It was fortunate for the historical legacy of President Franklin Delano Roosevelt, that the initial military success of the Third Reich in Europe in 1939-1940, and the bombing of Pearl Harbor in December 1941 took attention away from his record in dealing with America’s Great Depression. Had Roosevelt not ended his Presidency as a victorious war President, he would instead be remembered as the President whose policies all but ruined the inherent economic vitality of the American economy for decades after.

A retrospective examination of the economic policies of Roosevelt's New Deal from March 1933 to onset of World War II in late 1941, reveals extraordinary failure and incompetence viewed from the perspective of whether they succeeded in restoring healthy real growth and robust employment to the economy. So blatant was the failure of these policies, over such a period of years, the question must be asked whether in fact a policy other than fostering normal recovery was priority.
New Deal

The core group of FDR's early advisers centered around the figure of Harvard Law School Professor, Felix Frankfurter, an FDR intimate since World War I days. The inner circle included at the outset also Columbia University Prof. Rexford Guy Tugwell, author Stuart Chase, Agriculture Secretary Henry A. Wallace, and a small number of others, including Harold Laski at the London School of Economics. These were the men who had the private ear of the President on economic issues in 1933-1937.

'A new deal'

In his Presidential acceptance speech in 1932, Roosevelt promised "a new deal for the American people." The term was taken from a 1932 book by the same name, "A New Deal," written by Stuart Chase. That book rapidly disappeared from the shelves after Roosevelt's election. Its contents were the currency of White House economic policy discussion by Tugwell and other central planners around the new President.

Chase, along with Tugwell and Robert Williams Dunn, had jointly written a report, "Soviet Russia in the Second Decade," following their 1927 travel to Stalin's Russia.

In his 1932 book, "A New Deal," Chase argued that the earlier transition out of feudalism into what he called laissez-faire capitalism, was essentially over. The era of Trusts, monopolies, capital concentration by large banks, must now give way to central or collective planning. Chase wrote, "modern industrialism, because of its delicate specialization and interdependence, increasingly demands the collectivism of social control to keep its several parts from jamming. We find a government meeting that demand by continually widening the collective sector through direct ownership, operation and regulation of economic functions." He adds, "Competition is perhaps a good thing—in its proper place. Where is its proper place? Collectivism is beyond peradventure on the march."

Much of Chase's book was filled with fulsome praise for Stalin’s Russian model of central planning and its achievements, reflecting the fascination of numerous younger American intellectuals in the early 1930's.

-The cornerstone legislation of the early New Deal economic attack was the passage of the National Industrial Recovery Act in June 1933. Roosevelt told Congress the bill would make possible, "a great cooperative movement throughout all industry...." As well, FDR asked for an appropriation of $3.3 billion "to start a large program of direct employment" through public works, administered initially by Harold Ickes' Public Works' Administration.

However, in the midst of a depression and collapsing business confidence, bankruptcy and ten million unemployed, to ask businesses to pay higher wages for fewer hours work and impose anti-competitive restraints on industry was self-contradictory if viewed as an attempt to stimulate private business investment and confidence.

As one critic of Roosevelt policy, Gary D. Best, noted, the NIRA was part of the theory held by those around Roosevelt referred to as the "bubble up" theory of recovery. Here recovery would come by increasing consumer purchasing power, thereby giving industry a market and stimulating new investment. By raising farmer income through the AAA, by forcing industry to hire more workers at higher pay, and employing jobless on government public works, recovery could be generated from the "bottom up."

Unfortunately, this had little relation to reality. NIRA gave stimulus to the industries that needed it least, and ignored the heavy industry most needing it. By imposing higher wage costs on industry, before recovery, the NIRA forced businesses to either accept reduced profits or higher losses, or to raise prices, neither of which was conducive to general economic recovery in an economy based on private market principles.

The NIRA gave the President unprecedented powers over the economy and over business. With initial reluctance of businesses to file voluntary "codes of fair competition" for industry compliance with NIRA on wages, hours and prices, NRA Administrator Hugh Johnson formulated a "blanket code" to cover all industry, which led to a new stock market plunge in July. Significantly, just prior to unveiling of these blanket NRA codes, industrial production had begun to revive, rising from 60% of the average 1923-1925 level in March, to 98% by July 1933, with the stock market recovering in tandem. By August, when the blanket code and threats of its regimentation of business were public, both stock prices and industrial production began a sharp decline, the latter falling back to a 73% level by that November.

-The AAA and NIRA, both of which were struck down later by the Supreme Court as unconstitutional, were the high-point of the direct influence of the national planners around Tugwell, Stuart Chase and A.A. Berle.

The Agriculture Adjustment Act was passed in the First Hundred Days by Congress in May 1933. It was the work of Tugwell and Henry Wallace, with the legislative draft language corrected by Felix Frankfurter, who played a central role in leglslative language of all major New Deal bills.

American farming had been in trouble since the end of World War I, and had never readjusted during the 1920's to the recovery of European agriculture and their imposition of protective tariffs. Farm debt per capita was alarmingly high coming into the depression. The AAA took a bad situation and made it worse in terms of distorting long-term market change, and creating a massive, absurd state intervention structure for the first time outside of war, into the nation's production of food and textiles. Indeed, the present distortions of USDA agriculture subsidies and the attendant bureaucratic leviathan of field agents, payments for set-aside and such trace back to the precedent set under the AAA.

-John Meynard Keynes told Roosevelt, for example, that rising prices were to be welcomed when they resulted from increased output and employment. But it was impossible, he added, to reverse the process and try to stimulate output and employment by raising prices. The latter only reduced demand and resulted in less rather than more employment. The NRA, Keynes said, "was essentially reform, and probably impedes recovery."

In early 1935, Keynes, while urging FDR to drop his stance of hostile confrontation with the business community, and enlist their friendly cooperation, had proposed that the President embark on a very aggressive program of public spending to come out of the depression. FDR took the precise dollar amount recommended by Keynes, the then-huge sum of $4.8 billion a year, and put it into a Work Relief Bill passed in March 1935.

However, Keynes had also proposed the public spending go for economically useful infrastructure, such as railroad modernization and other infrastructure improvements which would leave the national economy more efficient. Keynes envisioned the government spending on such a scale would be able in turn to revive the most depressed sectors of durable goods manufacture in the economy and prepare the way for sustained private sector growth.'

Instead, while embracing Keynes' proposal as to the amount of government spending, FDR put it into little more than work relief programs under Harry Hopkins' CWA. Even Treasury Secretary Henry Morgenthau in his private diary, worried that the $4.8 billion "is being flitted away with no centralized plan..." "

To add unto Turnbull's last sentence, FDR probably saved America from going Communist. With the old traditional political government philosophy (i.e. "capitalism solves everything") so discredited by 1932, if FDR or any Democratic national candidate that year had simply continued the status quo with useless symbolic token changes...well this was back in the days when ultra-left presidential candidates scored ridiculously high. (Both the Socialist and Communist Party candidates together in '32 polled nearly a million votes)

General Motors will also have to shed 21,000 union workers and close 12 to 20 factories, steps that most analysts thought could never be pushed through by a Democratic president allied with organized labor.
Forty percent of the company's 6,000 dealers will close, the workers' union will be forced to finance half of its $20 billion health care fund with stock of uncertain value in the restructured G.M. and bondholders, including many retirees, will be forced to take stock worth 10 cents for every dollar they lent the company. The company set in motion plans to close many of its best known brands, like Pontiac and Saturn."
Auto Industry Bailout News - The New York Times

"But it turns out that that $700 billion is just a small part of a much larger pool of money that has gone into propping up our nation’s financial system. And most of that taxpayer money hasn’t had much public scrutiny at all.
According to a team at Bloomberg News, at one point last year the U.S. had lent, spent or guaranteed as much as $12.8 trillion to rescue the economy. The Bloomberg reporters have been following that money. Alison Stewart spoke with one, Bob Ivry, to talk about the true cost to the taxpayer of the Wall Street bailout."
The true cost of the bank bailout | Need to Know | PBS