Throughout the 2003 book FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, Jim Powell argues that the policies of U.S. President Franklin Roosevelt and the New Deal did little to restore the American economy during the height of the Great Depression and that they only contributed to the stagnant economic situation and high rate of unemployment. In addition, he argues that the New Deal necessitated a heightened level of government intervention in the economy through the establishment of a myriad of regulations in nearly every aspect of economic life. To back up his argument, Powell examines the long-term effects of the New Deal and analyzes President Roosevelt’s policies in order to assert that they had an adverse impact on the economy overall. In the introduction, Powell attempts to clarify what went wrong during the Great Depression, declaring that it would have been “avoidable” with better governmental policies. He determines that “chronic unemployment persisted during the 1930s because of a succession of misguided New Deal policies.”
Overall, Powell’s assessment of President Roosevelt’s economic policies represents a new interpretation of U.S. economic history. The conventional belief among historians is that the New Deal reforms ultimately saved the U.S. economy from ruin and that the Great Depression was primarily caused by the lack of government regulation in the economy. For example, in the introduction to “The Great Depression: America 1929-1941,” historian Robert McElvaine argues that the Great Depression was caused primarily by the lack of government regulation and oversight in the economy, further stating that the policies of the New Deal ultimately succeeded in their goal to prevent another economic collapse as severe as the Great Depression. Additionally, McElvaine argues that President Roosevelt was too cautious with spending on the New Deal and that increased spending would have made the New Deal programs more efficient. In contrast, Powell argues that the Great Depression was caused in part by changes in monetary policy by the Federal Reserve in 1929 and due to the Federal Reserve’s failure to adequately respond to the subsequent drop in consumer demand.
Powell mentions that President Roosevelt harmed the economy by increasing taxes during his term in office. To end the Great Depression and restore economic stability in the U.S., Roosevelt sought to increase government influence over the economy by requiring higher taxes. Initially, Roosevelt pushed for higher excise taxes on products such as tobacco, liquor, and gasoline during his first year in office, and further sought to increase income taxes beginning in his second year. The 1934 Revenue Act impacted higher-income individuals, through raising taxes on all incomes above $9,000 annually. Additionally, the Social Security Act of 1935 introduced the payroll tax, which increased the cost of hiring people and prolonged high unemployment. The implementation of a variety of tax increases by the Roosevelt administration reduced the spending power of both average and wealthy Americans and prolonged the difficult financial situation.
Powell argues that the New Deal resulted in increased costs for consumers through the enacting of numerous federal regulations. Powell cites the National Industrial Recovery Act (NIRA), which set up the National Recovery Administration (NRA), as an example of a New Deal program that established new economic regulations. The primary goal of the NRA was to bring business, labor and government together to create codes of fair practices and to fix prices to reduce competition from monopolies. The NRA also implemented regulations requiring businesses to reduce output and keep established prices to increase the wages of their employees. In reality, the policies of the NRA increased the cost of consumer goods and did little to cure persistent unemployment. Additionally, the NRA created government-sanctioned cartels between industries through the establishment of uniform codes businesses had to follow. Ultimately, the NRA was struck down as unconstitutional by the Supreme Court in 1935. After the NIRA had been overturned, economists declared that “the NRA on the whole retarded recovery” by increasing regulations on businesses and raising the costs of consumer goods.
Powell then goes on to explore the economic effects of the public works program established through the New Deal such as the Public Works Administration (PWA), which was established to construct complex and large-scale public works projects such as highways, bridges, and dams. As a result, most PWA projects tended to employ skilled workers as opposed to poorer and unskilled workers affected most by the Great Depression. Much of the money allotted for relief and public works programs were also used to promote favoritism and patronage towards supporters of the Democratic Party and President Roosevelt, thus encouraging corruption at the highest levels of government. For the Democratic Party to attract the loyalty and votes of states such as Nevada and Utah, Powell contends that the Western region benefitted most from the New Deal public works programs even though the area was affected less by the Great Depression than the South and larger urban centers in the Northeast.
Powell contends that the recovery from the 1937-38 Recession was worsened by the Fair Labor Standards Act, which specified a minimum wage of 25 cents per hour. The implementation of a minimum wage depressed the economy by increasing the cost of hiring new employees and necessitating an increase in wages that many employers could not afford. The minimum wage particularly impacted African American agricultural workers in the South. For example, the Labor Department reported in 1938 that some thirty to fifty thousand workers, primarily southern African Americans, lost their jobs within two weeks of the implementation of the Fair Labor Standards Act. As a result of the economic downturn in 1938, many Americans began to turn against the New Deal, and it increasingly looked like President Roosevelt did not have a clear economic policy.
Despite the factual basis of Powell’s argument, there are several instances of bias throughout the text. For example, Powell shows bias towards the economic belief that reducing taxes and government spending is the primary factor that leads to economic recovery. Powell exhibits this conviction in the final chapter when he is comparing the recovery from the Great Depression with recoveries from preceding economic downturns. Powell mentions that the reason the U.S. recovered from the 1837 Recession and the 1920 Recession was through reductions in government expenditures and taxes. However, his comparisons may not be entirely valid, as at the time such economic downturns took place, the U.S. economy lacked the 1930s-levels of industrialization and globalization.
Moreover, Powell at times criticized President Roosevelt in a way that lacks objectivity. For example, Powell compares Roosevelt’s actions regarding economic regulation to the actions of dictators such as Juan Peron and Mao Zedong. Additionally, Powell accuses some of the advisors to President Roosevelt as pushing for socialism through their support of progressive economic policies. Powell then implies that President Roosevelt’s advisors pursued economic policies based purely on a form of idealism that did not take into account the potential negative effects of government intervention in the economy. The chapter titles may also serve as an indicator of Powell’s own bias, as they are worded as questions asking the reader why a particular policy of President Roosevelt and the New Deal negatively impacted the economy.
To sum it up, Jim Powell argues that the New Deal programs and the economic policy of President Franklin Roosevelt ultimately failed to end the Great Depression and instead worsened the economic situation in the U.S. In order to back up his arguments, Powell cites examples of President Roosevelt’s economic policy such as the low effectiveness of the public works programs, tax policy changes during the 1930s, banking policy, and economic regulatory policy. Overall, Powell makes a compelling case against the New Deal through the factual basis of his opinions, though his own personal bias takes away from the central focus of his arguments at times throughout the text.