The Forgotten Man

Wednesday, February 4, 2009

The Forgotten Man: A New History of the Great Depression, by Amity Shlaes

This book was written last year but could not be more timely. Our faltering economy is reminding everyone of Great Depression, however inaccurate the comparison is. Things were actually much worse under Carter than right now, but it's easy to see how our normally happy-go-lucky country is being startled enough to look to history to make sense of it all. The Forgotten Man by Amity Shlaes, a former Wall Street Journal reporter, is the perfect book to explain our times and theirs.

My strongest conclusion from reading this book is that FDR was a bad president. I'm a child of the '80s, long removed from the Great Depression, but even I know the folklore. Supposedly he saved our country by doing what had to be done to bring the masses out of misery and hunger. This book has thoroughly convinced me otherwise. The author is like a good novelist in that she never makes character judgments (like I just did). She doesn't tell, she shows. And she shows thoroughly. I can't imagine the research she must have done for this meticulous 390 page book, but the notes, bibliography, coda, and index continue to page 464. There's so much in this book, but let me tell you what was new to me. Some of it was quite surprising.

  • FDR coined the phrase "Brain Trust" to define the young intellectuals who advised him. Many of them went on the same fact-finding trip to the newly soviet Russia in 1927. The Soviets, of course, were tightly controlling their image and at first glance they seemed to offer alternatives to the answers of their day. The naivete of the young Americans, who eventually got played by Stalin himself, is even more sad when compared with what we now know about the effects of communism. They patiently waited until a crisis gave them the opportunity to implement their ideas.
  • At the time, Black Tuesday seemed like a simple adjustment of a robust economy. "'Closing Rally Vigorous,' remarked the New York Times headline with the stock market crashed the last Tuesday in October 1929." (page 85) Ignorance of how basic economies work made the dip extend, especially by interventionist President Hoover and the newly created Fed. Their ignorance amazed me.
  • The US Government was officially trying to combat inflation, but the real problem was deflation. "Deflation meant that the currency was becoming more valuable every day, rarer and scarcer. Deflation can be good for lenders; the money they are owed in the future is more valuable that it was when they wrote the original contract to lend. But deflation is terrible for borrowers, whether they be countries, banks, businesses, or families. It means they must pay back more than they originally contracted to borrow. Inflation taxes savers. Deflation taxes risk takers and punishes leveragers. It makes paying mortgages, as well as property taxes, especially difficult. It goes against the American sense of promise, punishing those who dare to hope they might move ahead." (page 108) Eventually money would be so scarce that Americans resorted to barter systems and municipalities printed their own script.
  • When FDR was elected by using religious imagery and displaying a great sense of optimism which contrasted with the grumpy Republicans in office for the last 3 terms. But he basically expanded Hoover's poor policies of bullying businesses and punishing risk. He constantly tinkered and vacillated to the point it embarrassed his supporters. At an international summit on currency in London in 1932, he sent Brain Trusters who argued for opposite theories, which confused everyone. When there was finally consensus he vetoed the recommendations of his own delegates. One time, while waiting for a British diplomat who was scheduled to arrive at any moment, he interrupted the small talk by saying, "Congratulate me, boys! I've taken us (the US currency) off of the gold standard!"

  • The Supreme Court kept declaring the scope of the New Deal programs unconstitutional. For instance, the Tennessee Valley Authority was created to supposedly provide electric power, but it competed with private companies, who unlike the TVA, had to pay taxes and and didn't have laws written expressly for their expansion. "In 12 months, the National Relocation Act had generated more paper than the entire legislative output of the federal government since 1789." (page 202) FDR was so displeased that he launched a two-sided attack on the supreme court. He targeted some of them personally in an effort to make them retire so he could appoint new judges, and he developed a plan to "flood the bench" and have 15 judges instead of nine. The public reaction was so strong he had to withdraw his plan.
  • Even Keynes, the father of Keynesian economics, criticized FDR. His theory emphasized government spending as a way to help the economy and "gave license for perpetual experimentation -- at least how Roosevelt and his administration applied it." Even he disapproved of the New Deal's scope. "Keynes saw no use, he wrote, in chasing utilities around the lot every other week.... 'It is a mistake to think that businessmen are more immoral than politicians.'"
FDR was a brilliant politician, as can be seen by his popularity during an entire decade of broken promises. "The president made groups where only individual citizens or isolated cranks had stood before, ministered to those groups, and was rewarded with votes. ... Roosevelt's move was so profound that it changed the English language. Before the 1930's, the word 'liberal' stood for the individual; afterward, the phrase increasingly stood for groups." (page 11)

The New Deal created the appearance of attacking the problem but I got the impression that if nothing were done, the economy would have righted itself fairly soon. Instead, the administration constant tinkered with prices and wages (which are symptoms, not causes), increased bureaucracy, increased taxes (up to 83% income tax), demonized businesses and Wall Street, and used litigation to target individuals. The most egregious examples were personal attacks: attempts to shame the wealthy by suing and revealing their assets, and targeting poor immigrants in court cases to validate the constitutionality of the New Deal Programs. If FDR had used his enormous political capitol he could have changed the South and the racism of the 1950's and 1960s; instead, he consistently ignored the calls to end lynching (and even rewarded KKK members politically). Sadly, the Great Depression wasn't fixed until WWII offered jobs for so many unemployed, opportunity for businesses, and a common cause for America to believe in again.

I recommend this book highly. It seemed odd to me that after a long day, I couldn't wait to pick up a huge book and read about a topic as intricate and depressing as ... the Great Depression. But the personal stories especially made this book so interesting I was totally absorbed. It also, strangely enough, made me optimistic about our own "crisis." If Americans were able to overcome the Great Depression, we can face this quasi-recession. I just hope it doesn't take a world war to rescue us.


Anonymous said...

Your book reviews are some of the most refreshing writings I ever read. Thanks for being a thinker and for loving Jesus.
This book looks good. I think I'm going to have to get it.
I'll be praying for you the next couple days - that the delivery and everything goes well.
In Christ,