The New Deal failed, Boris

Boris Johnson clearly has a firmer grasp of ancient than modern history. Otherwise he wouldn’t be so keen to compare his ruinous and economically illiterate plans with FDR’s New Deal:

“It [Johnson’s proposed programme] sounds positively Rooseveltian. It sounds like a New Deal. All I can say is that if so, then that is how it is meant to sound and to be, because that is what the times demand – a government that is powerful and determined and that puts its arms around people at a time of crisis.”

When a government puts its arms around people, sooner or later it’ll have its hands on their throats. The more a government does for the people, the more it’ll be able to do to them – to this law there are no known exceptions.

Roosevelt’s New Deal, so beloved of Mr Johnson, increased no end state control over the economy – so much in fact that it was barely distinguishable from Hitler’s Four-Year Plan, devised at roughly the same time (and by more or less the same people). It wasn’t for nothing that Herbert Hoover described the New Deal as a “fascist measure”.

When he became President in 1933, Roosevelt knew of course that, just as statism had been largely responsible for converting recession into depression, so had the subsequent interventionist measures made things much worse. But ideology always trumps reason.

Predictably, Roosevelt’s answer was to fight statism with more statism. The situation was ideally suited to the kind of social meddling for which his power-hungry loins ached.

Roosevelt responded to the challenge fiscally by borrowing almost as much as all previous presidents put together. He also responded to it rhetorically, by launching vituperative attacks against big business that, he claimed, was solely responsible for the crisis.

As a result, a wave of strikes, tacitly encouraged by the government, shook the country and the rest of the Western world (apart from Germany and Italy, whose governments tended to discourage industrial action, and not just tacitly).

The battle was raging, but Roosevelt, waving the megalomaniac Tennessee Valley Authority (TVA) in one hand and the National Relief Administration (NRA) in the other, rode in on his white steed and saved the day. Or at least that’s what many thought.

They were wrong though. After Roosevelt’s ill-advised measures had run out of steam, trouble came back in force. By 1938 unemployment was again nearing 20 per cent, recession returned, and suddenly even the intellectually challenged realised that the depression hadn’t really gone away. It had merely been camouflaged, and confirmation of this came from unexpected quarters.

Henry Morgenthau, Roosevelt’s Treasury Secretary and one of the principal architects of the New Deal, admitted before the House Ways and Means Committee that the New Deal had failed:

“We have tried spending money,” he commiserated. “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!”  

Roosevelt’s response was again characteristic. Rather than admitting that it had been raids on private enterprise and free trade that were at the root of the problem, he exacerbated the problem by stepping up the attacks.

In parallel he abandoned his halfhearted efforts to balance the budget and launched an even bigger spending programme, trying, in the language that has become so familiar to us, to spend his way out of trouble. Having dug himself into a hole, he spurned conventional wisdom and went on digging.

The printing presses went into high gear, government expenditure, as a percentage of GDP, tripled compared to the 1929 level. But it was all in vain – or rather it would have been all in vain, but for one widely publicised event. The Second World War.

It was a global carnage, not socialist programmes, that turned America into an economic powerhouse by the late 1940s. The country’s GDP increased 2.5 times during the war, unemployment became a thing of the past, the dollar took over as the world’s reserve currency, and the US has been propelled by that momentum ever since.

Such are the lessons of the New Deal, but Mr Johnson clearly played truant when they were taught. Or else one wonders whether he anticipates the saving grace of another world war by the time his socialist programmes have succeeded in beggaring the country.

However, given the apocalyptic nature of today’s weaponry, that treatment may be worse than the disease. So perhaps it would be better if Boris stopped playing demagogic politics for a while and took a crash course in economics and modern history.

Then he’d find that an economy can only work, not spend, itself out of trouble. Socialist measures may relieve some pain in the short run, but they are bound to make the underlying disease much worse.

The state can only affect the economy positively by not affecting it negatively. Rather than taking his lessons from Roosevelt, Johnson should take them from Burke: “The moment that Government appears at market, all the principles of market will be subverted.”

P.S. Looking on the bright side of coronavirus, now is the only time in my memory that a masked man can walk into a bank without arousing suspicion.