President Barack Obama said that Franklin Delano Roosevelt (FDR) – the president best known for establishing a welfare and regulatory state in America – was “fiscally conservative,” in response to a question about how to keep the economy going.
Obama was referring to spending-cut measures Roosevelt took in the middle of the New Deal that lasted from 1933 to 1940.
“FDR comes in, he tries all these things with the New Deal; but FDR, contrary to myth, was pretty fiscally conservative,” the president said Friday during a town hall meeting on the campus of the University of Maryland.
“And so after the initial efforts of the New Deal and it looked like the economy was growing again, FDR then presented a very severe austerity budget,” Obama continued. “And suddenly, in 1937, the economy started going down again. And, ultimately, what really pulled America out of the Great Depression was World War II.”
Obama used this to illustrate why the political leaders should tread carefully in cutting the deficit.
“Some have said, I think rightly, that we’ve got to be careful that any efforts we have to reduce the deficit don’t hamper economic recovery, because the worst thing we can do for the deficit is continue to have really bad growth or another recession,” Obama said.
However, Jim Powell, author of the 2003 book, FDR’s Folly, How Roosevelt and His New Deal Prolonged the Great Depression said spending cuts to close the deficit had little to do with economic downturn of 1938.
“It’s a misleading analysis. The budget deficit during the Great Depression was such a tiny percent of the GDP, and because it was so small, it’s a hard case to make that these cuts cause the depression of 1938,” Powell, an adjunct fellow with the libertarian Cato Institute, told CNSNews.com.
No one grew the size of government, taxation and spending in peacetime the way Roosevelt did, Powell said.
“FDR tripled taxes and spending more than doubled from 1933 to 1940,” Powell said. “That was the biggest increase in peacetime spending in American history. Before that, the biggest increases in spending came during wars.”
Further, the New Deal did not bring the economy back and prolonged recovery, Powell said, as unemployment was still at 17 percent by 1940, before war spending began to pull the country out of the depression.
“There were a number of New Deal policies that make it harder and more expensive to hire people,” Powell continued. “Compulsory unionism made it more costly to hire people. The more expensive something is the less you get of it. The more you subsidize something, the more you have of it.”
Despite the $500 billion spent under FDR through various programs, the unemployment rate in the United States did not significantly decrease until after the U.S. officially entered World War II in 1941, according to Bureau of Labor Statistics (BLS) records from 1929 through 1944.
From BLS records, the rates of unemployment in the United States were as follows:
1929 … 3.2 percent
1930 … 8.7 percent
1931 … 15.9 percent
1932 … 23.6 percent
1933 … 24.9 percent
1934 … 21.7 percent
1935 … 20.1 percent
1936 … 16.9 percent
1937 … 14.3 percent
1938 … 19.0 percent
1939 … 17.2 percent
1940 … 14.6 percent
1941 … 9.9 percent
1942 … 4.7 percent
1943 … 1.9 percent
1944 … 1.2 percent