Excuse Me, Professor: Challenging the Myths of Progressivism

by Lawrence Reed

  Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP increased by about one-third.

  Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

  To compound the folly of high tariffs and huge subsidies, Congress then passed and Hoover signed the Revenue Act of 1932. It doubled the income tax for most Americans; the top bracket more than doubled, going from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline, and auto taxes were imposed; and postal rates were sharply hiked.

  Can any serious scholar observe the Hoover administration’s massive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets?

  Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party whose ticket Roosevelt headed declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.

  In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent.

  Roosevelt secured passage of the Agricultural Adjustment Act (AAA), which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat, and corn being plowed under. Healthy cattle, sheep, and pigs by the millions were slaughtered and buried in mass graves.

  Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.

  Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act (NIRA), passed in June 1933, which set up the National Recovery Administration (NRA). Under the NIRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent—not something a depressed economy needed for recovery.

  Like Hoover before him, Roosevelt signed into law steep income tax rate increases for the high brackets and introduced a 5 percent withholding tax on corporate dividends. In fact, tax hikes became a favorite policy of the president’s for the next ten years, culminating in a top income tax rate of 94 percent during the last year of World War II.

  Roosevelt’s public relief programs hired actors to give free shows and librarians to catalogue archives. The New Deal even paid researchers to study the history of the safety pin, hired 100 Washington workers to patrol the streets with balloons to frighten starlings away from public buildings, and put men on the public payroll to chase tumbleweeds on windy days.

  Roosevelt created the Civil Works Administration in November 1933 and ended it in March 1934, though the unfinished projects were transferred to the Federal Emergency Relief Administration. Roosevelt had assured Congress in his State of the Union message that any new such program would be abolished within a year. “The federal government,” said the President, “must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks.”

  But in 1935 the Works Progress Administration came along. It is known today as the very government program that gave rise to the new term, “boondoggle,” because it “produced” a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes.

  The American economy was soon relieved of the burden of some of the New Deal’s excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the “nine old men” of the Court also threw out other, more minor acts and programs which hindered recovery. Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!

  The stage was set for the 1937–38 collapse with the passage of the National Labor Relations Act in 1935—better known as the Wagner Act and organized labor’s “Magna Carta.” To quote Hans Sennholz again:

  This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.

  Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants, and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation’s labor unions soared; by 1941 there were two and a half times as many Americans in unions as in 1935.

  From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the-rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”

  Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration—in both word and deed—against business, property, and free enterprise guaranteed that the capital needed to jumpstart the economy was either taxed away or forced into hiding. When Roosevelt took America to war in 1941, he eased up on his antibusiness agenda, but a great deal of the nation’s capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in
motion the postwar investment boom that powered the economy’s return to sustained prosperity.”

  On the eve of America’s entry into World War II and twelve years after the stock market crash of Black Thursday, ten million Americans were jobless. Roosevelt had pledged in 1932 to end the crisis, but it persisted two presidential terms and countless interventions later. When federal spending collapsed and price controls were abandoned after the war, and tax rates on business were dramatically reduced in 1945, the economy began a genuine recovery.

  The genesis of the Great Depression lay in the inflationary monetary policies of the U.S. government in the 1920s. It was prolonged and exacerbated by a litany of political missteps: trade-crushing tariffs, incentive-sapping taxes, mind-numbing controls on production and competition, senseless destruction of crops and cattle, and coercive labor laws, to recount just a few. It was not the free market that produced twelve years of agony; rather, it was political bungling on a scale as grand as there ever was.

  (Editor’s Note: This essay is condensed from the author’s “Great Myths of the Great Depression,” available at FEE.org).

  SUMMARY

  •The Great Depression did not follow a period of “unfettered capitalism.” In fact, it was made inevitable by erratic monetary policy from the federal government, namely, the Federal Reserve

  •After years of cheap money and low interest rates, the Fed set the stage for a correction with a policy of steep increases in interest rates and a deflation of the money supply

  •The Hoover administration took a recession and made it a depression by dramatically choking off world trade through higher tariffs and doubling the income tax

  •Franklin Roosevelt promised to undo Hoover’s spending and tax increases but after he was elected, he did just the opposite

  •The New Deal lengthened the Depression by preventing recovery. It cartelized industries, which raised costs, and destroyed valuable crops and cattle

  •A “depression within a depression” occurred in 1937 after the imposition of costly new labor rules and higher taxes

  #34

  “GOVERNMENT MUST SUBSIDIZE THE ARTS”

  BY LAWRENCE W. REED

  PEOPLE WHO OPPOSE SOVIET-STYLE COLLECTIVE FARMS, GOVERNMENT SUBSIDIES to agriculture, or public ownership of grocery stores because they want the provision of food to be a private matter in the marketplace are generally not dismissed as uncivilized or uncaring. Hardly anyone would claim that one who holds such views is opposed to breakfast, lunch, and dinner. But people who oppose government funding of the arts are frequently accused of being heartless or uncultured. What follows is an adaptation of a letter I once wrote to a noted arts administrator who accused me of those very things. It articulates the case that art, like food, should rely on private, voluntary provision:

  “Thanks for sending me your thoughts lamenting cuts in arts funding by state and federal governments. In my mind, however, the fact that the arts are wildly buffeted by political winds is actually a powerful case against government funding. I’ve always believed that art is too important to depend on politics, too critical to be undermined by politicization. Furthermore, expecting government to pay the bill for it is a cop-out, a serious erosion of personal responsibility and respect for private property.

  “Those studies that purport to show X return on Y amount of government investment in the arts are generally a laughingstock among economists. The numbers are often cooked and are almost never put alongside competing uses of public money for comparison. Moreover, a purely dollars-and-cents return—even if accurate—is a small part of the total picture.

  “The fact is, virtually every interest group with a claim on the treasury argues that spending for its projects produces some magical ‘multiplier’ effect. Routing other people’s money through the government alchemy machine is supposed to somehow magnify national wealth and income, while leaving it in the pockets of those who earned it is somehow a drag. Assuming for a moment that such preposterous claims are correct, wouldn’t it make sense from a purely material perspective to calculate the average multiplier and then route all income through the government? Don’t they do something like that in Cuba and North Korea? What happened to the multiplier in those places? It looks to me that somewhere along the way it became a divisor.

  “What if, for instance, ‘public investment’ simply displaces a certain amount of private investment? (Arts subsidy advocates never raise this issue, but I know that I personally am far less likely to make a charitable contribution to something I know is on the dole than to something I know rests on the good hearts of willing givers.)

  “What if ‘public investment’ brings with it some baggage like political manipulation that over time erodes the integrity of the recipient institutions? How does that fit into the equation?

  “What if I, as a taxpayer who earned the dollars in the first place, could keep what the government would otherwise spend on the arts and invest it in my child’s education and end up getting twice the return on my money that the government would ever get on the arts? The fact that you take so much from me now, by the way, means that I can purchase less of the things that I value, including such things as tickets to the theatre or a concert.

  “If simply getting a good return qualifies an activity for public investment and government involvement, then I can think of hundreds of companies and industries that government ‘should’ have spent tax money on—from silicon chips to Berkshire Hathaway. The Constitution’s framers could have dispensed with all that rigmarole about rights of citizens and duties of government and stopped with a preamble that said only, ‘We the People, in order to get a high return on our tax money, establish this government to do whatever anybody can show will fetch a hefty payback.’

  “Sometimes those of us who put faith in such things as the individual, private property, and the marketplace are accused of focusing solely on dollars and cents. But actually, it’s those on the other side who are most guilty of this. The arts funding issue is a case in point. Advocates of government funding focus on dollars—more of them, always more of them—and no matter how much government funding of the arts we have, it’s never enough.

  “Those of us who wish to nurture the arts privately stress other, far more important values. I believe, for example, that money which comes voluntarily from the heart is much more meaningful than money that comes at gunpoint (which is ultimately what taxes are all about). You’ve won so much more when you convince people to do the right thing, or support the right causes, because they want to instead of because they have to. For that reason I don’t believe in shotgun marriages either.

  “I can think of an endless list of desirable, enriching things, very few of which carry a tag that says, ‘Must be provided by taxes and politicians.’ A rich culture consists, as you know, of so many good things that have nothing to do with government, and thank God they don’t. We should seek to nurture those things privately and voluntarily because ‘private’ and ‘voluntary’ are key indicators that people believe in them.

  “The surest way I know to sap the vitality of almost any worthwhile endeavor is to send a message that says, ‘You can slack off; the government will now do it.’ That sort of flight from responsibility, frankly, is at the source of many societal ills today: Many people don’t take care of their parents in their old age because a federal program will do it. Most parents these days shirk their duties to educate their kids because government schools are supposed to do that (even though many of them do a miserable and expensive job of it).

  “I know that art is just about everything to some people, especially those whose living derives from it. But as adults we have to resist the temptation to think that what we are individually doing is somehow the greatest thing since sliced bread and that therefore it must receive more than what people willingly give it.

  “I think what my church does is important, but I don’t want government giving it money. I think what we do at FEE is important, but we’
d go out of business before we’d take a nickel of somebody’s money against his will. I might even like certain nongovernment-funded art forms more than the ones that are politically well connected enough to get a grant, but I don’t want to corrupt them with a government check. As children we want what we want and we want it now, and we don’t care where it comes from or even if somebody has to be robbed for us to get it. But as discerning adults who put a higher premium on mutual respect and building a culture that rests on creativity and persuasion over coercion, we should have different standards.

  “If we do not rob Peter the worker to pay Paul the artist, perhaps Paul may have to become a better artist or a better marketer of his art, or perhaps take on another profession entirely. Would that mean that we’ve deprived Paul of his freedom? Hardly. In a free society, Paul is always free to pursue art as either a hobby or a profession. But the same could be said of Peter, who has every right to pursue his interests too, without having his freedom diminished through taxes so that Paul’s interests can be made more lucrative.

  “Moreover, haven’t we learned from endless, painful experiences that when you inject government money into something, you introduce politics and conflict, demagoguery and vote-buying, waste and inefficiency? Why politicize something as spontaneous and beautiful as good art? Why subsidize bad art?

  “Lots of things are important in life. That doesn’t mean they all need to be coercively financed. Art in its endless forms enjoys the support of nearly every human, in varying degrees (I’ve been in hundreds of homes and none with bare walls and no music-playing device). Claiming that the arts require the force of government is, if not self-serving, a flimsy and foolhardy assertion.”

  SUMMARY

  •Government funding of the arts is not just music to the ears. It carries with it all the downsides of dependence on politics