Saturday’s Wall Street Journal contains an editorial (Leave the New Deal in the History Books) that contains a summary of the effect of the New Deal:
President Roosevelt came to office much as Barack Obama will, shouldering an economic crisis that began under his predecessor. In 1933, Roosevelt’s first year, unemployment hit nearly 25%, as people lost jobs and homes in towns across the country. Believing that government played a key role in restarting growth, FDR, within his first 100 days as president, created an alphabet soup of new agencies that mandated actions or controlled public spending and impacted private capital flow within the U.S. economy.
At first, it seemed to be working. After four years of FDR’s policies, joblessness declined to 14.3% — still very high but heading in the right direction. Then things turned for worse again: By the fall of 1937, the U.S. entered a secondary depression and unemployment began to rise, reaching 19% in 1938.
By 1939 Roosevelt’s own Treasury secretary, Henry Morgenthau, had realized that the New Deal economic policies had failed. “We have tried spending money,” Morgenthau wrote in his diary. “We are spending more than we have ever spent before and it does not work. … After eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”
Mark Levey, the author of this editorial, argues that New Deal spending programs and higher taxes prolonged the Great Depression. Government “work” programs don’t work.
What should we do? Mr. Levey says: “The quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs. The way to do this is to slash taxes. … Capital flows would be in the hands of those who are driven to build businesses and permanent jobs efficiently instead of pushing that capital through a government pipeline with endless amounts of friction.”