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Review: The Forgotten Man

August 28, 2009

The Forgotten Man: A New History of The Great Depression by Amity Shales

Amity Shales’ The Forgotten Man is nothing if not a good read.  Written in clean prose and with a keen eye for detail, this “new history of the Great Depression” covers the period from 1927 through the 1940 election.  As Shales explains in the introduction, the purpose of her book is to take a fresh look at a period the conventional wisdom about which has been shaped by subsequent partisan and ideological struggles.  Which is not to say that Shales lacks her own ideological perspective, which I would describe as broadly libertarian, but her authorial voice is light on polemics and ideology, focusing instead on the stories and points of view of individual actors in the events of the times.

Which may be my biggest criticism of The Forgotten Man.  I found myself frequently wondering what current economic theory has to say about the causes of the Great Depression and the efficacy of the responses to it.  But that’s not the book Shales chose to write.  The Forgotten Man is not a treatise on economic theory, and that was probably a wise choice on her part.  Too many equations and discussions of marginal tax rates, rent seeking, and the M2 money supply would have detracted from her core subject matter: the people of the Great Depression.

Shales tells the tales of a wide variety of people, from struggling poultry merchants, to utilities magnates, to (of course) presidents of the United States.

Reading it as I did in 2009, I couldn’t help but to compare and contrast  the Great Depression with our own economic slump.

The differences between then and now are enormous.  The Federal Reserve under Hoover tightened the money supply after the Crash under the theory that the bubble had been caused by too much money in circulation looking for a place to go.  In fact there was a money shortage after the Crash causing severe deflation.  Today the Fed is pumping money into circulation.  The unemployment rate in the Great Depression reached 20%, the current recession will top out (fingers crossed) at under 10% unemployment.

But one gets the same feeling reading about the 1930s that one can sense today that the political class can’t resist exploiting a crisis to advance an ideological agenda that is independent of the particular details of the given circumstances.  Shales describes a junket to the Soviet Union that many American intellectuals had taken in 1927 to admire Stalin’s planned economy.  Several of those on the junket later went on to form Roosevelt’s “Brain Trust”, the advisers that shaped the New Deal.  The central idea behind the New Deal (as well as Hoover’s response to the Crash before FDR) was that the US economy needed more central control, more planning — like the Soviet Union.  The Brain Trusters would have wanted more central planning in the US regardless of the Depression, but the apparent failure of capitalism provided the political opportunity.

While the most intrusive New Deal program, the National Recovery Administration, was found unconstitutional by a Supreme Court that still held to the Founders notion of a limited Federal Government, FDR still exercised much more control of the economy that had any previous president — for example FDR personally set the price of gold, in U.S. dollars, each day.

While the New Deal failed to bring about economic recovery — unemployment was still over 17% in 1938 — what FDR did accomplish was a transformation in American politics.   FDR and his party in Congress used their power to pick winners and losers in the economy.  As long as the winners outnumbered (which is to say ‘outvoted’) the losers, then Democrats would win at the ballot box.  FDR’s chosen winners were farmers, organized labor, and retirees. The official losers were small businessmen, corporations, consumers, taxpayers, and the unemployed who wanted to work.  FDR’s chosen winners became dependent for their economic well-being on the policies FDR had put in place.  Organized labor couldn’t attract nearly as many members without closed-shop laws.  Retirees came to depend on Social Security payments.  Farmers’ livelihoods were tied to Federal policies that kept prices high.   On the other hand while New Deal policies to keep food prices high were good for farmers, other starving Americans couldn’t afford to buy food.

FDR also used is executive power to demonize his political opponents by prosecuting prominent industrialists who opposed his policies and a member of the previous administration on the basis of the FDR administration’s new interpretations of existing tax laws — essentially, if not technically,  unconstitutional ex post facto prosecutions.

Regardless of whether one sees parallels to Obama’s exploitation of an economic crisis to advance an agenda in unrelated parts of the economy while diverting attention by threatening to prosecute members of the previous administration, I highly recommend “The Forgotten Man” on its own merits.

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