It always happens. Someone inevitably, in a discussion of how to fix the economy, brings up FDR, and then someone else inevitably either says FDR failed, or that his policies "prolonged" (its always that word) the Depression.
It's a myth. FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II.
Let's start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939*, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.
David Sirota:
During a Christmas Eve appearance on Fox News, I pointed out that most mainstream economists believe the government must boost the economy with deficit spending. That's when conservative pundit Monica Crowley said we should instead limit such spending because President Franklin Roosevelt's "massive government intervention actually prolonged the Great Depression." Fox News anchor Gregg Jarrett eagerly concurred, saying "historians pretty much agree on that."
...
Did the New Deal's "massive government intervention prolong the Great Depression?"
Ummm ... no.
On deeper examination, I discovered that the right bases its New Deal revisionism on the short-lived recession in a year straddling 1937 and 1938. But that was four years into Roosevelt's term -- four years marked by spectacular economic growth.
The first four years of FDR's presidency, after the economy stabilized in his first months in 1933, saw uninterrupted job growth and spectacular growth in GDP, which rose between 8.9 and 12% in each of those years.
Production rocketed by 44 percent in the first three months of the New Deal and, by December 1936, had completely recovered to surpass its 1929 peak.
It [GDP] stabilized in 1933, and then soared by 10.8 percent, 8.9 percent and 12.0 percent, respectively, in 1934, 1935 and 1936. Real GDP surpassed its 1929 peak in 1936 and never again fell below it. After-tax personal income, consumer spending, real private investment and jobs all reached or surpassed their 1929 peaks by late 1936.
Did the massive regulatory schemes which FDR passed hurt the recovery? (Back to Sirota:)
According to Federal Reserve chairman Ben Bernanke, "Only with the New Deal's rehabilitation of the financial system in 1933-35 did the economy begin its slow emergence from the Great Depression." In fact, even famed conservative economist Milton Friedman admitted that the New Deal's Federal Deposit Insurance Corp. was "the structural change most conducive to monetary stability since ... the Civil War."
Do historians "pretty much agree" that FDR prolonged the Depression or made it worse? (Sirota:)
As Newsweek's Daniel Gross reports, "One would be very hard-pressed to find a serious professional historian who believes that the New Deal prolonged the Depression."
As Sirota pointed out in the column, the contention that FDR prolonged or made the Depression worse rests on ignoring everything that happened between 1933 and 1936, and focusing instead on what happened when FDR was persuaded by fiscally libertarianish advisors to scale back deficit spending, and with it, the New Deal programs that were making the recovery happen:
A second cyclical downturn officially began in May 1937 when FDR, always a fiscal conservative, mistakenly thought the economy had become self-sustaining and slashed public spending programs to balance the budget. These harsh and premature spending cuts caused another severe recession that ended after 13 months in June 1938.
Even in this severe downturn, annual GDP did not fall back below its 1929 peak. And although many suffered and most economic measures did fall back below their 1929 levels, not one fell anywhere close to its March 1933 low. For example, although industrial production fell sharply in the 1937-38 recession, at its low point, in April 1938, it remained 49 percent above its level of March 1933.
When the economy again contracted sharply in late 1937 and early 1938, FDR quickly reversed course and rapid growth immediately began again. GDP soared by 10.9 percent in 1939 and industrial production soared by 23 percent.
*Remember that in May 1939 unemployment was "still" at 20%?
From the research I've done for this diary, I can't find a consistent figure for 1936, but the Bureau of Labor Statistics says that by the time the 1937 crisis began, unemployment had dropped to 14.3%, consistent with most others showing that unemployment had dropped by 40% or more during FDR's first term.
/myth