Do we really have to repeat the failures of the New Deal?

Hillsdale College professor Burt Folsom notes on his blog here that even one of the most ardent New Dealers recognized the failure of the New Deal in 1939. Too bad Obama and many leading economists have not learned that government borrowing and spending will not get us out of this mess.  Folsom was conducting research in the Roosevelt Presidential Library…

…when suddenly I stumbled across a remarkable statement by [Henry] Morgenthau [FDR’s secretary of the treasury] in May 1939. He was holding a private meeting with key Democratic finance leaders in Congress, and Morgenthau was furious. The April jobs report was in, and the new unemployment rate was 20.7%. After almost two terms of Roosevelt’s New Deal spending, and after doubling the national debt, the result was that more than one of every five Americans was out of work.

“We have tried spending money,” Morgenthau conceded. “We are spending more than we have ever spent before and it does not work.” That admission was startling; Morgenthau was best friends with FDR, and the failure of New Deal spending to create jobs infuriated the treasury secretary. “We have never made good on our promises. . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”

In those words, Morgenthau summarized a decade of disaster. Massive federal spending, he reluctantly admitted, had not worked. I use Morgenthau’s comments to begin NEW DEAL OR RAW DEAL? because FDR’s major theory–that government spending would cure the Great Depression–was false. He believed his spending narrative with all his heart, but it was simply bad economics. You can’t create jobs by redistributing wealth from entrepreneurs to key political groups in the Democratic party. Yes, FDR could buy votes doing that, but not jobs.

If we can learn that lesson from studying the New Deal, it will help us as Americans to avoid similar government stimulus packages today. To escape recession, we must rely on a free people investing their own money freely to create the jobs that will keep the U. S. prosperous.