A Libertarian Defense of the New Deal

From the day he replaced Al Smith as governor of New York, Franklin Delano Roosevelt has enjoyed an unparalleled cachet among progressives. Up until recently, that alone was enough to make him an object of scorn in conservative circles, but the current crop of neoconservatives has fallen in love with FDR’s foreign policy approach and “national greatness” rhetoric. That leaves libertarians and a dwindling number of paleoconservatives to sully his legacy but I, for one, find myself not entirely up to the task. FDR might have been America’s most statist president, but the New Deal legislation for which he is best remembered has some components that even a libertarian can like.

Let it be said from the start that I don’t intend this to be a defense of the New Deal in its entirety. What transpired during FDR’s reign – literally thousands of pages of regulations added to the federal register and the creation of a behemoth bureaucracy that, by and large, still stands today — is indefensible by almost any measure of classical liberalism, as is the postwar expansion of New Deal programs that followed (damn you, LBJ). I’ll further qualify this defense by pegging it to the harsh realities of the era: namely, the Great Depression. That said, while it certainly brought about an unprecedented change in governance, I don’t buy the notion that the New Deal is somehow to blame for all the socioeconomic woes that beset America in the years that followed.

First and foremost, there can be little doubt that the New Deal was preferable to a socialist insurrection. If the idea of an American-style Bolshevik uprising seems far-fetched, I invite doubters to revisit the political and economic conditions of the great depression. Faith in the free market was shot. Herbert Hoover’s ham-handed government response was derided as ineffective. A number of prominent leaders, from Huey Long to CIO boss John Lewis, were calling for reforms that were far more radical than what ultimately came to pass. FDR might not have “saved capitalism from itself,” but he certainly did co-opt these malcontents and head off the problem before it got out of control.

And yet, some still find it prudent to blast him for having given in. Conveniently, they neglect to mention what they would have done in his place. Given the public attitudes at the time, staying the course and waiting for the market to correct itself was not a politically viable option. Inaction would have only bred further unrest and utilizing heavy-handed tactics and police-state conditions to put down the unrest would have only exacerbated the problem.

Libertarians have been able to point to what should have been done before the Depression to soften the impact (namely, monetary reform and repealing restrictive tariffs), but I’ve yet to hear a satisfactory explanation as to what should have been done during the Depression itself. “Wait it out” may be the correct prescription in the long haul, but it does precious little good while people are starving.

That said, the New Deal can also be defended on the grounds that it produced better consumers. While libertarians (and Austrian School economists in particular) have attacked the notion that the New Deal ended the Depression. Fair enough (albeit inconclusive due to the outbreak of WWII). But what of the New Deal’s role in creating the middle class?

The postwar years saw the dual marvel of prodigious economic growth and expansion coupled with a system of support services that had previously been nonexistent. And, while it is likely that those who were able to make money before the Depression would have been able to do so after as well, there were a considerable number of individuals who would have had a hard time making ends meet, let alone prospering like they did.

The Depression, lest anyone forget, wiped out savings and left plenty of people without any capital whatsoever. Individuals without capital cannot buy, spend or save. In other words, they don’t contribute to the economy.

What the New Deal did was provide individuals whose savings had been eliminated with capital, in the form of the WPA and other job creation programs. Granted, this came at a high cost to the taxpayer, but in absence of it a.) there would be no one to fuel the economy on the lower levels and top-down investment would have led to a slow turnaround and b.) a good portion of those costs would exist anyway in policing/locking up all the shiftless bums patrolling the streets because they can’t find work.

Those who automatically dismiss the New Deal as government overkill usually neglect to consider these secondary effects, and, in doing so perpetrate a sort of reverse Broken Windows theory (ignoring hidden benefits rather than ignoring hidden costs). If the New Deal had the result of helping the economy, then I can’t write it off anymore than I could write off N.Y. Attorney General Eliot Spitzer’s “overreaching” when it has the effect of restoring investor confidence in the wake of stock scandals.

Third, I draw a distinction between New Deal programs as they existed at that time and the expansion of these programs that occurred afterwards. Social Security is a prime example of why such a distinction is necessary. The program was designed explicitly for poor old folks at a time in which poverty among seniors exceeded 50%. The Supreme Court decision made note of these circumstances, referring to them as “a crisis so extreme.”

Clearly, the program at the time was not Social Security as it exists today. If anyone at the time had promoted the idea that the government would attempt to fund the retirement of most Americans, the idea probably would have been ridiculed as untenable and the Court probably would have voted the other way. You can blame the New Deal for creating what led to our current retirement quagmire, but you shouldn’t confuse the two.

Of course, one could also exalt the New Deal for giving breaks to stellar talents such as Arthur Miller via the WPA, but doing that would require looking at how many mediocre and forgettable talents taxpayer dollars were spent on. No, the bottom line here is that, for all the ire it raises (even 60 years after the fact) among free market folks, the New Deal was a desperation move, not a Faustian bargain. Yes, there is a lot there to be disdainful of, but if you look hard enough, you’ll also find a few things to like. And lest anyone forget, things could have turned out much, much worse. We could all be calling each other “comrade.”