If FDR’s New Deal was so great, then why did the Great Depression last so long?
You’ll get some clues by reading Amity Shlaes’ The Forgotten Man: A New History of the Great Depression (Harper Collins, 2007).
Among many experiments FDR’s Treasury Department devised to raise tax revenue was a “novel plan to choke the money out of companies: an undistributed profits tax. If they could squeeze hard enough, the Treasury men posited, the companies would issue dividends or otherwise spend.”
The law of unintended consequences revealed itself by August 1937, the eighth year of the Depression and the fifth year of Roosevelt’s presidency.
The same day that it reported [former Treasury Secretary Andrew] Mellon’s death, the New York Times carried a story on the consequences of the undistributed profits tax. Companies that had formerly sought to retain employees through downturns now no longer had the reserves to do so. They had likewise ceased to invest in new equipment, normally a traditional move in slow periods. The headline on the story was: “Levy on Profits Halts Expansion.” What would happen to the meager recovery? Stocks had begun dropping in mid-August. Now they accelerated their decline.
Hear more of Shlaes’ findings during a John Locke Foundation Headliner luncheon October 29 in Raleigh.
