Remembering The Great Depression

Amity Shlaes’ new book,  “The Forgotten Man: A New History of the Great Depression,” has been praised by George Will for supplying Americans with just what they need — “a fresh appraisal of what the New Deal did and did not accomplish.” A syndicated columnist for Bloomberg News who writes about politics and economics, Shlaes is a former Financial Times columnist and Wall Street Journal editorial page staffer. I talked to her Thursday by telephone from New York City:

Q: Who exactly is “The Forgotten Man”?

A: Roosevelt had a specific definition of “the Forgotten Man.” His definition he gave in an early 1932 campaign speech. He spoke of the forgotten man at the bottom of the economic pyramid. The man who wrote that line was Ray Moley, a wonderful speechwriter and friend of Roosevelt’s — a brain-truster. Moley wrote to his sister that he wasn’t exactly sure where he had got that phrase, “forgotten man.” But it was in the air and there was an original place from which it came. When those men — Moley, Roosevelt — were babies or just about to be babies, there was a national best-seller in the United States called “The Forgotten Man.” Its author was a fellow named William Graham Sumner. He was a Yale professor and he had a different forgotten man in mind. Sumner’s “Forgotten Man” was the forgotten taxpayer who subsidizes the perhaps dubious project for the poor man. These two concepts were in opposition. People in the New Deal period knew both sides and they debated it throughout. The question was: Does the New Deal help more men than it hurts? And "Is what seemed legitimate then producing too many forgotten men of the taxpayer variety now?"

Q: What is your 60-second synopsis of what your book is about?

A: My book is about the Great Depression. I went back to look at it and I found a few things that will be surprising to us. One is the extent to which the New Deal hurt the economy; government intervention made the economy worse. It made the Depression great in magnitude. That government intervention started with (President) Hoover and went on to Roosevelt. That’s the big story. But I also discovered that the traditional history that we learned of the executives obscured a second history of this smaller man, the forgotten man. I tried to portray him too in the period. Two of the forgotten men I focused a lot on were a cult leader from Harlem named Father Devine and Bill W., the founder of Alcoholics Anonymous. Both men preached that you could get through bad times by turning within or to your community.

Q: What does your book tell us about the Depression that we should know about today?

A: The first is that government intervention can often hurt. Here we are in a situation now where things may go worse in the housing market, maybe because of the course of the U.S. dollar, maybe because of a larger, escalating war. We don’t know much about the lessons of the 1930s. But what they discovered was actually that the government intervention of the period prolonged the Depression, and the economy might have righted itself earlier had there been less intervention.

Q: Do Americans in general today have a clue about the Depression, its causes, its cure?

A: Viscerally they do. Intuitively Americans know that you have to help yourself across a bad patch. There was a component to the Great Depression that was like Hurricane Katrina that you couldn’t do anything about. That component was the banking component, the international component, the monetary component. But there were other components, such as what Washington did — and they did all sorts of crazy things — that did slow things down. There is this general view of the 1930s that the New Deal made everything magical and it was a good thing that Americans suspended disbelief and followed Roosevelt all those years. But that wasn’t the reality. The suspension of disbelief also shut out common sense.

For one example, Roosevelt prosecuted business all the years of the Depression as the class enemy and cause of the Depression. At his second inaugural he said, “We are fashioning an instrument of unimagined power.” People to the left of Al Gore know today that you don’t tell the American people you want an instrument of unimagined power to run the economy. All you do is hint that you might have had something to do with the founding of the Internet.  Roosevelt ignored, and with him his colleagues ignored, the fact that that would scare markets to death — which it did. And that created the so-called Depression within the Depression — the downturn within the downturn — that is the beginning of my book.

Q: As someone who knows a lot about economics, did you find that there was a high level of economic illiteracy among the ruling classes and the public back in the 1920s and 1930s?

A: Roosevelt wasn’t really interested in economics. He was governed by impulses and most of those impulses were political. He tried different economic plans and some were sort of right. He sort of understood that there was a deflation, which Hoover did not. But mostly he didn’t care about economics. He wasn’t very good at it. He didn’t focus on it, so he practiced inconsistent economics and that itself had a cost, which is what I tried to show.

Generally, I was surprised to find the extent of the wrong-headedness of the people who happened to be in government and the extent to which other important people — important observers who knew that what the government was doing was wrong. There was an economist whom I had never heard of, named Benjamin Anderson, who was the chief economist at Chase. Week in, week out, Benjamin Anderson was writing, “This isn’t wise. It’s not wise to raise the taxes yet again. It’s not wise to continue to prosecute utilities. It’s not wise to name names of business people on the radio as if they were criminals just because they reduced their tax bills, often legally.

"It’s not wise to make the Greenspan of your era — for that’s what Andrew Mellon was — a giant scapegoat and prosecute him for six years. It just doesn’t inspire business confidence.” I’m paraphrasing what Andersen said. But generally Anderson knew. He was writing in the papers “This isn’t wise. This isn’t going to help the recovery.” But the administration more or less ignored him. So when you go back to the period you find people just like you, who know just what you know. We know tariffs are probably bad for the economy. They knew tariffs were probably bad for the economy and yet Hoover still signed the Smoot-Hawley Tariff Act, for example. So it was a combo of willful ignorance and deep understanding, which is why it’s such a tragedy. If Anderson happened to have been in charge, then it would have gone differently. If Roosevelt had been a businessman, it would have been different. Roosevelt was however a lawyer and a Navy president.

Q: Of the people encountered back there in your research, who’s the blackest villain you can think of?

A: There are no black villains but there are extremely deficient leaders. One whom I wanted to like, in part because we all admire his son so much, was Henry Morgenthau, the Treasury secretary. Morgenthau didn’t really understand how economies grew and Roosevelt picked him because he was a yes-man to Roosevelt. One of Roosevelt’s sons wrote, “I think father wanted to be his own Treasury secretary.” And so Morgenthau just said “yes” or mirrored back what Roosevelt wanted, and this hurt markets repeatedly. I was surprised by the extent to which Morgenthau was deficient.

I was also surprised at the blinkered aspect of Felix Frankfurter. Felix Frankfurter was the Harvard Law School professor who was so important as an adviser to Roosevelt and later became a Supreme Court justice — not exactly a far-left Supreme Court Justice, either. Felix Frankfurter cared a lot about politicians, and maybe he would deal with heads of corporations, and he certainly understood about academics. But another observer said the rest of people, which would be the business people, the everyday men, were just shadows in the background to Frankfurter.

So he didn’t see that the rest of the economy — the forgotten man — was suffering. It just didn’t penetrate with him. He was terribly influential. Many of the younger New Dealers came out of his shop. They were called his “Hot Dogs.” We know today that the private sector is often pretty good in the utilities business, but Frankfurter liked government utilities. Even before there were government utilities on a large, large scale, especially federal utilities, Frankfurter taught a sort of utopian utilities class at Harvard called “Public Utilities,” and there was a poem written about it: Someone said,  “You learn no law in public U. That is its fascination. But Felix gives a point of view and pleasant conversation.” He was a progressive a bit ahead of his time and then he implemented his progressive ideas — and some of them were against common sense.

Q: Is there anyone you found who no one has ever heard of who is an unsung hero?

A:  The book has a big hero on the left. It was a man called Rex Tugwell. Rex Tugwell was sort of like Labor Secretary (Robert) Reich. He was an idealist. He ran left to his own president. He had the president’s ear some days. Then the president abandoned him as too left-wing in favor of other people in another department. Tugwell was in Agriculture — not the Labor department. He was honest. He was very left-wing. He was very inspired by the Soviet Union. He had a great affection for the economy of scale. He didn’t especially like middlemen. No, he had his rules about how he thought economics worked. But he was also honest enough to see that when he put his theories into practice — and he had the opportunity to do that on a massive scale; millions and millions of dollars through something called the Resettlement Administration, which moved Americans about at the time of the Dust Bowl. He saw they didn’t like it; they didn’t like to be moved about….
Several other heroes I had. One was Ray Moley, the speechwriter who wrote “The Forgotten Man” and later realized that he had the wrong “Forgotten Man." ….  Another was Andrew Mellon. The main thing about Mellon was he was portrayed as a caricature, a man behind his time — something like a character out of the “Forsythe Saga” or another Victorian public television show. But actually he was one of the premier venture capitalists at a time when people didn’t understand the power of capital and he was ahead of his time. The Roosevelt administration sort of told themselves that the Depression was forever — that’s why they needed to do all the things they were doing. It was forever Katrina, forever extraordinary circumstance. Mellon, on his 80th birthday, said that the Depression was just a bad quarter-hour in the glorious history of American growth and business. It was Mellon who was right and the New Dealers who were retrograde. We didn’t know that until 50 years later. A very wonderful man.

Q: Is FDR overrated as a hero by history or is he underrated as a villain?

A: He’s overrated as a hero. We all admire him — maybe not everyone — but I admire him for his war policy. What was going on in Europe was wrong; FDR helped to right it. But we should not allow that to obscure the wrong things they did with the economy in the ’30s, because economics matters to us now.

The worship of FDR gets in the way of knowing all the policy mistakes that they made — and policy matters. There’s this one meter that we’ve all focused on, which is the political one, and by that meter FDR does so fabulous — 46 of 48 states. But there were two other meters that we now know are important:  One was the Dow and the other was unemployment, and by those meters he failed. Unemployment didn’t really get down until the war and the question about the war is not, “Did World War II end the Depression?” but “Why did the Depression last all the way to the war?” That’s the question for us. That’s what matters to us.

In his re-election campaign, when he was about where we are now in the election cycle, FDR began to spend like crazy because he gave up on economics. 1936 was the year where the balance of federalism tipped. The federal government — all of the sudden — went from being half the size of the state and local governments to being greater than they were. We never went back on that balance. That was it. America changed forever. Some of us respect very much the states and like to think about that federalist period and wish we were closer to being back to it, especially now.