To really examine FDR's economic record it would take much more space than merely a blog post, however a full examination of his economic record is critical now. That's because many pundits are pushing President Elect Obama to create a New, New Deal. Those pushing Obama in such a direction work under the assumption that FDR's New Deal was a shining beacon of success. FDR has properly been lionized as a President however with this lionization there comes a rather rose colored glasses look at his entire Presidency. In my opinion, FDR deserves a special place in our pantheon of Presidents, and that's because he lead the U.S. through WWII. Any wartime President will always be defined by their success or failure in war. I doubt anyone can tell me any part of Lincoln's record beside that of successfully prosecuting the Civil War. The Great Society has little place in LBJ's legacy because of the Vietnam War. The same is true of FDR.
Still, I firmly believe that FDR is given economic credit where frankly he doesn't deserve it. As such, FDR's policy of massive government spending, massive government expansion, and massive government intervention are all given historical precedent as being successful. I believe a firm examination of his economic record reveals something a lot more complicated.
First, FDR was given quite the economic malaise to begin his Presidency. He walked in with unemployment at 25%. It's important to examine his record in the context of the most extreme and difficult circumstances. It isn't a minor point though that unemployment was still double digits as we entered WWII . By any economic measure, if the economy is still in malaise eight years after taking over, it is not unfair to say that the President's economic platform was a failure. Reagan was given only a smaller mess when he entered office. He faced stagflation, and yet only three years later the economy was booming. FDR shrewdly continued to blame Hoover into 1940 for the continued high unemployment but history should not be so kind.
Clearly, as you can see from this chart, FDR certainly presided over an expansion of our GDP. Two things need to be kept in mind. First, our economy had been so crushed that it really had nowhere to go but up. Once, he stopped the proverbial bleedin with the 100 days and begin unadulterated spending, the economy was bound to start expanding. Second, I don't think anyone doubts that massive new government spending will expand the economy.
The question is at what price will that expansion come. The reason that FDR's economic expansion was largely a "jobless recovery" is in my opinion two fold. First, when it is government "creating the jobs", that creation largely doesn't spill over into the private sector. Second, he combined this massive new government spending with the introduction of several new taxes. The most corrosive was the introduction of the payroll tax, now known as Social Security. Beyond this, FDR raised the inheritance tax on more than occasion throughout his first term. Because FDR has been so lionized, most people never once point out the futility of these actions and how the stunted job creation. As such, we have a President that literally promised to raise some of the very same taxes in a similar economic donwturn and a country that bought this hook, line and sinker, even though history clearly shows that such moves stunted job growth.
What's rarely discussed about FDR's record is the long term corrosive effects of his policies on future generations. It was FDR after all that first introduced what I refer to as the Ponzi Scheme known as Social Security. We can all thank FDR for a program that takes an extra 7.5% of our incomes (up to $102,000), and will likely be bankrupt before most young people get a chance to enjoy its benefits. Yet, FDR also was responsible for the creation of Fannie Mae. FDR saw home ownership as far too vital for the free market so he created Fannie Mae to securitize loans. By doing so, he created a mortgage market that became monopolized. A lot of the current mortgage problems can be traced back to the structure that FDR created. He also created the Federal Farm Board. This was then a roughly $60 million program that would buy up crops from struggling farmers. The program has grown to north of $100 billion and continues to prop up failing farmers today. In fact, it was FDR that first set in motion the monster of ever increasing government.
So, now we must all ask some very important questions. Is it really such a good idea to allow our government to spend us out of a recession? Is allowing the government mass expansion the sort of thing that will do good or harm in the long run? Is raising taxes on the very rich really the right thing to do in an economic downturn? It is all of these quesitons that are largely overlooked because FDR has been so lionized. His economic record should be examined much more closely or we will face the fate of its second coming.