Economic Error #6: Roosevelt's New Deal Made America Richer Through Federal Spending on Public Works

Gary North

Ellen Brown's praise of Roosevelt's New Deal is effusive. She says that the New Deal's program of public works spending accomplished wonderful things.

In the Great Depression, labor had again rusted into non-productivity, due to a lack of available money to oil the wheels of production. In the 1890s, Coxey's plan to "prime the pump" with public projects was an idea ahead of its time; but in the 1930s, Roosevelt actually carried it out. The result was a national infrastructure that has been called a revolutionary model for the world. The Tennessee Valley Authority developed hydroelectric power for farming areas that had never had electricity before. It accomplished flood control and river diversion, provided scientific agriculture, developed new industry, and overcame illiteracy by spreading public education. The Rural Electrification Administration was built, along with tens of thousands of sanitation projects, hospitals, schools, ports and public buildings. Public works programs were launched, employing millions of workers. Revolutionary social programs were also introduced, including Social Security for the aged and disabled, unemployment insurance, and the right of labor to organize. Farm and home foreclosures were stopped, and savings accounts were restored. [Web of Debt, p. 151]

This has been the standard refrain of liberal Democrats and the Left ever since 1933. This view of the economy says that huge public works spending brought wealth to the common man.

Let me remind you of Chapter 3 of Henry Hazlitt's classic book, Economics in One Lesson (1946): "Public Works Mean Taxes." For the New Deal, it meant lots and lots of taxes.

She refers to Jacob Coxey. He led "Coxey's Army" on a march to Washington in 1894. They demanded jobs and public works projects. He was arrested for walking on the grass at the Capitol building. Interest in the march soon faded. The author of The Wizard of Oz reported on it, and Brown argues that his book was a political novel based on Coxey, the free silver movement, the Greenback movement, and William "Cowardly Lion" Jennings Bryan. She reproduces a passage in the Oz book to begin every chapter of her book.

The New Deal did build the Tennessee Valley authority -- by forcing thousands of families off their land. A fine movie about one fictional woman's futile resistance to this theft is Elia Kazan's Wild River. I reviewed it here.

The problem with Ellen Brown's analysis is that she believes that sending men with badges and guns to steal from people is good economics. She believes in Big Government -- FDR's brand of Big Government. She believes that the Federal government has the moral right and legal authority to take money by force from one group of voters and hand it over to Federal bureaucrats, who then build permanent government empires in the name of The People. She calls this the American system. Her book from start to finish is a defense of the modern welfare state.

She falls into the error described in the Chapter 2 of Economics in One Lesson: "The Broken Window." It goes back to an essay written in the mid-19th century by Frederic Bastiat. Here is the logic. We see that when a window gets broken, the owner must hire people to repair it. This gives employment to workers. So, the broken window stimulates economic growth.

What's wrong with this argument? It ignores the fact that the window owner would have spent that money on something he really wanted. Or maybe he would have invested it, which would increase capital for greater productivity. Bastiat's essay was titled "That Which Is Seen, and That Which Is Not Seen." You can read it here. He began it by describing a bad economist and a good economist.

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause--it is seen. The others unfold in succession--they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference--the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.

Ellen Brown is a very bad economist.

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm