jurassic Park — “life finds a way,” as Dr. Ian Malcolm tells us, foreshadowing the inability of the park to contain the beasts contained within. Except, at least the 40-foot electric fences were a good faith effort. Wyden’s proposal is more like if they attempted to keep the T-Rex at bay with only the thin walls of the bathroom hut the hate-able lawyer ran and hid inside, shortly before becoming a dinosaur’s dinner.
In other word’s this “faster than inflation” rule is a laughable, pitiful attempt at something that isn’t even achievable by the most expert, determined effort — something like, say, the Soviet Union, which tried, and failed, to put price controls into practice at super power scale.
But that’s not to say it can’t do harm. At the very least, it will increase the cost of participating in the market, both in terms of compliance costs, and in the changed incentives and their inevitable unintended consequences. For example, a company that requires more revenue to survive might raise the prices slightly on all its products, instead of steeply on just one. How this all plays out is impossible to predict. What can be said for certain is the market’s “logic” would now be less about providing the most value for customers at the lowest price, and now more about the political ramifications of pricing decisions.
More specifically, as it relates to the Part D drug market in particular, the rule could crowd out existing rebates negotiated by the plans buying the drugs. Many plans have already secured “price protection rebates” which kick in if prices increase more rapidly than some agreed-upon threshold. In other words, the market has already invented, in a much more sophisticated and dynamic way, the “faster than inflation” rule on its own.
The worst case scenario is more dire. Generally speaking, fostering well-functioning markets in the health care sphere is exceedingly difficult, given the immense government intervention at every level. Part D’s success in doing so is nearly unique. Additional rules that make supply and demand less important to how the market functions could result in it ceasing to function as a market entirely. It certainly would not be the first time the government accidentally killed a market.
Wyden’s proposal exemplifies the folly of centrally-designed price controls. It will harm one of the only well-functioning parts of the federal government’s health care policy. For those reasons, Chairman Grassley and Committee Republicans should cast it in the dustbin of bad socialist ideas.
Americans continue to be on the move. According to North American Moving Services, California and New York were losing residents and had some of the highest rates of outbound moves (based on moving truck rental data) in 2018, while Texas and Florida were among the states with highest rates of inbound moves.
Broadly speaking, Texas and Florida tend to have public policies that support a free-market economy, whereas states like New York and California tend to do the opposite. The case can be made that residents seem to be voting with their feet in favor of economic freedom.
Economic Freedom Varies
While economic freedom varies across states within the U.S., it also varies within states, as my new study published by the Reason Foundation shows.
The “U.S. Metropolitan Area Economic Freedom Index” uses nine different measures of state and local government policies to produce an overall score for each of the nation’s 382 metropolitan statistical areas (MSAs). For purposes of rankings, the 52 largest with over a million residents were examined separately. Continue reading
By Andy Puzder • The Morning Call
Anyone listening to President Donald Trump and to Democratic presidential hopefuls hears an almost Dickensian tale of two very different Americas.
The president takes “the best of times” view and spoke during his State of the Union address about “an unprecedented economic boom” in which “our economy is thriving like never before.”
Democratic presidential hopefuls take the “the worst of times” view and speak of an America that works only for the rich, while working-class paychecks fail even to keep up with the cost of living and people are struggling to get by.
Is either side right?
The American public appears to increasingly share Trump’s sunny view. A Gallup poll released on Monday, under the headline “Americans’ Confidence in Their Finances Keeps Growing,” found that more than two-thirds — 69 percent — of Americans expect to be better off in the coming year. That’s “only two percentage points below the all-time high of 71%” recorded 20 years ago. The poll was based on telephone interviews with 1,017 adults conducted between Jan. 2 and Jan. 10. Continue reading
Americans now rank “gridlock” as their top concern when it comes to the economy. We are reluctant to disparage the wisdom of the masses, but in this case they’re wrong. Gridlock, for lack of a better word, is good.
The new IBD/TIPP Poll asked “Which of the following poses the greatest risk to the current U.S. economy?”
At the top of the list was “gridlock in Washington” which 41% named as the greatest risk. Coming in second a good distance back was “trade disputes” at 26%. “Higher interest rates” came next at 12%, followed by “rising prices,” 9%, and “Special Counsel investigation” at 8%.
“Gridlock” came in first place among Democrats, Republicans and independents. Among the young and old. Men and women. North, South, East and West. Rural and urban. Wealthy and working class. Investors and non-investors. Continue reading
Change: A just-released IBD/TIPP Poll shows big gains in key sentiment indicators. Given the pervasive negativity in the media these days, you might doubt these positive polling numbers. If so, have you looked at the economy lately?
When it comes to President Trump and the national mood, something seems to have happened in recent weeks, as shown by our IBD/TIPP Poll of 900 people taken from July 26 to August 2. Keep in mind that anything over 50 is optimistic; under 50, pessimistic.
Start with our Presidential Leadership Index, which jumped 3.2% in August to 45.7, the highest level since President Trump’s first full month in office.
Equally important, the Direction of the Country Index, which gauges how Americans feel about our nation’s current course, surged 13% to 50.1 in August. That’s the highest level since 2005.
1,000,000 new jobs. You’d think you’d hear a lot about such an impressive number. So far, it’s made little splash in the media. Nonetheless, since the Republican tax cuts were signed into the law the U.S. economy has created one million new jobs. And that’s just the beginning of the good news.
In May 2018 alone, defying the expectations of many economists, 223,000 jobs were created. The unemployment rate has dropped to 3.8 percent, its lowest point since April 2000. Unemployment among black people and Hispanics is at the lowest point since the numbers were first broken out by race during the Nixon Administration.
The American economy is surging, even before the new, lower corporate and personal tax rates go into effect. The promise that companies and most individuals will soon be able to keep more of what they earn has, alongside the Trump Administration’s successful effort to deregulate vital sectors of the economy, Continue reading
By Maireid Mcardle • National Review
The American economy finished stronger than expected in May, according to the Labor Department’s jobs report, released on Friday.
The unemployment rate was expected to remain steady but dropped a tenth of a point to 3.8 percent, the lowest since April 2000.
The U.S. added 223,000 non-farm jobs in May, beating the estimate of about 188,000.
Even the underemployment rate, including discouraged workers and those with part-time positions who would Continue reading
A record-setting stock market is just one of the big effects Trump's policies are having.
By US News•
The supposedly smart people said Donald Trump would destroy the U.S. economy if he were elected president.
They were wrong. On Thursday, the Dow broke 25,000 for the first time in its history – a meaningful expression of investor confidence in the future. Trump’s policies of deregulation, which have been moving ahead at full steam even before the tax cut bill passed just before Christmas, have helped push the stock market up by a third which, economist Arthur Laffer estimates, works about to about a $6 trillion increase in the nation’s net wealth.
That may not be historic – there may be periods in which wealth has increased at a faster rate – but it sure is impressive. Especially since the same smart people who’ve been telling us Trump would wreck the economy spent the Obama years explaining annual growth at less than 3 percent (and likely closer to 2) was the new normal.
It’s still a little early to proclaim “happy days are here again” but, as the Magic 8 Ball puts it, “all signs point to ‘Yes'” as far as whether there will be a period of protracted economic growth. That Continue reading
It's a good start, but it can't be the end of the GOP's economic efforts.
By US News•
The Republicans have kicked off the New Year with an earnest effort to sell the American public on the benefits of the tax bill just passed. It’s better than nothing, but if they hadn’t put the cart before the horse in the first place, they might not be in as much of a mess.
To be sure, achieving the first major overhaul of the U.S. tax code in 30 years without the single vote of a single Democrat is a considerable accomplishment. And, unlike the Affordable Care Act – with all the regulations and other nonsense Barack Obama piled on the economy in his first two years – the Tax Cut and Jobs Act of 2017 will be a boost to the economy rather than a drag. Still and all, telling the voters they should be for it because it puts more money in their pockets (or, more accurately, leaves it there in about nine out of 10 cases) doesn’t really constitute a Reaganesque vision for a more prosperous America in which each citizen has a vested share.
Hopefully things will turn towards the better, and soon, meaning the Republicans will retain control of Congress through 2020 and be able to pass additional tax cuts, continue to lessen the size of government, remove unnecessary and counter-productive controls on productive economic activity, and set the stage for another long boom like the Reagan tax cuts kicked off back in the early 80s. But time and the narrative are not yet on the GOP’s side.
Like it or not, even with relatively low rates of inflation for much of the last decade, the purchasing power of the dollar has declined. Families are felling pinched, which is part of the reason many of Continue reading
by Ali Meyer • Washington Free Beacon
California is projected to have a $15 statewide minimum wage by 2022. Economists project this will lead to a loss of 400,000 jobs, according to a report from the Employment Policies Institute.
Currently, the federal minimum wage is $7.25. California’s is $10.50, which is one of the highest minimum wages in the United States. California’s intent to raise it to $15 by 2022 will create the largest gap between a state minimum wage and the federal wage in U.S. history.
“One might argue that a higher minimum wage is justified in California because of its relatively high cost of living compared to the typical state,” the report says. “On the other hand, one might be concerned about whether the higher minimum wage in California causes job loss for low skilled workers, and whether the effects differ in the cities where the cost of living and wages are relatively high as compared to rural areas or less expensive cities.”
California has consistently raised the minimum wage since 2001, even higher than what was mandated by federal law. The study finds that this increase has led to a decline in employment.
By Newt Gingrich • Fox News
The left-wing media and the elites never seem to tire of being wrong.
Remember in May when President Trump said his policies would spur the U.S. gross domestic product (GDP) to grow at a rate of 3 percent or higher? The so-called experts insisted that it was unrealistic, highly unlikely, and probably impossible.
Some of these experts suggested 3 percent growth could only happen if our immigrant population doubled over a decade or the nation went to a six-day work week. They said even if unemployment fell to zero, we still wouldn’t get close.
Imagine their surprise then when the Commerce Department announced on Friday that the GDP has grown at 3 percent – for the second quarter in a row. Continue reading
by Justin Haskins • Philly Inquirer
Shortly after being sworn into office in January 2009, President Obama, along with Democrats in Congress, spent trillions of dollars on government bailouts, stimulus packages, and various social welfare programs – all passed with the promise they would reverse one of the most significant economic crashes the country has experienced.
After nearly eight years in office, though, Obama has failed to deliver on many of his campaign promises and has left America worse-off than it was when he entered the White House.
During the Obama administration, there hasn’t been a single year in which the nation’s gross domestic product grew at 3 percent or higher, according to the nonpartisan Congressional Research Service. That’s a first for a modern president. Continue reading
China’s global dominance, something analysts say is inevitable, will have to wait.
by Gordon G. Chang • The National Interest
Last Monday, at the conclusion of China’s closed-door Central Economic Work Conference, Beijing’s public relations machine went into high gear to show that the country’s leaders had come up with a viable plan to rescue the economy.
Unfortunately, they do not now have such a plan. In reality, they decided to continue strategies that both created China’s current predicament and failed this year to restart growth.
The severity of China’s economic problems—and the inability to implement long-term solutions—mean almost all geopolitical assumptions about tomorrow are wrong. Virtually everyone today sees China as a major power in the future. Yet the country’s extraordinary economic difficulties will result in a collapse or a long-term decline, and either outcome suggests China will return to the ranks of weak states. Continue reading
by Kenneth Bloomquist
Standing before an audience of college students, President Obama remarked that “As Americans, we can and should be proud of the progress that our country has made over these past six years. This progress has been hard, but it has been steady and it has been real. And it’s the result of the American people’s drive and their determination and their resilience, and it’s also the result of sound decisions made by my administration.” These remarks sound more defensive than confident. The President asserted that Americans should feel proud of the modest economic gains his administration frequently cites, but given that over half of Americans still consider the economy to be meandering through a recession it seems they have overwhelmingly rejected his outlook and chosen to remain humble instead.
Perhaps they’re being overly pessimistic? In the President’s defense, the metrics commonly used to measure the duration of recessions do indeed place the end of the Great Recession in 2009. Since then, GDP has risen slowly, but steadily, at an adjusted rate of just over 2% per year. The unemployment rate has fallen from its 2009 high of just under 10% to just under 6%, and new jobs are being created at a pace which is improving with time. And yet despite the graphs and charts, Americans refuse to be optimistic no matter how often they are told to be. The economy as described in press conferences doesn’t seem to be same one which most Americans live and work in, where family and friends remain unemployed or underpaid, where they have been passed over for raises, and where there just isn’t enough income leftover to save. Americans may not all have advanced economics degrees, but they are intuitively aware when times are good and when times are bad, and they remain skeptical even when bombarded by a steady stream of rose-tinted statistics. Continue reading