Separating out what Franklin Roosevelt’s administration and skillful public relations efforts claimed worked, surprisingly much like Hitler and Goebbels’ false spin of “the Nazi economic miracle”, Mussolini’s supposed turnaround of the long-suffering Italian economy “he made the trains run on time”, and Lenin & Stalin’s turnaround of the Soviet economy with 5 year plans and central planning that actually slowed economic growth by half of what had been occurring under the incompetent Czarist regime, we’ve been told about a lot of solutions that exacerbated the Depressions in severity and length. What actually worked was recognized at the time but generally escaped notice of the press and historians who focused on what political leaders announced they themselves were doing. So our toolbox is full of more dynamite than glue. Many solutions were planted and pressed by hostile foreign governments and economic rivals to change the balance of power, an element that gets left out of economic crises because economic history bores reporters and politicians (and is easy to do subtly.) Drawing in an enormous amount of the U.S.’s investment capital and tax proceeds, the dollar equivalent of many years of the entire federal budget at the time, in World War I loans to nearly bankrupt England and France that were not repaid. England and France’s attempts to generate the debt payments to the U.S. mostly out of the German economy depressed it to the point that Hitler’s rise was bizarrely easy) gets overlooked now (not then.) That was a huge loss of both capital in hand ($10-15 billion in a time when the entire federal budget was around $2 billion) and in opportunity costs in infrastructure, education, defense, research, and business growth. It took decades to somewhat recover from, like the Great Chicago Fire of 1872, Galveston’s devastation in the 1900 hurricane that killed 6,000 or Hurricane Katrina’s impact on New Orleans in 2005, you rebuild partially and forget but the loss ends many possibilities rather than just a bump in the road. It’s similar in some ways to the scale of unproductive debt the U.S. has once again quickly accumulated under an administration surprisingly similar to FDR’s New Dealers, it’s a far heavier load than politicians like to acknowledge and that the story stretches for many decades bores the media into ignoring it like children with attention-deficit-disorder.
So what did work?
The infrastructure construction often attributed to solving the Depression, begun under infrastructure-building veteran/international mining engineer Herbert Hoover (FDR did little with infrastructure in his previous government jobs and saw it as political capital with buying votes) left 11 million unemployed after a decade instead of 12 million. As Jim Powell shows in his book on the New Deal, the majority of infrastructure projects were done in swing voting states (could support an FDR rival in the next presidential race) rather than in the most infrastructure-poor states who were already solid supporters of the administration, so the impact was so little that the states with the least new federal infrastructure investment grew their economies about double the rate of the states invested in, in the middle of a Depression! Projects were chosen for political appeal and dramatic scale rather than practicality so their capacity was often wildly out of synchronization with area demand. It took 40+ years for the power generated by the new big dams to be fully utilized except where aluminum smelters/refineries were hastily erected during World War II (aircraft aluminum needs were enormous and 25% of the cost of making aluminum is electricity-the biggest input rather than the bauxite ore.) Thousands of city halls and public buildings that local taxpayers had long refused to fund were built with federal tax dollars to give the “make work” crews from the Works Progress Administration, Civilian Conservation Corps, etc. something to do, but a new City Hall is a puzzling stimulus for a local economy. Once built, the cost of maintaining infrastructure is considerable and eliminates both other uses for those tax dollars and makes new infrastructure projects much harder to get done since the haphazard, political central planning was hardly systematic or practical in what it built, leaving big holes later generations still struggle with.
We’ve been told the Smoot-Hawley Tariff Act by two Republican Senators in the early 1930’s triggered an international trade war, closed foreign markets to U.S. exporters, and probably caused the Great Depression to last about 3 times as long as in other countries. Ha Joon Chang in his book “Bad Samaritans” on trade policy points out it was a tiny change in existing rates and there was no significant impact in exporting or importing. Europe’s ability to produce and export had recovered significantly (world trade had peaked just prior to World War I, to a scale it wouldn’t reach again until the 1990’s) in rebuilding it’s cargo ships after German U-Boats had devastated commercial transport capacity (it took the U.S. many years to do that too), restore financial capital to fund foreign trade, stabilize the many new governments and new nations (Iraq, Czechoslovakia, Austria, Hungary, Turkey, Soviet Union, Latvia, Lithuania, Estonia, Poland, Yugoslavia…) and the British Empire’s internal trading bloc included 25% of the Earth’s population. Germany became both more dependent on U.S. capital and imports under Hitler (1933-) while adopting an official economic strategy of screwing the U.S. as a principal foe from 1934 forward, see Adam Tooze’s “Wages of Destruction”. The Soviet Union drew on the U.S. heavily to build it’s electrical grid (GE), railroads, mines, oil fields/refining (Swedish Nobel, Standard Oil, Occidental Petroleum), mechanized farming (Campbell Farming Corp, Henry Wallace), military (see Walter Christie’s contribution to their tank development) etc. while infiltrating the U.S. government to a stunning degree to both divert resources to the Soviets (i.e. Soviet Lend-Lease during the war was also the equivalent of 4-5 years of the entire peacetime U.S. federal budget, never of course repaid) and undermining the U.S. economy in endless ways from key administration jobs as principal economic advisor to the President Dr. Lauchlin Currie, Undersecretary of the Treasury Harry Dexter White, Undersecretary of State Sumner Welles, possibly top advisor Harry Hopkins (“Agent 19”) were paid Soviet agents throughout the 30’s and 40’s. Much of the U.S.’s exports in those days were agricultural, food and fiber, along with oil (world’s biggest producer then), metals, coal, and manufactured items. Wartime disrupted those suppliers and ships while peacetime allowed trading partners to both develop/restore internal sources and choose among many sellers rather than just a military ally with the ability to get it to them. The English Pound Sterling was the world reserve currency at the time and considerably more stable than the U.S. dollar which makes a huge difference in a country’s foreign trade. The U.S. dollar was gold-backed at the time, could be converted to gold, but FDR seized all consumer-owned gold and then would randomly peg the price of gold on changing daily basis based on little information and no understanding (he’d selected his Secretary of the Treasury Henry Morgenthau because he was a neighbor in Hyde Park, NY and seemed knowledgable about stuff in chats over the fence once in a while-and Henry being Jewish must of course be expert in finance FDR confided to some.) Agriculture production had grown dramatically during WWI and the 1920’s with homesteading and federal irrigation projects turning the Western states’ millions of acres from marginal pasture to marginal farmland for the last big wave of immigration for a half century. Converting farmland from horsefeed to humanfeed as cars overtook horses around 1915 opened up a third of U.S. farmland for humanfeed growing, much of it extremely productive farmland, and far in excess of the actual growth in food demand (greatly expanding the grain available for feeding livestock and putting a lot more cheap meat on U.S. tables, something politicians took credit for.) The sudden availability of cheap, useful small, medium, and large farm implements from John Deere, International Harvester, Caterpillar, Ford (tractors), and many others dramatically improved productivity and cut labor costs (which helped fuel the Depression’s unemployment by throwing millions of farm laborers and farm kids into the general employment market far from where the new jobs were.)
So what worked if it wasn’t building infrastructure, creating make-work programs, centrally-planning the U.S economy to a new extent, vast deficit spending as John Maynard Keynes though would work, trade policy, currency manipulation, deflation, hydroelectric and irrigation expansion, or the looming World War?