 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Aaron Ross Powell, editor of Libertarianism.org and a research fellow here at the Cato Institute. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Our guest today is Jim Powell, senior fellow at the Cato Institute and author of several books including FDR's Folly, How Roosevelt and his New Deal Prolonged the Great Depression. The New Deal still seems pretty prominent today in the political narrative. We hear it referenced all the time. We talk about New Deal Democrats and these programs that were created during the New Deal that are often held up as exemplars of government working. Is this picture of the New Deal that gets thrown around by politicians on both sides of the aisle say, well, start by, is it accurate? Do we have the right picture of it today? Certainly not. The New Deal, of course, is the great model for peacetime big government. Prior to the New Deal, we saw government expand rapidly, primarily if not exclusively in wartime. Plus, all the principles here are progressives. So this is the great progressive dream, throwing aside the Constitution and establishing one new program after the other that becomes part of the legend. Although I would have to say that if Roosevelt were only elected through 1940, I think he would be remembered today as a failure. Was there a fair amount of opposition at the time of 1940 in terms of contemporary opposition? There was more opposition that particularly developed after his effort to pack the Supreme Court after the 1936 election. But he never figured out how to banish chronic high unemployment. That plagued them all the way up to 1940 when you really get into mobilization for World War II and the conscription of more than 9 or 10 million young men. Well, that turned out to be the way the New Deal dealt with unemployment. But I think as we remember, President Obama was ushered into office behind the New Deal dream. He was recalling, 2008 and 2009 was recalling the glories of the New Deal. A heroic figure comes in when there's a terrible depression on the landscape and he starts all these things and he defeats all the obstacles and everybody's happy in the end. As we know, Obama has had a few problems just with the economy. And I don't think it's been a while since we've heard any references to that big success. It's really vanished. Before we get into the details of the actual New Deal so that we can see how the contemporary narrative might not be accurate, can you give us a picture of – so the New Deal was a reaction to things that were happening in the country. So what was the state of the country in the time leading up to the New Deal? Well, FDR is elected in 1932. He's sworn in on March 4, 1933, which if you look at a chart of GNP back during that period, which the last time I looked at this was published in one of Paul Krugman's columns to prove another point, you can't generalize – you can't be too specific of this because the figures were not that precise. But this chart of GDP shows that it reached the low point sometime not long before FDR is sworn in. That would be picking up the narrative here. A product of the free market policies of the Hoover administration, correct? Yes, but the point was that the bounce had already started when he came into power. But the question being, the bounce coming back up, you're saying? Going back up, the recovery, the upswing of the information on the direction of the economy had already started to go up. As I said, it's hard to be too precise about this, but if you look up GNP figures – now we talk about GDP, but back then it was a gross national product – it started before. So that's very important timing because if he had stepped aside and not done all these things that interfered with the functioning of the economy, made it harder for businesses to function, more expensive to create jobs, all those things. If he had avoided all of that, and we can talk about some of those bizarre experiences, I think at all likelihood the economy would have bounced back very powerfully without him. Is it accurate to say that Herbert Hoover had laissez-faire policies? That's always part of the narrative. The laissez-faire policies of Herbert Hoover then need to be rectified by FDR. We had the same narrative with Bush and Obama. Was Herbert Hoover just a radical libertarian hands-off guy? Well, he signed a big, massive tax increases in 1932. That followed the Smoot-Hawley Tariff 1930, which increased average tariffs, 59% on thousands of items and triggered retaliation against the United States, which made everybody worse off. Hoover also signed the Norris LaGuardia Act that made it illegal for businesses to insist on hiring people, only if they agreed not to join a union, in other words, freedom of association. And he was basically a big spender in the Reconstruction Finance Corporation. It was doling out money left and right. He was trying to prop up the economy, basically a Keynesian idea. If he could prop up the economy and have people paying above-market wages, they're going to spend the money and that's somehow going to help turn things around. And that was exactly what FDR thought, too, correct, about propping up the economy for your wages. FDR did a number of major policies that were actually started by Hoover. Yeah, so they were both big government guys. Don't forget that Hoover was in the Wilson administration. So if things were getting better, why did we get a new deal to begin with? Why rush into all of these very large programs? Was it that they didn't know things were getting better at the time? It was too hard to see it? They probably didn't know because it's going to take, you know, if a year passes, it's like we are at the present time. Everybody talks about global warming and we get hit enough by record low temperatures after a while. It takes people a while to recognize, you know what, we don't seem to be having that anymore, the warming. And of course, economics was a relatively new or inexact science at the time, so they maybe didn't have the indicators to act. Well, if a year had passed, if FDR had refrained from doing anything, saying let's calm down and see what really needs, what's the nature of the problem and what can we best do about it. He rushed in from one thing after the other and if you look at the individual policies one by one, they are pretty bizarre. Well, let's talk about one of those, one of my favorites and one of Roosevelt's favorites, the National Industrial Recovery Act of 1933, signed in the first 100 days. He was a very big believer. What was that and what was the theory behind it? Well, it is well known at that time that we had suffered from a contraction and the National Industrial Recovery Act clearly promoted more contraction. Whatever else was going on because what it did was authorize the president by executive order to establish cartels and the cartel agreement that would determine how much sales is going to be permitted or allocated to each participant in an industry. They basically break determining market shares of hundreds of industries, from dog food to draperies to underwear to machine parts to stone crushers. Anything that anybody who had a trade association was calling their trade association lawyer to work with the federal government and establish a cartel agreement allocating business and then FDR would sign all these things. Each of these things was activated with the executive order. And so the key thing is to determine how much production is there going to be and the thought was to reduce production to try to force up prices. That's what cartels try to do, limit production to create enough of a shortage to force up prices. They all wanted to keep prices back up the way they were during the good times of the 1920s. But this gets to one of the aspects of the kind of current narrative we hear of the New Deal, which was you get the sense that people on the left see it as a clash between government trying to fix things and run away capitalism, that the businesses that were being regulated by this fought against it tooth and nail. And is that true where the businesses opposed to all of this? I mean, if you're told, you know, your production has to be this and you can have this amount of the market wouldn't a business walk and say, no, I mean, I want to compete and I want to take over more of the market. Were they opposed to it? And if they weren't, why? They were promoting restrictions on competition. The only exception to that really wasn't an exception. The only exception to that was toward the end of the New Deal period in the late 1930s. Roosevelt authorized the filing of antitrust lawsuits against some 300 companies or company associations, including some like mobile oil that had been forced back in the days of the National Industrial Recovery Act to restrict their production and to have above market wages and raise their prices to try to bring back business the way it had been in the 20s. So the idea behind this was if we can force industry to restrict production that will increase prices, which will get more money, people will be paying more for things, which will get more money flowing, which will jumpstart the economy. Okay. Did it work? Let me tell you about the Agricultural Adjustment Act, which is exactly the same thing. Farm prices are low. They're trying to prop up farm incomes. And the only way they can figure out to do it is to restrict supply. So basically Henry Wallace, who's the Secretary of Agriculture, pays farmers to plow under 10 million acres of crops and to slaughter and bury 6 million pigs to try to drive up all these supplies. But one of the bizarre things is they were burning oats to create a shortage of oats. At the same time, we were importing oats. We were slaughtering the pigs at the same time that we're increasing imports of lard. We're burying corn, and there's still a lot of corn being imported. And with all these efforts to help poor farmers, primarily it's the big farmers. Only 20% of American farmers got any assistance from any of these New Deal programs. Some of them spent very like the Farm Security Administration spent almost no money. But it was the big farmers, the land holders, who got the money. And the people who were hurt the worst were black sharecroppers because the money went to people who owned land. If you own land, somebody else works on the land. Well, you're getting the benefit from the government in that program, but what you're doing in exchange for the money you're getting is you're reducing your production. You don't need that black sharecropper anymore. Let me try to wrap my head around the economic theory driving this, whether it ultimately doesn't work, but there's still people thought it would and they had a theory for why. And I'm trying to figure out what this was because when we talk about progress today, one of the things that you talk about like a certain time only so many homes could afford a television and then now every home has multiple televisions or similar things like with refrigerators. Refrigerators were these massively expensive things and now everyone can have one. And we look at Sears catalogs from the 1970s every now and then. Someone will pass one of these around the internet and you'll laugh at how expensive these things, these electronics used to be and how much cheaper they are and how much wildly better they are today. And so that's kind of like things becoming more abundant and cheaper. We hold up as a sign of progress for a civilization. But it sounds like these policies in the New Deal were saying the reason that the economy is in trouble is because certain things, food, is too abundant and too cheap. And so the way to spark forward progress is to make food scarcer and more expensive. Or am I being unfair? Well, the New Deal consisted of a lot of things where people were desperately trying to do something and basically what they always did was grab the cliche, rich people have money, let's tax rich people and so on. Back in the 30s, only about 25% of the population were farmers. And the New Deal was focusing on trying to raise farm incomes. So to the degree it was successful, it's increasing the cost of living for the three-quarters of Americans who were not farmers. So they create a problem there. Also, the National Industrial Recovery Act, while the farmers were trying to figure out what to do about the farmers, the National Industrial Recovery Act, was busy making manufactured goods more expensive and farmers were needed farm equipment and various farm tools, all of which they had to pay more for than they did before. But it's okay because they're earning more from their food, so everything works out. Yeah, well you're trying to keep, you know, how do they ever keep straight with all these transfers? Everything's a transfer. It's always a question, well, we'll help them, we'll focus on this one problem, we'll give money over there and then later somebody's complaining on the other side, so they have to address that and they're going to create more problems. I'm trying to figure out how these prices were decided, these codes of fair competition, these NIRA codes, which were called codes of fair competition. Who decided them? Who wrote them? Well, weren't we all about antitrust in the, you know, trust-busting days of the first president Roosevelt and that antitrust is bad, you know, trust is bad and cartels are bad and then all of a sudden we're making cartels out of huge areas of the American economy. That's what FDR did most of the time, he created cartels. If you take some of the smaller agencies like the Federal Communications Commission, that was giving away licenses and franchises to relatively small number of larger broadcasters and retaining the right to interfere with speech. You have the Civil Aeronautics Board that provided licenses for interstate airlines and between the time the interstate, the Civil Aeronautics Board was established in 1938, I think, for 40 years until it was abolished in 1978, it did not issue a single new license for an interstate air carrier in 40 years, not one license. And they said, well, unless there's some compelling reason to license another airline, we don't think we need any more. That was their practice there. At the same period, this is late 1930s, FDR signed into law the Anti-Chain Store Act that was doing illegal discounts and you had the Retail Price Maintenance Act. That was another, that's all against price cutting. No price cutting, no discounts. This sounds really bizarre. It sounds like an invitation for businesses to get involved with government. I mean, to A, try to control the laws and become the business that writes the code and participates in the lawmaking and starts to create the kind of crony capitalism situation we have now. Yeah, there's so much of that. There's so much of that going back and forth where everybody is picking everybody else's pocket. It's very hard to determine how particular individuals or groups fare because they're gaining a thing over here and they're losing it over here. Everybody's in everybody else's pocket. Well, it's interesting too because Erin asked about the justifications. They did have this idea of destructive competition and it was some sort of competition that was too much. I don't know, they could never really define it. Well, they were all anti-competition. Yeah, to some extent, but they wanted some sort of managed competition between, let's say, tire producers in Ohio. And so the groups would get together, the businesses would get together to write the tire code. And of course, it was written by Firestone in Goodyear in Goodrich and the little guy was completely harmed by the tire code. And that was part of the idea, I think. I was never able to figure out whether they were just in the pockets of these corporations or just did not understand markets or hated them. I have no idea which one. But the Agricultural Act you mentioned, which was setting prices on what theory? So how do you decide what the price of an agricultural good should be? Well, they didn't have any theory. It was all, see the way somebody else does it. As I said, they're looking at one issue at a time. If the farmers are hungry, let's get the farmers some money. And then they find out later it's more complicated than that. Let me tell you about gold, which involves, that'll get back to how do you set the price? Look at what one of the things that FDR was doing in the early days of his administration had to do with gold. Well, you start with the Trading with the Enemy Act that was passed under Wilson in 1917. The Trading with the Enemy Act empowered the president to prohibit any transaction involving gold, silver, or foreign exchange. That was the supposed legal basis for what FDR did to restrict gold. What did he do? Well, after you had the presidential proclamation of, I think it was March 6, 1933. So it was two days after he was sworn in. That extended the bank holiday, but it also prohibited banks from paying out any gold. Because at that time, if you had any gold double eagles or any gold coins, you would go into a Federal Reserve Bank and they were obligated to give you $20.67 per ounce. Okay. And he wanted to stop that. So the first thing he does, again, supposedly based on Wilson's Trading with the Enemy Act, in the executive presidential proclamation of March 1933 prohibiting banks from paying out anything, the next thing that happens in April of 1933, he issues his executive order 6012, which orders Americans to hand in all of their gold to the banks and the treasury by May 1, 1933. So that's where he expropriates gold and their $10,000 of fines if you're caught with gold after that. This sounds like something that someone, a villain in a bond would do. And then there is FDR signs an amendment to the Agricultural Adjustment Act. And the amendment to the Agricultural Adjustment Act empowers the president to set the price of gold. So did he do that? He famously does sometimes in his bedroom. With what dice? An advisor would come in and they would tell, what should the price of gold be today? I'm trying to wrap my brain. Why? I mean, what was his theory? Why do we end up with a series of moves that are supposed to have to do with the recovery? But what does he think? By prohibiting Americans from holding gold and then he gets to set the prices. But what does he think this will do to the economy? He doesn't know, but he's desperate. And what he's basically doing throughout the 1930s is throwing different policies against the wall. They contradict each other, as you pointed out. Sometimes he's bashing big business and he wants more competition. Most of the time he wants to suppress competition because it's kind of unruly. There's all these different things that conflict. It's a whole mish-mash. And as Henry Morgenthau's famous testimony in 1939 that we've tried everything and still they have depression level unemployment, it averaged 17% throughout the New Deal period from 1933 until 1940, which is when you get into war mobilization. I guess I'm a bit confused on a couple of issues about the gold thing. The first is if Americans are prohibited from owning gold, then what's the point of setting the prices of gold? Because if you can't own it, then you can't buy and sell it, right? In terms of central banks. Okay. And then the second is, okay, so he was restricting gold, but for what purpose? What was the theory behind how Americans owning gold and then being able to get $20 or whatever it was per ounce for it? What was the theory of how that was contributing to the economic depression? I think what he was trying to do is inflate the currency as one way of reducing the impact of the depression. Well, that would do it. I mean, if you couldn't go get money for gold, yes. Right. He's trying to prevent private individuals from protecting their purchasing power by increasing their holdings of gold. I mean, and that, in fact, is what Roosevelt ended up doing. But you end up there in a number of memoirs by brain trusters from the Roosevelt administration, from the first term of the Roosevelt administration. They're talking about these insane sessions in his bedroom where he talks about what should the price be today. And he says, seven. You know, make it seven, $7 or whatever it is. And he said, I think it was Henry Morgenthau ourselves. He said, why seven? It's lucky. It's a lucky number. I mean, it has nothing to do with market pricing. He's the most powerful person in the country and he can try it if he wants to try it. But he was never anybody familiar with theory. Yeah, let's talk a little bit about him. What kind of person was FDR? Where was his background? What kind of temperament? What kind of attitude, ideology? Well, he had served, I believe, as Secretary of the Navy. The Assistant Secretary of the Navy. The Assistant Secretary of the Navy in the Wilson administration. He was Governor of New York, as we know. And he is generally considered to have been a playboy until he was diagnosed with polio, which is, I think, around 1920, maybe something like that. It was 20 years. He spent a year out of private life. And that's what gave him humanity and so on. But nobody considered him a master theoretician and that's not what they were doing through this period. It was a disorganized, you know, the National Industrial Recovery Act was basically modeled after Italian fascism. Now, this is before, this is a decade, of course, before Mussolini forms an alliance with Hitler and gets into the war. Because fascism was very fashionable during the 1920s among American intellectuals. A number of American progressives went to visit Mussolini in the early 20s, including Ida Tarbell, who wrote the muckraking biography of John D. Rockefeller. And I can't think there were a number of Lincoln Stephens. There were a number of early 20th century progressives who went over there and everything worked. And he was very charismatic. This came after the tumultuous war. He ordered out of chaos. So he's a character. I remember Ida Tarbell's autobiography. She says, he kissed my hand. I could feel the magic and how his people view him and so on. So, you know, progressives went for him. Can you give a quick thumbnail definition of fascism? Because it's a word that gets used a lot today, but often means something like anyone whose political views I really don't like is a fascist. Fascism, economic fascism basically means private ownership, government control. Unlike communists where the government owns everything, owns and controls. So is it kind of like cartels or something like that? So everyone privately owns it, but the government controls everything and makes sure that these businesses are better. Yeah, if you're a big businessman, you are following orders from the government. You have been drawn in perhaps with funding, with contracts. And if you become too important to the government, you are going to get a lot of scrutiny. And you better make sure that you are not doing anything that could be misinterpreted by the government. Now, you mentioned earlier the court packing plan, which some of our listeners may have heard of before. But can you just, that was in 37. Can you describe a little bit what that was and what precipitated it? Well, several of FDR's early major pieces of legislation, including the National Industrial Recovery Act and the Agricultural Adjustment Act and a couple of others were struck down by the Supreme Court. In the case of the Agricultural Adjustment Act, it was for imposing a tax on food processors and giving the money to farmers. That's very much like recent cases we've had on zoning where property is seized under eminent domain by a community taken from one private individual, let's say, and given immediately to a big hotel developer. Well, that was basically the same kind of thing, giving it to one participant in the food business, giving it to somebody else because it fulfilled some government policy they had. But the court struck that down and it struck down the National Industrial Recovery Act in a case about some Jewish butchers, too, which is very interesting by itself, the Schechter Brothers. Right, right, right. Well, you had a core of four, what we're called the Four Horsemen of Reaction, which was George Sutherland, James McRinalds, Willis Van Der Venter, James McRinalds and Pierce Butler, right? They were the core, and sometimes there were additional votes from the Chief Justice Charles Evans Hughes and from Warren Roberts. Oh, and, yeah. Oh, and Roberts, so they were successful to 1935, 1936, and so FDR figured that the only thing he could do was to expand the court. He did that after the 1936 election, so he could conquer the world at that point because, I mean, he felt like he could conquer the world because he won by such a huge margin in the 1936 election. And so he started to address his frustration with his major pieces of legislation getting struck down. He said the Supreme Court, their old men, so right away he starts to antagonize the court, but he said, you know, after 70, I think, after 70, you need somebody else on the court. So he couldn't take him off the court because they already had life tenure, but he could increase the number of people on the court until he had a majority. Wasn't this a naked power grab? I mean, that sounds absolutely apolitical. Well, that was, you know, he went into political decline after that, FDR, because you've got to, the Republicans gained a lot of seats in the House in the late 30s, and things just didn't go. Plus you had the depression of 1938, depression within a depression. The economy hadn't recovered in terms of unemployment from the Great Depression, and now you have a big setback, mainly arising from Fed blunders plus the National Labor Relations Act that suddenly made it much more expensive for employers to hire people, that provided incentives to cut back hiring dramatically, especially in the mass production industries, automobiles, steel, coal, where you had large numbers of people and a lot of violence and so on. Weren't there things like the Works Progress Administration that put people to work building highways and amphitheaters, and wasn't that a good thing? Well, it certainly helped FDR get re-elected because it meant the government had five billion dollars to spend in the 12 months before the 1936 election. That was a lot of money. And, yeah, but you know, all these things, there's a very interesting fine line. How can you help people without screwing up the economy? Because there's a humanitarian desire and a political necessity. You have a lot of unemployment. How can you help people? Can the government provide, is it possible to provide any assistance without screwing things up? Because of all of those work relief programs and there must have been a half dozen or a dozen, this is during peacetime. There were hardly any army. There's no war. Usually, military is the biggest expense. So all these relief efforts with millions of people in them, raking leaves, building dams, all this public works, all this stuff, that's what led to the tripling of taxes during the Great Depression. And ironically, one of the most ironic things I didn't realize till after I'd written FDR's Folly, you may know the biggest tax. What was the biggest tax? Biggest source of federal revenue during the New Deal period. Do you have any idea? Tariffs on alcohol, maybe? I don't know. Well, tariffs are one source. They're corporate income taxes. They're personal income taxes. But those weren't that high at that point, were they? The biggest source of federal revenue during the Great Depression were excise taxes. Oh, excise taxes. Excise taxes on beer, wine, cigarettes, chewing gum, soda, radios. In other words, cheap pleasures for millions and millions of people. They can't afford a nice car or a nice house or anything, but they can have some fun food sometime where they're smoking. That's excise taxes. And the first thing FDR did when he came in was to start increasing excise taxes. He raised the Beer, Wine Act, the Liquor Revenue Act. You have two or three of those just in the first year. But until 1936, there was more federal revenue generated by the federal excise taxes. There wasn't just one tax. Federal excise taxes generated more revenue until 1936 than the federal personal income tax and the federal corporate income tax combined. And it's not until about 1942 that the federal personal income tax becomes the biggest revenue generator in the government. Until then, the biggest tax is excise taxes. All these wonderful government programs are paid for by taxes that hit lower income people big time. You said that the best thing for FDR to have done would have been nothing because a recovery had already begun by the time he took office. I think that's probably true. But he didn't know that. And people didn't know that. And so given that lack of knowledge, what would have been the right thing for him and his brain trust and the people of the federal government to do to turn the country around to help those people who are out of work based on other situations where the country's had a depression and we've gotten out of it in a different way, what would have been better policies than what they tried? Well, I think first of all that probably in that situation I think the most important thing is what he did very well. He gave these fireside chats and these speeches and he was able to establish a personal bond and the confidence in the people. So that's important. That's about the only thing you can do because you don't want to get mixed up in humanitarian policy that ends up forcing you to do things that are going to make the recovery more difficult. And I'm sure you know about the Depression of 1920 that Harding and Coolidge or Harding got us through. And I think his philosophy was very wise because Harding believed that the most humane thing you can do in an economic crisis is to get people through it as fast as possible. So that means you're having severe adjustments. But you know after World War I when the war was over there were military contracts were being discontinued. Companies that made a lot of money making war material they were going to have to look for something else and he was, he wanted the message, Harding wanted the message to be understood loud and clear that your future is in the civilian sector of the economy. We want you to have the strongest incentives to find a job. The company's going to need a new line of business, new products to sell. They're having nothing to do with the war. We're done with that. And the faster you make the transition the better. Well, there was a terrible interlude but it was over in less than two years. The Roaring 20s were underway by 1923 and I think so in Hoover's, in Hoover Roosevelt's case you know the smooth holly tariff that's one obvious thing to attack. Now politically that's very difficult because every interest group there are thousands, literally thousands. I've still got a lot of the volumes of smooth holly testimony and everybody is testifying. So that would politically be very difficult but if you could begin to phase them out, phase them out. There are a lot of these taxes, especially focus on taxes that make it more difficult and expensive to hire people. You want to make it as what can the president do that would make it as easy and cheap as possible for businesses to start hiring people because what the normal course of development in a depression is that what happens is prices fall so much and they're going to keep falling until they become irresistible bargains. There is a point when they become irresistible bargains and even in 1933 when there were 25% unemployment that meant that 75% of the people were employed and getting a regular check so it's not like there was no money in the country it was just a severe setback. So you got 75% of the people who have money they're going to start buying stuff and stocks and whatever else they want to buy so it's going to get down and you don't want to be in the way when they start buying another house or more food or whatever it is that people want to buy or invest in. I've heard an argument that at the time as we mentioned fascism was very popular socialism was very popular people had gone to the Soviet Union and seen the future. Seen the future. Yes, exactly. So perhaps I mean I believe that what you said would have worked and would have gotten us out of the depression more quickly but perhaps what was needed at the time was to save capitalism was the idea that government was doing something because something to help out the little people even though there really could have been a socialist revolution in the country if you go read you know grapes of wrath and Steinbeck's views about this and what the people were doing you had a dust bowl at the same time just you know coincidentally at the same time in Oklahoma which is where my family's from so I've heard about that for my whole life and even just the perception that FDR was helping people out was very important so would you say that was a good He was also a new face so that would buy him a little bit of time but it really was important for him to use what little time he had and there's a transition to get going in the right direction and he didn't do that that's why he was you know what you continually find with these interventionist policies is that they're doing a favor over here and they're giving somebody else a kick back here and you just can't keep up with all the unexpected consequences you look at the TVA for example the Tennessee Valley Authority the Tennessee Valley Authority yeah that was a big that was a big thing Roosevelt was very excited about it he got into it from Norris LaGuardia who was a senator who believed in public power well the TVA was set up as a monopoly it drove the I forget what the company was but there was a power company that was serving the TVA privately owned company he drove it out of business he established the Tennessee Valley Authority as a monopoly within their within their area they were not subject to federal laws or state laws they were not subject to federal or state taxes so this is supposed to be a great miracle it's going to provide subsidized cheap electricity and bring a new world for these poor people in the Tennessee Valley but you know what it lost money it depended on congressional appropriations every year to cover their losses and but the people had power right I mean it wasn't the idea so well there was a study done 50 years after the TVA was established first of all the TVA didn't build very much there were only six dams built before 1940 up through 1940 then you get into war mobilization and 80% of TVA power went for war-related stuff including enriching uranium for the Manhattan Project so that you know in World War II you're not talking about the TVA helping poor people because it's not supplying energy to poor people anyway so it only did six dams these are small dams because the gorges in the Tennessee River whatever river it is it's very narrow it's not like it's not like Grand Coulee and the Hoover Dam out in the Pacific Northwest those are huge these are small and it to build a dam you need skilled labor so these are people making above-average wages this is not for people this is not doing anything for people who are unskilled and they didn't do much of it because the more ambitious a public works project is the longer it takes to get going so most of what the TVA built by far was finished after the Great Depression is over but the greatest irony comes there's a study done 50 years after the TVA got started and it found that in the southern states that did not have did not get any of their energy from the TVA the southern states the southeastern states like Virginia, North Carolina, Georgia that didn't get any power from the TVA they grew a lot faster they had a much greater growth in incomes and growth and curiously they had a much more rapid growth in the use of electricity consumption and growth in the percentage of farmhouses that had running water this is a non TVA if you did not have cheap subsidized TVA electricity you were growing faster you were making more money interesting how does that happen well the interpretation was that the TVA well first of all the farmers needed a lot of things to make more money that did not use electricity like tractors they use diesel fuel they needed more seeds they needed a lot of things to raise their level of farming that did not have to do with plugging something in and they didn't have as much electrical usage they didn't have as many appliances because that's more directly all the electricity usage is more directly related to incomes not to the cost of electricity so if you have higher incomes you're probably going to buy a few more appliances regardless of whether your electricity is subsidized or not so they needed all these other things and the same thing went with you you're going to have running water in the house if you have the money to invest in the system and it has nothing to do with whether if you just run an electrical cord out to a farmhouse well you can plug in a few light bulbs there's probably not a great deal else that would be done in there maybe a heater but that's about it so what are the lessons I mean overall from TVA from NIRA from AAA what are the lessons we get from the new deal there's no such thing as a free lunch you know I mean I think what they're doing in the Great Depression and right through everything that Obama's doing now they're looking for some they can force somebody else to pay for it to fix somebody's problem by forcing somebody else to do it and then we find out as they did during the 1930s that you're causing another problem over here you know the TVA as I said the most incredible thing to when I was writing this chapter on this was realized that they're subsidized I mean it's not making money if they don't pay any taxes federal or state they're not subject to any of these inconvenient regulations and so on and they're losing money and only 2% of the American population was living in the Tennessee Valley so 98% of the people were being taxed 98% of the people poor and wealthy are being taxed to subsidize the 2% and it's not even doing them as much it's basically one of the things that happened with the TVA was apparently it gave people enough these poor subsistence farmers enough of an incentive to stay put in the other states they didn't have any incentives to stay put so they moved they migrated out of subsistence farming they said you know what the problem is there are too many farmers more farmers and more cultivated acreage than the market can you know can be supported on it with a good income and so you had a more rapid migration in these non TVA states out of subsistence farming and into services and manufacturing and other things and that's why they got higher incomes and that's just another thing another example of the unintended consequences of this kind of government intervention too which is maybe kind of the lesson we can get from the Great Depression or the New Deal in general yeah as I said I think you're trying to figure out how can you get out of a crisis you have to be a political genius in order to pull this off but you basically have to look for positive steps that don't create problems in your wake and that's what all these people have done they know bomb and so on he's trying to do a favor over here and he's making it more difficult over here and he leaves such a trail of people who are paying somebody else's subsidies entitlements or special deals whatever it is and you're just going round and round on the same old problems but you do have great political difficulty these days we know nobody can figure out what to do about the entitlements because you've got 50, 60 million people who are on them and are not going to want you to touch them so that's a that's one reason why you know don't start a new government program because if you start it especially if it's an entitlement you will never get rid of it Well that gets to something I was actually curious about the New Deal was this massive cluster of all sorts of programs doing all sorts of things which ones of those are still around today what's still plaguing us from this series of policies that was called the New Deal Well the biggest one of course would be Social Security because we had not Social Security but not just Social Security but you had Medicare added to it Medicare is an amendment of the Social Security Act Medicaid is an amendment to the Medicare which is an amendment to the Social Security Act then Bush's drug program that's an amendment to that so it's like all the trade legislation today I think this is still true all the trade legislation is still an amendment of the Tariff Act of 1930 you know as Reagan said nothing has a government eternal life like a government program but when you're talking about huge amounts of money being spent now a lot of the anti competitive pro laws that FDR did have gone by the boards in the 1970s a number like the Retail Price Maintenance Act the Anti Chain Store Act most your discounting laws were before 1980 they were gone I remember E.J. Corvette which was an appliance retailer in Walmart you know they were back in the 1950s they started to do discounting and discounting was tricky because it was illegal and I remember I was in the 1970s I was writing advertisements for several companies direct mail advertisements for several companies that sold gold and silver to investors and we discovered in the laws that survived from the New Deal the Anti Gold Laws that there was an exception with coins that have numismatic value if you had bullion the only reason anybody has bullion is as a hedge against inflation or where you expect to make money from it but that's not a collecting thing there's a numismatic we had to use the collectors will buy these these are all bullion coins or one out coins but we had to use that language you had to stamp something on them collectors and so but most of those anti competitive restrictions the similar non export as I already mentioned that was gone in 1978 it was after then that you had and you had this three or four or five other major airlines from the late 70s that were starting all of a sudden and you had financial deregulation you had Big Bang which was about 1975 I think then during the 1990s Glass-Steagall was repealed now some people have blamed the absence of those regulations the irony is nobody really understood Glass-Steagall the best the most familiar thing about Glass-Steagall was the prohibition having a single firm engage in both commercial banking and investment banking and that was a New Deal law originally 1933 Glass-Steagall Act and so it was because of that that those functions were broken up so JP the most famous case the ironically the most famous case was JP Morgan JP Morgan and company became a commercial bank and Morgan Stanley became the investment bank the irony is that the banks that did both functions were typically big city banks they weren't failing the banks that were failing were unit banks unit banking means you can only have one office and that went back before I think the 1920s but it was unit banks started basically it was small bankers who did not want a big city banker to be opening a branch in your town and competing with you giving you a hard time because you're able to get more service from the big city guys so maybe we got rid of some of these things the Glass-Steagall 90% of the banks that failed were unit banks civil aeronautics board we still got agricultural problems and we still got social security Roosevelt repeatedly stressed that those farm subsidies because the agricultural adjustment act got struck down and then he signed two or three more bills just like it but they didn't have the tax in there taxing the miller to subsidize the farmer so there were several others this is only for temporary relief and the other thing we still have and we still have it but we also still have the story which fits into the modern political narrative this New Deal story it seems like it always hangs around that we have to remind people this was not the way they thought it was I think an important factor here is that Roosevelt is always because he went on to get elected twice more especially 1940 he won the war if he had not served he had not been president during the war and been on the winning side I think he would be viewed now as a failure because people are just going to look at the chart and saying well that was he just couldn't figure out what to do about the depression and we had good times during the 20s and then bad times in the 30s but he won the war and that covers everything at that point he beat Hitler Thank you for listening to Free Thoughts If you have any questions or comments about today's show you can find us on Twitter at Free Thoughts Pod that's Free Thoughts P-O-D Free Thoughts is a project of Libertarianism.org and the Cato Institute and is produced by Evan Banks To learn more about Libertarianism visit us on the web at www.libertarianism.org