Wasting Away in Hooverville (Chait review of Amity Shlaes)

Wasting Away in Hooverville

By Jonathan Chait

27-34 minutes

March 18, 2009

Original here at The New Republic

The Forgotten Man: A New History of the Great Depression

By Amity Shlaes

(HarperCollins, 464 pp., $26.95)

Herbert Hoover

By William E. Leuchtenburg

(Times Books, 208 pp., $22)

Nothing to Fear: FDR's Inner Circle and the Hundred Days that Created Modern America

By Adam Cohen

(Penguin Press, 372 pp., $29.95)

A generation ago, the total dismissal of the New Deal remained a marginal sentiment in American politics. Ronald Reagan boasted of having voted for Franklin Roosevelt. Neoconservatives long maintained that American liberalism had gone wrong only in the 1960s. Now, decades after Democrats grew tired of accusing Republicans of emulating Herbert Hoover, Republicans have begun sounding ... well, exactly like Herbert Hoover. When President Obama recently met with House Republicans, the eighty-two-year-old Roscoe G. Bartlett told him that "I was there" during the New Deal, and, according to one account, "assert[ed] that government intervention did not work then, either." George F. Will, speaking on the Sunday talk show "This Week," declared not long ago, "Before we go into a new New Deal, can we just acknowledge that the first New Deal didn't work?"

When Republicans announce that the New Deal failed--as they now do, over and over again, without any reproach from their own side--they usually say that the case has been proven by the conservative columnist Amity Shlaes in her book The Forgotten Man. Though Shlaes's revisionist history of the New Deal came out a year and a half ago, to wild acclaim on the right, its popularity seems to be peaking now. Fred Barnes of The Weekly Standard recently called Shlaes one of the Republican party's major assets. "Amity Shlaes's book on the failure of the New Deal to revive the economy, The Forgotten Man, was widely read by Republicans in Washington," he reported. "So were her compelling articles on that subject in mainstream newspapers."

This is no exaggeration. The Forgotten Man has been publicly touted by such Republican luminaries as Newt Gingrich, Rudolph Giuliani, Mark Sanford, Jon Kyl, and Mike Pence. Senator John Barrasso was so eager to tout The Forgotten Man that last month he waved around a copy and announced, "in these economic times, a number of members of the Senate are reading a book called The Forgotten Man, about the history of the Great Depression, as we compare and look for solutions, as we look at a stimulus package." Barrasso offered this unsolicited testimonial, apropos of nothing whatsoever, during the confirmation hearing for Energy Secretary Steven Chu. Chu politely ignored the rave, thus giving no sign as to whether he had heard the Good News. Whether or not The Forgotten Man actually persuaded conservatives that the New Deal failed, in the time of their political exile, which is also a time of grave economic crisis, it has become the scripture to which they have flocked.

When they say that the New Deal "didn't work," conservatives almost always mean New Deal fiscal stimulus. (Other policies, such as Social Security or clearing the way for unions, clearly succeeded on their own terms, whatever their ideological merits.) And then, in turn, they confuse New Deal fiscal stimulus with Keynesian economics, which is also not exactly the same thing. So let me step back and briefly explain for the uninitiated what Keynesian economics means. We may not all be Keynesians now, but we would all benefit from knowing what a Keynesian actually is.

Prior to Keynes, the economy was held to be self-correcting. The only cure for a recession was to let wages and prices fall to their natural level. The prevailing attitude, as Paul Krugman writes in his recently re-issued book The Return of Depression Economics, was "a sort of moralistic fatalism." Keynes upended the orthodoxy in a way that was every bit as dramatic as Galileo challenging geocentrism. He insisted that recessions are not a natural process, or the invisible hand's righteous judgment against our sins, but a simple failure of consumer demand.

When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon "the paradox of thrift": what makes sense for individuals turns into a disaster for society as a whole. The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.

At the time, orthodox economists deemed this diagnosis heretical and dangerous, but, in the decades that followed, it became a consensus view. Today economists disagree sharply about how to apply Keynes's insights, with many conservative economists questioning the practicality of large-scale government spending to combat recessions; but the essential framework constructed by Keynes--that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse--is no longer in dispute. Even a right-wing Republican economist such as Gregory Mankiw, a former Bush advisor, writes that "if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes."

But everywhere you look, conservative pundits and elected officials have embraced the pre-Keynesian nostrums. Citing The Forgotten Man, they insist that efforts to stimulate the economy are not just insufficient but also counter-productive. Pence has insisted that The Forgotten Man proves "that it was the spending and taxing policies of 1932 and 1936 that exacerbated the situation." Sanford, for his part, offered this fiscal diagnosis: "When times go south you cut spending. That's what families do, that's what businesses do, and I don't think the government should be exempt from that process." That is, of course, a perfect description of the paradox of thrift, only put forward as the solution rather than the problem. Governor Tim Pawlenty of Minnesota insisted that "we can't solve a crisis caused by the reckless issuance of debt by then recklessly issuing even more debt," and called for a balanced-budget amendment to the Constitution, which would of course massively exacerbate the present crisis. It is 1932 again in the Republican Party.

Now here is the extremely strange thing about The Forgotten Man: it does not really argue that the New Deal failed. In fact, Shlaes does not make any actual argument at all, though she does venture some bold claims, which she both fails to substantiate and contradicts elsewhere. Reviewing her book in The New York Times, David Leonhardt noted that Shlaes makes her arguments "mostly by implication." This is putting it kindly. Shlaes introduces the book by asserting her thesis, but she barely even tries to demonstrate it. Instead she chooses to fill nearly four hundred pages with stories that mostly go nowhere. The experience of reading The Forgotten Man is more like talking to an old person who lived through the Depression than it is like reading an actual history of the Depression. Major events get cursory treatment while minor characters, such as an idiosyncratic black preacher or the founder of Alcoholics Anonymous, receive lengthy portraits. Having been prepared for a revisionist argument against the New Deal, I kept wondering if I had picked up the wrong book.

Many of Shlaes's stories do have an ideological point, but the point is usually made in a novelistic way rather than a scholarly one. She tends to depict the New Dealers as vain, confused, or otherwise unsympathetic. She depicts business owners as heroic and noble. It is a kind of revival of the old de haut en bas sort of social history, except this time the tycoons from whose perspective the events are narrated appear as the underappreciated victims, the giants at the bottom of the heap.

Mostly Shlaes employs wild anecdotal selectivity. At one point she calls the pro-labor Wagner Act "coercive," and elsewhere she alludes to the subtle anti-Semitism of a newspaper column criticizing opponents of the National Recovery Administration. Shlaes ignores the vastly greater use of violent coercion on behalf of employers, or the immensely more common use of anti-Semitic tropes against the New Deal. Does Shlaes think that workers were more coercive than capitalists, or that liberals were more anti-Semitic than conservatives? The book does not say, but clearly she wants her readers to come away with this impression.

Shlaes begins every chapter with a date (say, December 1936), an unemployment percentage (15.3) and a Dow Jones Industrial Average. The tick-tick-tick of statistics is meant to show that conditions did not improve throughout the course of Roosevelt's presidency. Yet her statistics are highly selective. As those of us who get our economic information from sources other than the CNBC ticker know, the stock market is not a broad representative of living standards. Meanwhile, as the historian Eric Rauchway has pointed out, her unemployment figures exclude those employed by the Works Progress Administration and other workrelief agencies. Shlaes has explained in an op-ed piece that she did this because "to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects." So, if you worked twelve hours per day in a coal mine hoping not to contract black lung or suffer an injury that would render you useless, you were employed. But if you constructed the Lincoln Tunnel, you had an anxiety-inducing make-work job.

In response to this criticism, Shlaes has retreated to the defense that unemployment was still high anyway. "Even if you add in all the work relief jobs, as some economists do," she has contended, "Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice--as a nightmare." But Roosevelt inherited unemployment that was over 20 percent! Sure, the level to which it fell was high by absolute standards, but it is certainly pertinent that he cut that level by more than half. By Shlaes's method of reckoning, Thomas Jefferson rates poorly on the scale of territorial acquisition, because on his watch the United States had less than half the square mileage it has today.

Shlaes's actual critique of the New Deal is not easy to pin down. Defining what she believes depends on whether you are reading the book itself or her incessant stream of spin-off journalism. In one article she adopted the classic right-wing line taken up by Andrew Mellon, Hoover's treasury secretary: "Mellon--unlike the Roosevelt administration--understood that American growth would return if you left the economy alone to right itself." This is the conclusion that most excites Shlaes's conservative admirers. And in keeping with this argument, Shlaes, a committed supply-sider, scolds Roosevelt for raising taxes on the rich, which discouraged them from taking risks. She fails to explain how the economy managed to recover after the outbreak of World War II, which saw even higher taxes on the rich, or in the postwar period, when they remained high.

Moreover, the classic right-wing critique fails to explain how the economy recovered at all. In one of his columns touting Shlaes, George Will observed that "the war, not the New Deal, defeated the Depression." Why, though, did the war defeat the Depression? Because it entailed a massive expansion of government spending. The Republicans who have been endlessly making the anti-stimulus case seem not to realize that, if you believe that the war ended the Depression, then you are a Keynesian.

Shlaes also offers up a more subtle, and slippery, version of this argument. In the second iteration, the problem with the New Deal was not that it involved government but that it involved unpredictable government. Businesses failed to hire workers or open factories not because there was a lack of demand for their products, but because constantly changing government policies made them uncertain. "Uncertainty about what to expect from international events and Washington," Shlaes instructs, "made the Dow Jones Industrial Average gyrate."

I agree that there is something to the notion that unpredictable government policies can spook markets. Shlaes cites an industrialist who urged Roosevelt to "make the program clear and then stick to it." But the answer to this perplexity is not that Roosevelt should have abandoned his public works program, Social Security, and regulatory reforms. It is rather that he should adopted them sooner, and hewed to them more consistently. That would have been perfectly clear.

Yet that is not the conclusion that conservatives wish to draw. Nor is it a useful club to wield against contemporary liberals. So at other times Shlaes suggests--again, her writing is so convoluted that it is hard to discern what she means--that eliminating uncertainty means eliminating government activism. In her recent op-ed pieces, she urges Obama to forego Keynesian stimulus and instead cut taxes for corporations and stockholders. Her real argument, then, is that changing the rules in a liberal direction paralyzes businesses with fear, while changing the rules in a conservative direction promotes growth.

Several of Shlaes's admirers have taken up the line that the current slowdown is caused, or at least worsened, by the "uncertainty" of Obama's fiscal stimulus. "A main reason there's all of this 'money on the sidelines' out there among private investors is that Wall Street doesn't know what the government will do next," Jonah Goldberg wrote in National Review. "In short, don't just do something, President Obama--stand there." If this prescription were true, you would suppose it would show up in the business press. After all, there is a thriving media industry devoted to taking the temperature of the markets and discerning what causes them to rise or fall on any given day. Not all these business reporters are left-wing stooges. And yet almost never do they report that uncertainty about Keynesian politics has caused the market to sink. Instead, you regularly come across coverage like this, from The Wall Street Journal on December 8, 2008:

    The prospect of new government action to create jobs and

    keep auto makers out of the ditch sent stocks higher for a

    second consecutive day, amid hopes that a worst-case

    scenario for the global economy could be avoided. Gains in

    the U.S. were part of a world-wide rally triggered by

    President-elect Obama's plan for a stimulus package.

Shlaes's main indictment of the New Deal is contained within the first few pages of her book. It begins with a snapshot of the depressed economy, depicting a desperately poor family, and broadens out to describe a cratering economy, and finally moves on to Washington, where the oblivious Secretary of the Treasury announces his intent to "continue progress toward a balance of the federal budget." The reader is meant to think this is a description of Herbert Hoover's America. But Shlaes concludes the story with an aha! moment: this episode took place in 1937! "The New Deal was almost five years old," Shlaes concludes, after repeating this shocking tale in another op-ed, "but the economy was not back."

If your understanding of the New Deal is limited to the simple notion that Roosevelt spent a lot of money and tamed unemployment, then this story might sound like a persuasive piece of evidence for Shlaes. Yet there is a tip-off within the story that ought to give even the uninformed reader pause: the part where the Treasury Secretary promises to balance the budget. That doesn't sound very New Deal-ish, does it? And indeed it is not. The historical fact is that Roosevelt's administration contained warring factions with often wildly differing ideas. FDR came into office promising to slash the federal budget, but he moved in fits and starts toward a Keynesian policy of fiscal stimulus. After the elections of 1936, though, his more conservative advisors prevailed upon him to roll back the budget. Liberals, including Keynes, protested that this would jeopardize the fragile recovery. And events vindicated them: after impressive growth, the economy plunged back into a recession within a depression.

That Roosevelt see-sawed between Keynesianism and budget-balancing has been conventional wisdom among mainstream historians and economists for decades. The MIT economist E. Carey Brown wrote this in 1956. Keynes made the same point in a pleading letter to Roosevelt in 1937. Economists disagree about the extent to which Roosevelt's fiscal expansion helped. Many give more credit to his abandonment of the gold standard--which Shlaes, naturally, also decries. The fact that he retreated from Keynes in 1937 and that this retarded the recovery, though, bears little dispute.

Adam Cohen's Nothing to Fear, an admiring history of Roosevelt's first hundred days, captures the deep tensions between camps in the Roosevelt administration. Cohen's take is conventional, but it is executed well, tracing the disparate life stories of the main New Dealers in such a way as to make the inevitability of their conflict clear. This was a true team of rivals, some of them winding up as Roosevelt's most unhinged critics. Even before Roosevelt took office, Cohen writes, there was a "fundamental conflict--between spending more to fight the Depression and spending less to balance the budget--that would be a central tension of the Hundred Days." Yet for Shlaes and her admirers, the finding that Roosevelt vacillated between Keynesianism and orthodoxy represents a devastating intellectual blow to the New Deal edifice. And, yes, if you think of the New Deal as a series of unbroken triumphs held together by a clear and consistent ideology, and you have failed to take in any of the scholarship about the period produced over the last half-century, then The Forgotten Man will come as a revelation.

Shlaes writes that her discoveries about the New Deal show that "Roosevelt was unworthy of emulation." But who, exactly, is proposing to emulate everything that Roosevelt did? Much of his program has long been deemed a failure by liberals, including Roosevelt himself. (This includes the National Recovery Administration, which Shlaes dwells on at great length, while breezing past or ignoring altogether vast swaths of the New Deal.) When liberals suggest that Obama follow Roosevelt's model, they do not mean that he should replicate the entire thing. (The way, say, conservatives do when they suggest following Reagan's model.) They mean that he should emulate the Keynesian fiscal policies and other parts of the New Deal that worked. Shlaes has set out to demolish an argument that no serious person has ever made.

At one point in her book, in fact, Shlaes actually concedes that Roosevelt's Keynesian experiment succeeded when he tried it. "The spending was so dramatic that, finally, it functioned as Keynes ... had hoped it would," she writes about 1936, "Within a year unemployment would drop from 22 percent to 14 percent." So Keynesian policy worked, and the main fiscal problem with the New Deal was that Roosevelt made too many concessions to the right. Here we are in agreement. So can conservatives stop carrying around The Forgotten Man like it's Mao's Little Red Book? Can we all go home now?

It should be clear that intellectual coherence is not the purpose of Shlaes's project. The real point is to recreate the political mythology of the period. It does not matter that Shlaes heaps scorn on Roosevelt for doing things that liberals also scorn. Anything that tarnishes his legacy, she seems to think, tarnishes liberalism by association.

The conservative movement has invested enormous effort in crafting a political mythology that gratifies its ideological impulses. The lesson they learned from Ronald Reagan is that ideological purity is not only compatible with political success, but is also the best path to political success. They dutifully applied this interpretation to everything that happened since--George H.W. Bush, then Newt Gingrich, and then George W. Bush all failed because they deviated from the true path--and to all that happened before. Nixon failed because he embraced big government. Kennedy succeeded because he was actually a proto-supply-sider.

From such a perspective, Roosevelt casts a long and threatening shadow over the conservative movement. Here was a case of a wildly unpopular conservative Republican, Herbert Hoover, who gave way to an unabashed liberal Democrat who won four presidential elections. Shlaes goes to great pains to explain away this apparent anomaly. In this instance, she does produce an internally coherent argument. It is, alas, wildly ahistorical.

If the New Deal failed so miserably, one might wonder why voters continued to endorse it. In Shlaes's telling, Roosevelt's first challenger, Alf Landon, lost in 1936 because he "failed to distinguish himself" from Roosevelt. It is certainly true that Landon hailed from the party's moderate wing and shied away from the root-and-branch condemnation of the New Deal favored by, say, Hoover. But as the campaign wore on, Landon's rhetoric grew increasingly harsh. If Roosevelt returned to office, he warned, "business as we know it is to disappear." Voters who opposed the New Deal may not have had a perfect choice, but they did have a clear one. It also takes quite a bit of ideological credulity to believe, as Shlaes apparently does, that Roosevelt's twenty-point victory represented anything other than massive support for his program. Landon himself later remarked that "I don't think that it would have made any difference what kind of a campaign I made as far as stopping this avalanche is concerned."

And Shlaes offers an even odder explanation for Roosevelt's triumph in 1940. Wendell Willkie seized the advantage by attacking the New Deal, she writes, but squandered it with his dovish position on the war. The war, she argues, had become "the single best argument to reelect Roosevelt and give him special powers." After the election, she asserts, the Republicans "concluded, accurately enough, that the outcome would sideline not only their party but their record of accuracy when it came to the economy. They had been right so often in the 1930s and they would not get credit for it. The great error of their isolationism was what stood out."

Shlaes, characteristically, bolsters this highly idiosyncratic reading of history with only bare wisps of data. It is true that the outbreak of war in Europe made Roosevelt, the incumbent, appear safer. But this pro-incumbent upsurge merely cancelled out a powerful current of anti-third term sentiment. Moreover, public opinion opposed entry into the war, and Roosevelt had to fight the suspicion that he was nudging the country into the war by explicitly promising to stay out. Shlaes's portrayal of an electorate seeking activist government abroad and laissez-faire at home gets the history almost perfectly backward. (The Forgotten Man ends with the 1940 race, sparing her readers any further contortions of electoral interpretation.)

The final unanswered question that must nag at the minds of the true believers is how the Depression managed to develop even before Roosevelt assumed office. After all, his bungling caused the economy to stall for years, yet the Depression was already more than three years old before Roosevelt even took office. Shlaes's answer is to implicate Hoover as a New Deal man himself:

    Hoover had called for a bank holiday to end the

    banking crisis; Roosevelt's first act was to declare a bank

    holiday to sort out the banks and build confidence. ...

    Hoover had spent on public hospitals and bridges;

    Roosevelt created the post of relief administrator for the

    old Republican progressive Harry Hopkins. Hoover had

    loved public works; Roosevelt created a Public Works

    Administration. ... Hoover had known that debt was a

    problem and created the Reconstruction Finance

    Corporation; Roosevelt put Jones at the head of the RFC

    so he might address the debt. ...

    Hoover had deplored the shorting of Wall Street's rogues;

    Roosevelt set his brain trusters to writing a law that

    would create a regulator for Wall Street.

This part of Shlaes's argument has generated enormous enthusiasm on the right. At last the cultural baggage of Roosevelt's predecessor--Hoovervilles, Hoover flags, and the like--has been lifted off the shoulders of conservatism and onto the real culprit, which is liberalism. Senator Kyl proclaimed on the Senate floor last fall that "in the excellent history of the Great Depression by Amity Shlaes, The Forgotten Man, we are reminded that Herbert Hoover was an interventionist, a protectionist, and a strong critic of markets." Recently the House Republican Steve Austria went so far as to declare that Roosevelt actually caused the Depression. "When Roosevelt did this, he put our country into a Great Depression," Austria said. "He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That's just history."

There is indeed a revisionist scholarship that recasts Hoover as an energetic quasi-progressive rather than a stubborn reactionary. William Leuchtenburg, in his short new biography Herbert Hoover, makes some allowance for the revisionist case, but finally he settles on a more traditional conclusion. Leuchtenburg shows that Hoover's history of activism consistently left him with the belief in the primacy of voluntarism and the private sector, a faith that left him unsuited to handle a catastrophe like the Depression.

Leuchtenburg also provides a handy rebuttal to Shlaes's preposterous conflation of the two presidents. Hoover's National Credit Corporation, he explains, "did next to nothing." Hoover and Roosevelt would be amused to hear that his bank holiday aped Hoover's, given that Hoover denounced the Emergency Banking Act as a "move to gigantic socialism." (Does this ring a bell?) Shlaes's attempt to equate Hoover's disdain for short-sellers and Roosevelt's regulation of the market presumes that there is no important difference between expressing disapproval for something and taking public action against it.

Yes, Hoover created the Reconstruction Finance Corporation. But (I am quoting Leuchtenburg) "at Hoover's behest, RFC officials administered the law so stingily that the tens of thousands of jobs the country had been promised were never created. By mid-October, the RFC had approved only three of the 243 applications it had received for public works projects." Hoover's head of unemployment relief said that "federal aid would be a disservice to the unemployed." Hoover was a staunch ideological conservative who remarked, in 1928, that "even if governmental conduct of business could give us more efficiency instead of less efficiency, the fundamental objection to it would remain unaltered and unabated." This was not, to put it mildly, Roosevelt's philosophy.

Hoover himself would have found the notion that Roosevelt mostly carried on his work offensive. During the campaign of 1932 he warned that, if the New Deal came to fruition, "the grass will grow in the streets of a hundred cities, a thousand towns." This was not mere campaign rhetoric. After Roosevelt won, Hoover desperately sought to persuade him to abandon his platform. He spent the rest of his years denouncing Roosevelt's reforms as dangerous Bolshevism. Leuchtenburg records that Hoover wrote a book about the New Deal so acerbic that his own estate suppressed its publication to avoid further tainting his reputation.

Of course, the transition from one presidency to another always involves some level of continuity. The world never begins completely anew with a presidential inauguration. But the break between Roosevelt and Hoover was certainly sharper than that between any president and his predecessor in American history. After 1932, generations of Democrats continued to paint Republicans as neo-Hooverites. This was mostly a calumny. Though Hoover himself continued to assail the New Deal as calamitous socialism right up to his death in 1964, from 1936 on the party remained in the hands of men who understood that the New Deal had built an enduring base of support and could not be directly assailed.

But now we have come to a time when leading Republicans and conservatives--not just cranks, but the leadership of the party and the movement--once again sound exactly like Herbert Hoover. "Prosperity cannot be restored by raids upon the public Treasury," said President Hoover in 1930. "Our plan is rooted in the philosophy that we cannot borrow and spend our way back to prosperity," said House Minority Leader Boehner in 2009. They have come to this point by preferring theology to history, by wiping Hoover's record from their memories and replacing it with something very close to its opposite. It is Hoover, truly, who is the Forgotten Man.

Jonathan Chait is a senior editor at The New Republic.