WEBVTT

NOTE The New Deal

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In order to make sure that they do, I always bring something to give them.

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And coming back along the two sides of the room now is what I'm giving you to make sure that you get something out of this talk.

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It has a little caption at the bottom of it that is not part of the original being reproduced here.

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It says, a great moment in American monetary policy, but I don't know, I think it's greater than that even.

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And it's kind of one of the great low points of American history, period.

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But no one should be without at least a replica of this executive order.

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And so now you've got yours.

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This session has to do with the New Deal and that's been mentioned already a number of

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times in the conference.

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I want to touch upon certain themes that relate to the New Deal because 50 minutes is far

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There's far too little time to even summarize what it involved.

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The New Deal is the name that historians and to some extent people at the time gave to the Roosevelt administration's domestic policies between 1933 and 1938.

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There's another sense in which the New Deal went on and on and, in a sense, lives on today and incarnated in such people as Hillary Clinton.

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But there have been changes over time and the classic New Deal was brought to a halt in 1938 by opponents of the Roosevelt administration.

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and some of them conservative Democrats from the South and others Republicans in the Congress, mainly.

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And so the achievements, as they're called, of the New Deal ended in 1938 and after that,

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Roosevelt turned his thoughts to mastery of the world so having repaired all the

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domestic problems he could move on. The Roosevelt administration as I mentioned

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earlier today came into office at a time that was extremely propitious in the

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In the sense that the economy had been contracting for four years, many people were desperate to to do something and therefore the public and the Congress were receptive to proposals made by the President, almost without regard to what they were,

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So long as at least one of them was designed to benefit my interest group or me in particular.

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So there was a kind of breaking of the dam that normally obstructs legislation in the

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Congress and an enormous number of laws were enacted and on the strength of those administrative

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Agencies created in the first hundred days of Congress's session in the spring of 1933.

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There has never been anything like it, although there was something similar in the spring of 1935.

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But we had this mind-boggling assortment of very important laws,

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It's obviously something like the National Industrial Recovery Act, which authorizes the president to create cartels throughout American industry, that was without precedent.

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There had never been anything like that before. It had great importance. This wasn't something you could just laugh off. It was going to affect you in many ways.

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In addition, an Agricultural Adjustment Act was passed, which resembled that in the sense that it gave the president and his designated subordinates authority to take actions to control production, marketing and prices of agricultural commodities in a way that had never been done before.

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There had been some agricultural intervention during World War I, but nothing on that scale.

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And it just goes on and on.

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If you look at all of the programs that came out of these enactments,

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the historians have tried to organize the story of the New Deal in a number of ways.

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But one of the ways that I still find somewhat useful is to take the first two years of it and set that apart from the next part from 1935.

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These are known as the first New Deal and the second New Deal.

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And sometimes they're described as essentially different.

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I don't think they're essentially different so much as they were set in motion by different factions.

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And I'll come back to that in a moment.

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But there were some things that were done during the first New Deal that were abandoned or largely abandoned in the second and vice versa.

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There were some innovations in the second phase.

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I've just, could you hit the lights right there, the bank of four? Thank you.

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I've taken from an article of mine a table, which is, you see from the title, if you can see the title from that distance,

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it's called selected acts of Congress substantially attenuating or threatening private property rights.

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Now, that's not ordinarily how one lines up New Deal enactments, but practically all of them can be placed under that rubric.

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And the ones that don't fit, I've left off, but as you see, a number of important enactments remain, which I think can be viewed in that way.

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Historians have not viewed them in that way as a rule.

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Rule. Many historians have recognized, of course, that certain New Deal enactments or

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programs did chip away at private property rights or did somehow interfere in the conduct

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of business, but they've not generally viewed the New Deal as an attack on private enterprise

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or private property. Now we'll say that they should have taken into account the great many

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people at the time who viewed the New Deal in those terms. Historians have a tendency

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to talk about Roosevelt and all of his glorious programs almost as if the whole nation fell

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in line behind him. And while it is true that he won a great deal of support during his

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his first term and was re-elected by a large margin, it is certainly not the case that

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he had no opponents, he always had opponents and he had, after 1937, he had growing numbers

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of opponents and they were the ones that brought this frenzy to an end.

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But as you can see, I've mentioned the Industrial Act and the Agriculture Act, but their enactments

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to alter banking control, securities regulation, to build an entire regional development enterprise

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along socialist lines, the Tennessee Valley Authority, to repeal the gold standard, which

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the handout relates to, to provide farm credit, to change the laws regulating railroad transport,

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to interfere in mortgage lending and home lending, and that's just all in 1933.

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Now, normally if you had a congress that enacted any one or two laws of such scope and importance

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This is entirely out of scale for American politics.

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The next year we have some additional laws following up.

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For example, the Securities Exchange Act created the Securities and Exchange Commission, which

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itself was a major threat to the conduct of capitalism.

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Few things are more central to capitalists than the issuance of stocks and bonds, and although the states had imposed some regulations on that activity before, the federal government had not, hence forward the SEC would be the so-called watchdog imposing excruciatingly detailed requirements on corporations that had publicly held stock whenever they wanted to

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to sell any new stock or bonds or any other debt instruments.

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So this eventually reached the absurd point

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that my brother who once worked for a big corporation

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and his responsibility was actually overseeing

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the applications they sent to the SEC

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for approval to issue bonds.

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He became known as the vice president in charge of commas

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because if you didn't have a comma in just the right place in your SEC notice,

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they might turn you down and there could be a hundred million dollars worth of

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bonds you couldn't sell when you plan to. So it did achieve absurd extremes but

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But that's the way government regulation tends to move.

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Now the New Deal has been described by many people in a variety of ways and it is a difficult

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thing to understand because the first thing is it did not have any ideological coherence.

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I mean some people looked at it and they said this is just socialism but it's certainly

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It's only a mistake to say these New Dealers were a passel of socialists.

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Included in the crowd were all kinds of political views, all sorts of political backgrounds and persuasions and experience and ideals.

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Now, it's also the case that this variety did have a certain common denominator, which is that virtually all the New Dealers were, in a sense, heirs of the progressives in one way or another.

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They were all people who were looking to government action, and specifically to federal government action, to solve some perceived social or economic problem.

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So that's the very definition of progressivism in one way, but you had new dealers who were adherents of the gold standard.

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You had new dealers who were rampant inflationists who wanted to print paper money as fast as the presses would roll.

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You had new dealers who wanted something like central planning.

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You had New Dealers who said that was anathema, they wanted private enterprise, you had some

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that wanted antitrust policy, you had others that wanted to cartelize everything.

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So it was just a huge confusing mishmash of people, but they were all looking for the

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government to do something different.

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So if you understand that, you begin to understand why so often the New Deal worked at cross-purposes.

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And it did work at cross-purposes, even if there were such a thing as a constructive

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government policy, which aside from protecting private property rights and suppressing violent

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disorder, it's hard to imagine what such a thing might be.

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But if there were such a thing as a constructive government policy and they had had one, then

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it certainly would have been offset by other programs they were enacting at the same time.

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So it was just a terribly confusing collection of policies working against each other.

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Now another element that is helpful in describing the first New Deal is that a great many of

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The programs were revivals of programs that had been used in World War I.

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As I said earlier, people during the Depression said, how can we cope with this national emergency?

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Well, we've had national emergencies before.

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We had one in 1917.

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And the Brute Gang tells us they dealt with it just swell.

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So let's use the same methods as we used before.

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One of these agencies which actually was not a New Deal agency as such because it was created

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in 1932 but was embraced by the New Dealers and expanded and used for many new purposes,

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the Reconstruction Finance Corporation was so much a revival of the War Finance Corporation

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that they went back to the files and got some of the forms they had used that the War Finance

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Corporation just crossed out the word war, wrote in Reconstruction and used the same

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forms. So that's a case in which there's no disputing that this was simply a revitalization

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of a previous plan. The securities regulations harken back to the World War I, the Capital

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Issues Committee, which had tried to regulate in a vague way the issuance of corporate

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stocks and bonds.

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The Agricultural Act was to some extent modeled after activities of the Food Administration

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headed by Herbert Hoover.

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The National Industrial Recovery Act was administered by something called the National Recovery

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Administration, and that was modeled on the War Industries Board that Baruch had headed

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during World War I. In fact, there was much talk of putting Baruch in charge of the NRA,

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and he declined and sent his boy, General Hugh Johnson, to head it instead. The Agricultural

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Adjustment Administration was headed by another one of Baruch's flunkies, a man named George

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Peek.

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And so it went down the line for many of the programs created during the first New Deal.

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So in a way you can see that the war model and the Baruch gang view are very important

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in the first New Deal.

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The third thing that gives a little bit of coherence to many of these programs was that

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people perceived a problem of low prices and they thought if we can just find a way to

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raise prices we'll get out of the depression.

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Well, of course, at best they had things backwards, but as I mentioned earlier, if you're a businessman,

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it's easy to think like that.

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You think, if only I could sell my products at a higher price, I'd be better off.

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Well sure, yeah.

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But that doesn't mean that if somehow you could raise prices across the board, that

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would make everybody better off.

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Now one thing that happened in 1933 with the dam breaking and all these possibilities becoming

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real for the first time was that every crank and kook in the country rushed to Washington,

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D.C. to sell his kooky program. And the new dealers, it's bizarre that Roosevelt's early

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University advisors are called the brain trust.

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They were called the brain trust because they were university professors from Columbia of

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all places.

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And I think we've got one of our speakers back there who's implicated as a result of

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his own association with Columbia, shame, shame.

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But Raymond Moley and Adolf Burley and Mr. Tugwell, Rexford Tugwell, had all had some

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connection with Columbia University, as had the sainted Roosevelt himself.

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So they got together and advised him, along with General Johnson, prior to his election

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and just afterwards before the inauguration and the press with its usual cleverness designated

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this group of insiders the brain trust. Well, if you go back and look at the kind of advice

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they were giving Roosevelt, you discover that these brainy guys were as clueless as anyone

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could be. They didn't have any idea about how economies work. Now sometimes people excuse

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I used them by looking back and saying, well, nobody knew what to do.

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Everybody was confused.

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Well, no doubt there was a lot of confusion.

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And in fact, if you look at who signed petitions

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of various sorts in 1933 and 34 supporting cookie programs,

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you'll find distinguished economists signing those things.

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I mean, Frank Knight and Henry Simons

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and people who we would think are the less cranky

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of American economists were acting crankily at the time.

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But basically Roosevelt's advisors were nitwits.

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They didn't have any idea about what causes depressions,

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what can bring about recoveries.

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They didn't know how economies work.

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and one of them, Rexford Tugwell, was just a wannabe central planner, a man who was one of those who thought, well, look at what the Soviets have done, isn't it drawl, we should do that too, so this is the kind of advice he's getting to begin with and among the cranks who rushed to Washington was one Professor George Warren, a professor

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of Agricultural Economics at Cornell University,

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a man who had done excellent work

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collecting statistical data on the history of prices.

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Well, he was a good gopher.

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He could go back and find price data,

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but he was a clueless economist.

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In the course of collecting data,

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he had reached the conclusion that

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if you change the price of gold,

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You can change the price of everything.

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Well, it seemed to him that gold prices

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and prices of commodities in general

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seem to have moved together historically.

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He was a price guy.

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And so he came to Washington, he said,

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Mr. President, he said,

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we all know the economy needs reflation.

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We need to raise prices

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to get out of this terrible depression.

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and all you have to do is raise the price of gold

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and you'll see that all the other prices follow.

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And that was the impetus for going off gold,

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which is followed by the treasury's effort over about it,

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one year's time in 1933 and into the spring of 1934

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of pegging the price of gold

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and they would actually go into Roosevelt each week or so

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and say, well, Mr. President, what would you like the price of gold to be this week?

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He'd say, oh, well, let's see, how about $28.50 this week?

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And he kept putting it higher and higher

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and the treasury kept raising the price

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and the old price was $20.67 an ounce

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and of course gold was flowing to the treasury

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because it was paying a higher price for it

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and eventually they got it up to $35 an ounce

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and Roosevelt says, okay, that's good enough.

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The law allowed me to raise the gold price 60%

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and now we've got it up 59%.

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So let's stop there.

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So this was a devaluation against all currencies

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still pegged to gold, which a number were at that time.

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It was supported by farmers

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who thought it would help them sell their crops abroad

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because it made the dollar cheaper

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in terms of French francs and other gold-pegged currencies.

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But one thing it certainly did not do

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was it didn't do what George Warren said.

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It didn't raise all prices along with it.

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Prices came up a little bit, maybe five or 6% in 1934,

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and then prices in general hardly changed

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for the rest of the 1930s.

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They were just stuck down at that low level

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to which they had fallen in the early 30s.

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But this is characteristic of the idiotic kinds

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of things that were done in the New Deal.

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Roosevelt, who himself was clueless about economics,

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had the idea that what the public wanted

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was for the government to do something.

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That may have even been the origin of that expression,

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do something and so he he actually defended his policies by by saying that well we could have done nothing we could have just accepted the depression and allowed the suffering to continue but we we were more humane than that and we felt obliged to try something and if that didn't work try something else in other words close your eyes

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and try to pin the tail on the donkey.

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And somewhere out there,

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the donkey of recovery will be discovered.

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Now, along the way,

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the New Deal enacted programs

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that brought about a tremendous change

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Tremendous change in the relative importance of state and local governments and the federal government.

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This chart shows the proportions of all non-military government spending.

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So, for example, back here in 1902, state spending accounted for something like 12% of all government non-military spending.

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National accounted for like about 28% and so forth.

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and so forth. As you can see, prior to the Great Depression, local governments were the big deals in the United States.

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That's where most of the government activity was. Of course, government was much smaller in those days,

236
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and local governments took care of such things as streets and roads and education and the big items,

237
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the big items of those times.

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State governments did practically nothing in those days.

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The national government had already begun

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to take some actions in the civilian realm,

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but still it was a small operation

242
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compared to local governments, cities and counties.

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Now notice this continues to be the case

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right up to 1932.

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These data don't exist every year.

246
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That's why they're not continuous.

247
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But if you compare the situation in 1932

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with the situation in 1934,

249
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you'll see that's where the great shift took place.

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That's when this national government share leaps here,

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At the same time, the local government share is leaping here, and they're crossing over in magnitude.

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By the time we've got into the late 30s, matters have been consolidated in a completely different way.

253
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Now the national government is the big enchilada for government spending,

254
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and the state and local governments have fallen to relatively much lower proportions.

255
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In fact, matters were worse than that in terms of centralization, because during the New Deal, a number of programs were enacted with provisions for what is sometimes called cooperative administration.

256
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Take, for example, State Unemployment Insurance Programs, they're state programs, okay?

257
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If you want to collect unemployment benefits, you go to the Alabama Department of Employment

258
00:28:28.280 --> 00:28:33.080
or whatever you call it here and collect your dole.

259
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Well, why do we blame that on the federal government?

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Well, in the Fair Labor Standards Act of 1938, I beg your pardon, in the Social Security Act of 1935 was a provision for creating unemployment insurance at the state level.

261
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The federal government set some standards for the program, it invited states to set up these programs,

262
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and it provided that a tax would be placed on employers to finance the program, equal to 3% of the payroll.

263
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If a state did establish an unemployment insurance program, 90% of that tax money would be returned to the state.

264
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Otherwise, the tax would still be imposed and it would simply be removed from the state and given to other states to finance their unemployment insurance program.

265
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Well, you can't imagine a state politician who is going to stand by and let the federal government come and take away 2.7% of all the payrolls in his state when he could keep that money in the state and also take credit for putting in place an unemployment insurance program.

266
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So this is a no-brainer for state politicians and they all immediately proceeded to establish these programs.

267
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Now the money that's spent is part of what's being measured here in this state proportion.

268
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But this is imposed as it were.

269
00:30:11.160 --> 00:30:18.000
This is an offer a state couldn't refuse from Uncle Sam.

270
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And a number of other programs were created similar to that.

271
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So cooperatively administered programs also were an aspect of centralizing political and legal authority in the national government.

272
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The second New Deal, much of which took place in 1935,

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if we go back, see what happened then.

274
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The National Labor Relations Act was a centerpiece of this.

275
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Back here in the National Industrial Recovery Act had been a provision requiring employers to bargain collectively.

276
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And that had been the beginning of that kind of involvement by the national government.

277
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When that act was declared unconstitutional in 1935, Congress hastened to more or less

278
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reenact the labor provisions, only to extend them and create a much bigger federal role

279
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in labor management relations.

280
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And here, the provision was for elections among workers to decide whether they wanted

281
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to have union representation, overseen by the National Labor Relations Board, a number

282
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of restraints placed on employers to keep them from fighting off unions, and they could

283
00:31:54.440 --> 00:32:00.960
not refuse to bargain collectively with a union that had been established according

284
00:32:00.960 --> 00:32:08.460
According to the rules of this law, and this is still in force, although amended a number of times since.

285
00:32:08.460 --> 00:32:13.460
So this has been the foundation for encouraging unionization.

286
00:32:13.460 --> 00:32:24.960
The union membership grew between 1935 and 1940 from something in the neighborhood of 5 million to about 10 million.

287
00:32:24.960 --> 00:32:29.960
So it doubled, and then it increased another 50 percent during the war.

288
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and finally the the law was amended in 1947 by something called the Taft-Hartley Act

289
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to take some of the sharper edges off of it and make it somewhat less favorable to unionization

290
00:32:42.860 --> 00:32:49.120
and not long after that unionization peaked in this country it's been declining more or less ever

291
00:32:49.120 --> 00:32:59.120
since but the unions and the New Deal especially the CIO unions the industrial unions were very

292
00:32:59.120 --> 00:33:11.640
very closely linked. The politicos could use the unions as voters, as organizers, as mobsters,

293
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as whatever they could do best in the service of reelection. And so they showed their gratitude

294
00:33:20.760 --> 00:33:29.240
right here and set that in motion. The Social Security Act was the other big item and of

295
00:33:29.240 --> 00:33:37.880
course that's still the albatross around the neck of American society which only gets heavier

296
00:33:37.880 --> 00:33:48.660
with the passage of time. And that eventually was amended with Medicare and Medicaid in 1965

297
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And now, I suppose this year, these glorious pro-market Republicans will add prescription

298
00:33:57.620 --> 00:34:04.300
insurance for all of us old geezers.

299
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But that's the beginning.

300
00:34:06.260 --> 00:34:11.580
We've got some other things that are important economically, but we don't have time to discuss

301
00:34:11.580 --> 00:34:14.820
them all here.

302
00:34:14.820 --> 00:34:20.820
The turning point in the second New Deal that's important to remember is that the Baruch

303
00:34:20.820 --> 00:34:29.420
gang was more or less shoved aside by that time, and the government turned very hostile

304
00:34:29.420 --> 00:34:33.380
toward private enterprise in general.

305
00:34:33.380 --> 00:34:35.860
The Baruch gang, they're businessmen.

306
00:34:35.860 --> 00:34:41.520
They're not against business, they just want to cartelize it.

307
00:34:41.520 --> 00:34:48.200
These guys that got Roosevelt's ear and assumed positions of special policy making importance

308
00:34:48.200 --> 00:34:55.880
from 1935 onward were just hostile to business in general.

309
00:34:55.880 --> 00:35:07.540
Somebody once said, James Burnham said, they are people who would like to run the world.

310
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They think they can run the world.

311
00:35:10.780 --> 00:35:17.340
Now, they were largely lawyers.

312
00:35:17.340 --> 00:35:19.820
Imagine living in a world run by lawyers.

313
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It's preposterous.

314
00:35:24.820 --> 00:35:32.200
And Roosevelt himself discovered that in 1940 when he needed to prepare for war again.

315
00:35:32.200 --> 00:35:36.340
And so at that point, he checked these guys for the most part.

316
00:35:36.340 --> 00:35:45.460
1935 and 1940, they called the tune. These are people like Tom Corcoran, Ben Cohen, James Landis,

317
00:35:45.460 --> 00:35:56.340
William O. Douglas, the sainted Frankfurter, who was the daddy of them all. Law teacher, right? These

318
00:35:56.340 --> 00:36:02.820
guys are cranked out of Harvard like sausages and sucked down by Brandeis and Frankfurter to DC and

319
00:36:02.820 --> 00:36:09.300
Imposed in Policy-Making Positions, and they start writing things like the Public Utility

320
00:36:09.300 --> 00:36:16.300
Holding Company Act, which Corker and Cohen wrote, and numerous others.

321
00:36:16.300 --> 00:36:20.360
So here we've got Harvard lawyers remaking the world.

322
00:36:20.360 --> 00:36:21.360
They hate business.

323
00:36:21.360 --> 00:36:23.100
They hate businessmen.

324
00:36:23.100 --> 00:36:31.420
They think the world should be run by regulatory commissions populated by them and their pals.

325
00:36:31.420 --> 00:36:37.340
Now, for some reason, historians have failed to put any weight on the fact that this kind

326
00:36:37.340 --> 00:36:44.620
of government frightened businessmen.

327
00:36:44.620 --> 00:36:49.820
What's wrong?

328
00:36:49.820 --> 00:36:58.740
I did some work a few years ago in which I tried to find information to confirm that

329
00:36:58.740 --> 00:37:05.540
Investors were extremely frightened by the second new dealers and I went out

330
00:37:05.540 --> 00:37:09.940
looking through poll data and I found a lot of interesting things. One doesn't

331
00:37:09.940 --> 00:37:15.540
want to make too much of these polls but at the same time one can't just dismiss

332
00:37:15.540 --> 00:37:22.200
them out of hand. Polling was a new phenomenon in the 1930s. It really started

333
00:37:22.200 --> 00:37:32.040
around the middle of the 1930s. And the particular poll I have displayed here in the center is

334
00:37:32.040 --> 00:37:41.400
from a Fortune magazine poll of executives of corporations taken in November 1941 just

335
00:37:41.400 --> 00:37:46.920
before the United States entered the war. And the question was which of the following

336
00:37:46.920 --> 00:37:52.200
One comes closest to being your prediction of the kind of economic structure with which

337
00:37:52.200 --> 00:37:54.400
this country will emerge after the war.

338
00:37:54.400 --> 00:37:57.140
You see, they're already talking about after the war.

339
00:37:57.140 --> 00:38:02.120
We're not quite in it, but everybody with a brain knows that this is just a matter of

340
00:38:02.120 --> 00:38:03.760
time.

341
00:38:03.760 --> 00:38:10.400
So you could say, well, we expect a system of free enterprise restored very much along

342
00:38:10.400 --> 00:38:15.520
the pre-war lines with modifications to take care of conditions then current.

343
00:38:15.520 --> 00:38:19.680
27% of the people thought that's what they could look forward to after the war.

344
00:38:19.680 --> 00:38:24.840
Oh, by the way, they all knew that during the war there'd be all kinds of controls and interventions.

345
00:38:24.840 --> 00:38:26.800
So they're looking ahead.

346
00:38:26.800 --> 00:38:28.880
What happens after the war?

347
00:38:28.880 --> 00:38:33.280
And of course, their idea of what happens after the war is conditioned partly by how

348
00:38:33.280 --> 00:38:40.880
the war might affect matters, but largely by how things have been going in recent years.

349
00:38:40.880 --> 00:38:46.800
So this is kind of a reflection of the attitudes that Second New Deal has brought about in

350
00:38:46.800 --> 00:38:47.800
business executives.

351
00:38:47.800 --> 00:38:53.880
What about an economic system in which government will take over many public services formerly

352
00:38:53.880 --> 00:38:58.480
under private management, but still leave many opportunities for private enterprise?

353
00:38:58.480 --> 00:39:00.480
Okay, 52%.

354
00:39:00.480 --> 00:39:06.440
Now that's a bigger government they're looking forward to, but not one that's crushed every

355
00:39:06.440 --> 00:39:09.440
aspect of private enterprise.

356
00:39:09.440 --> 00:39:16.540
But the striking thing to me is how many selected option three or four. Option three was that

357
00:39:16.540 --> 00:39:21.040
after the war we'll have a semi-socialized society in which there will be very little

358
00:39:21.040 --> 00:39:27.800
room for the profit system to operate. And 37 percent of these business executives thought

359
00:39:27.800 --> 00:39:37.720
that was the best scenario. And four percent looked forward to a complete economic dictatorship

360
00:39:37.720 --> 00:39:46.680
along fascist or communist lines. So add those two up and you've got over 40% of the business

361
00:39:46.680 --> 00:39:57.180
executives are thinking government is going to basically take over economic affairs. Well,

362
00:39:57.180 --> 00:40:06.360
who wants to invest in a situation like that? And the answer is, so far as long-term investment

363
00:40:06.360 --> 00:40:17.680
is concerned, hardly anybody. And so when you look at the way the New Deal affected

364
00:40:17.680 --> 00:40:25.800
the course of economic recovery, of course the recovery is very weak. It never recovers.

365
00:40:25.800 --> 00:40:32.800
Finally, military spending starts pumping up the economy in 1940 and you get the illusion

366
00:40:32.800 --> 00:40:39.100
of Prosperity, but it's only an illusion because private production never recovered to even

367
00:40:39.100 --> 00:40:46.400
close to the 1929 level until after World War II.

368
00:40:46.400 --> 00:40:52.600
Now what I've got up here is a little more complicated, but it's not too hard to explain

369
00:40:52.600 --> 00:40:54.920
what it has to do.

370
00:40:54.920 --> 00:41:01.920
When I would tell this story to people, especially my economics colleagues out there in the mainstream,

371
00:41:01.920 --> 00:41:06.920
and the mainstream, they would say, ah, baloney.

372
00:41:06.920 --> 00:41:13.920
You know, you can say these people were scared to invest, but that can't be it.

373
00:41:13.920 --> 00:41:15.920
That's not in any of our models.

374
00:41:15.920 --> 00:41:19.920
Who knows what people will say to polls?

375
00:41:19.920 --> 00:41:22.920
Who knows? They're just blowing hot air.

376
00:41:22.920 --> 00:41:26.920
What do you expect from Republican tycoons?

377
00:41:26.920 --> 00:41:30.920
Well, there is something to the challenge.

378
00:41:30.920 --> 00:41:34.120
Put your money where your mouth is.

379
00:41:34.120 --> 00:41:43.720
So can we find information or evidence that shows us how people put their money?

380
00:41:43.720 --> 00:41:45.200
And the answer is, of course.

381
00:41:45.200 --> 00:41:49.560
These businessmen were dealing in financial markets.

382
00:41:49.560 --> 00:41:54.280
And what I've got here is evidence taken from the bond market.

383
00:41:54.280 --> 00:42:00.520
I went out and I found the yields on corporate bonds of the highest grade.

384
00:42:00.520 --> 00:42:07.160
And there's a series of these measured in the first quarter of every year going way back.

385
00:42:07.160 --> 00:42:16.280
And then I took the ratio of the yield on a bond that matures in one year and the yield

386
00:42:16.280 --> 00:42:23.160
on a bond that matures five years, 10 years, 20 years, 30 years in the future.

387
00:42:23.160 --> 00:42:26.840
This is, in economics, this is called a yield spread.

388
00:42:26.840 --> 00:42:32.000
You can draw it another way and it's called a yield curve.

389
00:42:32.000 --> 00:42:38.920
What you see back here between 1926 where I started and 1934 is that there is no yield

390
00:42:38.920 --> 00:42:41.640
spread to speak of.

391
00:42:41.640 --> 00:42:46.040
They're all tracking along the same magnitude.

392
00:42:46.040 --> 00:42:53.140
The yield on a bond due in a year is approximately the same as the yield on a bond due in five

393
00:42:53.140 --> 00:43:23.140
But what you see between the first quarter of 1934 and the first quarter of 1935 that is with the onset of the second New Deal and staying at that high level until 1942, when it comes back down and this mountain we've built here collapses back on itself, is a big difference between the yield on a bond and the yield on a bond.

394
00:43:23.140 --> 00:43:28.820
Do farther in the future. This is a representation of what economists call

395
00:43:28.820 --> 00:43:36.100
the risk premium. The risk premium. Why should I get a higher yield on

396
00:43:36.100 --> 00:43:41.260
holding a bond that won't mature for five years than one that won't mature

397
00:43:41.260 --> 00:43:48.080
until one year from now? The answer is I'm uncertain about the payoff. For one

398
00:43:48.080 --> 00:43:51.260
year, I think things won't change that much in the next year. I'm fairly

399
00:43:51.260 --> 00:44:21.260
5 years? If I'm uncomfortable with that for any reason, about the real value of the money that's promised by the bond, either because I think there may be default, my return may be taxed, there may be inflation that lowers the real value of the nominal amount promised by the bond, any of those reasons will go into a risk premium, means I won't pay as much attention to that.

400
00:44:21.260 --> 00:44:23.900
for the bond as I otherwise would.

401
00:44:23.900 --> 00:44:28.900
And bidding down the price makes the yield higher on this bond.

402
00:44:29.180 --> 00:44:31.660
So this little mountain I've shown you here

403
00:44:31.660 --> 00:44:35.540
tells you that exactly corresponding

404
00:44:35.540 --> 00:44:39.380
with the second new deal was a huge bidding up

405
00:44:39.380 --> 00:44:43.360
of the risk premiums prevailing in the financial markets.

406
00:44:43.360 --> 00:44:46.660
If this isn't putting their money where their mouths were,

407
00:44:46.660 --> 00:44:48.140
I don't know what is.

408
00:44:48.140 --> 00:45:00.140
I've shown this to various people. This comes from an article I published in 1997, and so far no one has come forward to knock it down. I'm waiting.

409
00:45:00.140 --> 00:45:06.140
Many people, when I talk about this, quarrel with it on one ground or another.

410
00:45:06.140 --> 00:45:13.140
Mainstream economists have any number of ways to think up bizarre alternative explanations.

411
00:45:13.140 --> 00:45:28.140
But frankly, I think mine suggests itself not only because that's what these data look like but because this evidence is so much in accord with so much other evidence of the kind that one can read from history.

412
00:45:28.140 --> 00:45:40.060
So, what the second New Deal did was prolong the depression, prolong the suffering of Americans

413
00:45:40.060 --> 00:45:46.580
who were unable to find a good job, were unable to operate their businesses successfully,

414
00:45:46.580 --> 00:45:50.300
and in some cases, hardly able to feed their families.

415
00:45:50.300 --> 00:45:55.780
This is the great, compassionate Roosevelt, the one who stirred the hearts of the ordinary

416
00:45:55.780 --> 00:46:04.780
The one whose picture went on their walls. Even when I was a kid, people still had Roosevelt's portrait tacked up on their walls.

417
00:46:04.780 --> 00:46:09.780
Grateful for all he had done for them and the country.

418
00:46:09.780 --> 00:46:18.780
And what he had done for them is besides helping to destroy a good deal of what was good and decent and valuable about the American political economy,

419
00:46:18.780 --> 00:46:24.780
he had kept them impoverished for years longer than they needed to remain in that condition.

420
00:46:24.780 --> 00:46:31.400
condition. So it's an irony of American history and historiography that Roosevelt

421
00:46:31.400 --> 00:46:36.560
and the New Deal have come down to us as they have, but I think it's just what you

422
00:46:36.560 --> 00:46:42.780
might expect if you remember that the historians are the heirs of progressivism.

423
00:46:42.780 --> 00:46:47.780
Well I'll stop and take questions at this point.

424
00:46:54.780 --> 00:46:59.780
Any Roosevelt defenders in the room?

425
00:46:59.780 --> 00:47:01.780
Yes, sir.

426
00:47:01.780 --> 00:47:06.780
Not a defender, but would you be willing to tap a little further into the causes?

427
00:47:12.780 --> 00:47:20.780
Well, of the American engagement, certainly we have to hold Roosevelt himself and his close advisors accountable for that.

428
00:47:20.780 --> 00:47:25.860
that they worked very hard to get the country into the war that's that's no

429
00:47:25.860 --> 00:47:31.780
longer an outrageous claim or statement I think even the mainstream historians

430
00:47:31.780 --> 00:47:37.700
now recognize that the difference is that although they they admit that they

431
00:47:37.700 --> 00:47:43.980
make the judgment that that was a fine thing that we needed to be in that war so

432
00:47:43.980 --> 00:47:48.980
Well, thank God that Roosevelt was out there leading us where we needed to go.

433
00:47:53.980 --> 00:47:56.980
The 32 speeches gave no indication of this.

434
00:47:56.980 --> 00:48:00.980
Oh yes, the comment is about Roosevelt's speeches in 1932.

435
00:48:00.980 --> 00:48:03.980
And no, they didn't foretell any of this at all.

436
00:48:03.980 --> 00:48:09.980
He campaigned to criticizing Herbert Hoover for not balancing the budget

437
00:48:09.980 --> 00:48:12.980
and for spending too much on government employees.

438
00:48:12.980 --> 00:48:18.760
He gave no indication that he would have been in the gold standard, that he would

439
00:48:18.760 --> 00:48:24.260
embark on this frenzy of government regulation, nothing of the sort.

440
00:48:24.260 --> 00:48:38.260
Not that specific, but his 1932 inaugural address when he said we are now a poor economy and we're going to have to change our procedures of doing things differently.

441
00:48:38.260 --> 00:48:46.260
Yeah, he was already elected then. Once he was elected, no, his inaugural speech, which, you know,

442
00:48:46.260 --> 00:48:56.140
which he said, we have nothing to fear but me. No, that's not it. It was, it was fear itself.

443
00:48:56.140 --> 00:49:04.460
But that speech is interesting in many respects. It's just one of the more memorable speeches in

444
00:49:04.460 --> 00:49:32.660
American History, and it's full of military metaphors and threats. Roosevelt says, I will call on people to respond as a disciplined army, you know, we together under my leadership, we can fight this thing. And if Congress should refuse to act as required, I will act.

445
00:49:32.660 --> 00:49:40.660
He said that very plainly. In other words, if dictatorship is what it takes, I will be the dictator.

446
00:49:40.660 --> 00:49:49.660
It's as plain as anything could be. And yet, as I say, people have found that a very stirring speech, it's always claimed,

447
00:49:49.660 --> 00:49:56.660
and this is an interesting project for some of you history students, it's always claimed that Roosevelt's speech

448
00:49:56.660 --> 00:50:05.020
and his demeanor in the early days in office turned around the American bleakness of spirit

449
00:50:05.020 --> 00:50:13.100
and gave Americans hope. Now, I wonder, how would you show that? Suppose you were a witness

450
00:50:13.100 --> 00:50:20.100
in a court of law and, you know, your cross examiner said, okay, well, prove it. What's

451
00:50:20.100 --> 00:50:27.260
What's your documentation? Show me he turned the American spirit into euphoria from bleakness.

452
00:50:27.260 --> 00:50:32.780
I don't know. I mean, we've got some people who liked him, and we've got the historians

453
00:50:32.780 --> 00:50:38.300
who say this, but I frankly would like to see some real evidence that he produced a

454
00:50:38.300 --> 00:50:40.300
reversal of the American spirit.

455
00:50:40.300 --> 00:51:09.300
One of the things that I think about is, if I was one of these guys who was involved in this, I was sitting in the room, you know, listening to all these concoctions and all these things go on, you know, just maybe from a different perspective, obviously, I would be wondering, where is it that a bureaucrat is truly coming from in his heart that makes him follow through with this stuff?

456
00:51:09.300 --> 00:51:14.300
What is the truth with this? Is it power? Is it that he's accumulating personal wealth?

457
00:51:14.300 --> 00:51:27.300
What is it that makes them perpetuate this thing? Obviously you can see that somebody like Roosevelt is going to be caught up in his image and his, you know, how history is going to seem and all that.

458
00:51:27.300 --> 00:51:30.300
But what about these guys who are actually implementing this?

459
00:51:39.300 --> 00:52:09.300
They believed that they could run the world better than the market system, they believed in themselves, they didn't see that it was all that tough, they took themselves to be public-spirited men, they looked at the capitalist class as exploiters and cheaters and robbers, and so why couldn't they do it better? It was done so badly by the master class that had held sway before them.

460
00:52:09.300 --> 00:52:26.260
Well, in the first New Deal, the first New Deal was a plotted by business, particularly

461
00:52:26.260 --> 00:52:35.900
big corporate business almost across the board. But these guys were looking for cartelization

462
00:52:35.900 --> 00:52:38.140
as an answer to their problem.

463
00:52:38.140 --> 00:52:42.700
Henry Harriman was the head of the Chamber of Commerce at the time.

464
00:52:42.700 --> 00:52:49.300
I mean, if his antecedents had seen him then, they would have rolled in their grave, I think,

465
00:52:49.300 --> 00:52:51.340
at least a little bit.

466
00:52:51.340 --> 00:52:56.820
But these guys were not proponents of competition to begin with.

467
00:52:56.820 --> 00:53:03.980
They were people who were very happy to look to the state to help them organize cooperation.

468
00:53:03.980 --> 00:53:06.380
That was the watchword of the day.

469
00:53:06.380 --> 00:53:10.240
They didn't talk about cartelization, they talked about cooperation, and they talked about

470
00:53:10.240 --> 00:53:17.180
putting it into wasteful competition, cutthroat competition, and so forth.

471
00:53:17.180 --> 00:53:23.460
And the master of this kind of lingo was Hugh Johnson, a very flamboyant character who did

472
00:53:23.460 --> 00:53:28.540
a lot of destructive things, but he was well worth having just for the language he used.

473
00:53:28.540 --> 00:53:58.240
There are many ways, I think, to understand the staying power of a lot of these

474
00:53:58.240 --> 00:54:04.080
policies and some of them are just just political mechanics. When you create a

475
00:54:04.080 --> 00:54:10.760
program you create strong proponents of it by by the very act of its creation.

476
00:54:10.760 --> 00:54:14.200
Somebody's going to run it and those people are going to want to continue

477
00:54:14.200 --> 00:54:20.280
running it and they're going to be the people who every day collecting their pay

478
00:54:20.280 --> 00:54:26.520
act to preserve it and expand it and they have the most information about it.

479
00:54:26.520 --> 00:54:32.240
They're the people best able to defend it with the greatest incentive to defend it.

480
00:54:32.240 --> 00:54:37.720
So create a government program at your peril because chances are you'll never be able to

481
00:54:37.720 --> 00:54:45.960
get rid of it even if it's vastly unpopular with the people and even with Congress.

482
00:54:45.960 --> 00:54:54.200
But besides that, one I think needs to understand that the American people went 15 years from

483
00:54:54.200 --> 00:55:05.320
1930-1945 enduring constant national emergency and constant government efforts to deal with them.

484
00:55:05.320 --> 00:55:15.720
And so almost an entire generation was softened out, beaten down and accustomed to having government take care of a variety of things

485
00:55:15.720 --> 00:55:19.720
that used to be the preserve of private initiative and decision.

486
00:55:19.720 --> 00:55:29.820
So, you educated a new cohort of young people who found this normal, because they had never known anything else that they understood,

487
00:55:29.820 --> 00:55:38.520
and you changed the minds of a lot of other people by cutting them in on some kind of real or fictitious benefit they got from it.

488
00:55:38.520 --> 00:55:46.320
So, the ideology of the American people changed greatly between 1929 and 1946,

489
00:55:46.320 --> 00:55:51.720
because of the experience of those years and the way it had been presented to them,

490
00:55:51.720 --> 00:55:56.320
propagandized to them, and just the way they had lived it.

491
00:55:56.320 --> 00:56:01.220
In a way, you can't be a good walker if you never walk.

492
00:56:01.220 --> 00:56:07.120
If you sit in a chair for 15 years, you'll never be a strong walker when you finally stand up.

493
00:56:07.120 --> 00:56:13.820
Americans had lost their muscles for acting as free men, and they never got them back.

494
00:56:13.820 --> 00:56:23.020
Do you see that as somewhat similar to what they did in wiping out a whole generation of people?

495
00:56:23.020 --> 00:56:25.300
Well, no, I don't see it as similar in that sense.

496
00:56:25.300 --> 00:56:28.580
I mean, the Russians literally annihilated human beings.

497
00:56:28.580 --> 00:56:33.980
But what the New Deal did was annihilate the human spirit.

498
00:56:33.980 --> 00:56:35.820
I'll stop there.

499
00:57:05.820 --> 00:57:07.820
The Theory of Money and Credit