The Politically Incorrect Guide to the Great Depression and the New Deal

The Politically Incorrect Guide to the Great Depression and the New Deal is the most accessible book I have read on the Great Depression to date. Having read The Forgotten Man by Amity Shales (which I believe to be the definitive history of the Depression) and New Deal or Raw Deal by Burt Folsom, I think I can safely say that this book is the easiest to read and the easiest to digest.

He begins by stating, "Everything You Learned about the Great Depression and New Deal is Wrong," then proceeds to debunk myth after myth. As to the actual cause of the Great Depression, he offers this: The Federal Reserve fueled the stock market boom of the 1920s with its easy-money policies. After the crash, the Fed did the wrong thing by cutting rates and propping up unsound institutions. Hoover and FDR's interventions in the economy only made things worse.

He compares Hoovers reaction to the crash to that of Calvin Coolidge when the market crashed in 1920. Coolidge relied on the wisdom of all the presidents who had gone before and "did nothing." He knew a market had to find its own way out of a financial hit. Although this incurred short-term pain as jobs were lost and industries thrown into turmoil, the market emerged stronger than ever. From this we get "The Roaring 20s." Coolidge did exactly the right thing, but is given no credit. FDR, following Hoover's lead, meddled in every aspect of the economy and led us into the Great Depression. Yet FDR has somehow managed to earn the reputation for pulling us OUT of the Depression.

Contrary to the popular narrative, Hoover was not a laissez faire president who cared nothing for the poor and hurting and therefore did nothing to help the economy. In fact, he actively rejected the advice of the "leave it alone liquidationists" like Treasury Secretary, Andrew Mellon, who urged Hoover to let the economy collapse all the way to the bottom. He stated, "It will purge the rottenness out of the system." Mellon knew that if the government intervened, it would only prolong the pain and prop up businesses and industries that needed to fail.

Hoover was the first to put the "Great" in the Great Depression. The first thing Hoover did was to prop up wages, which was fine, if you had a job. But millions were thrown out of work and with wages forced up artificially, work became that much harder to find. Then he crippled international trade with the Smoot-Hawley tariff. This monstrosity slapped tariffs on imports and was predictably retaliated against by our trading partners, shattering our already limping economy. In addition, Hoover engaged in reckless borrowing and spending, leading to massive tax hikes (the highest rate was 63%) and a 20% unemployment rate at the end of his presidency. Finally, Hoover gave FDR a firm foundation on which to build his New Deal. It was Hoover, not FDR that began the alphabet soup agencies that ultimately hindered any kind of economic recovery.

Murphy then goes on to examine the roll of the Federal Reserve in the Great Depression. Prior to the crash, the Fed had an "easy money" policy, similar to the policies in place in the early 2000s. Conservative polices, like Andrew Mellon's tax cuts in the early 20s, fueled the roaring economy of the 1920s. But a cut in the interest rate after 1927 led a strong economy into an artificial boom. Two years later, the bubble burst. After the crash, the Fed lowered rates even further. Had they in fact raised the rates, the weakest institutions would not have been able to borrow at the higher rate and would have been forced out of business. The stronger businesses, confident of future success, would have taken the bet and paid the higher rates. This would have provided the economy with some "tough love," leading to quicker recovery. Instead, with its easy money, the Fed prolonged the day of reckoning and therefore the Depression.

The biggest myth surrounding the Great Depression is that FDR and the New Deal pulled us out of it. However, by any measure, the New Deal failed in its most basic mission - to improve the economy. Unemployment was 8.9% in 1930, and it didn't hit single digits again until the war "employed" millions as soldiers. Compared to Canada, which experienced its own "Great Depression" yet did not implement a "New Deal," the U.S. unemployment rate consistently remained 5 - 7 points above theirs. A very destructive policy of the New Deal was the National Industrial Recovery Act. This led to the artificial propping up of wages and prices. This worked if you had a job, but overpriced labor led to fewer jobs. Overpriced goods led to real poverty. Americans literally starved to death as crops were destroyed to maintain the higher prices. The "Codes of Fair Competition" likewise benefited specific jobs and industries, but imposed huge harms through severe economic inefficiencies on those not in favored classes. Finally, Roosevelt was no businessman and barely understood what he believed he could manage as a benevolent ruler. His policies led to a "capital strike" as those with money basically sat out the economy during the 30s. In an era that produced Stalin, Mussolini, and Hitler, businessmen were understandably afraid that FDR was on a path to a similarly socialist economy. In fact, FDR intentionally introduced uncertainty into the market so the common man would look to him as a savior. His political ambitions and lust for power led 93% of business executives polled by Fortune magazine in 1941 to conclude that after the war, FDR would socialize much if not all of the economy. The fact that he had sought and won a third term did nothing to alleviate their fears of a budding dictatorship.

Finally, Murphy demolishes the myth that WWII pulled us out of the Great Depression. Just as the National Recovery Administration allocated scarce economic resources inefficiently and prolonged the Depression, the war allocated resources according to war aims (i.e. labor was redirected from private industry to war efforts and goods reallocated from consumer, free market, priorities to wartime priorities). Inefficient use of resources is inefficient whether dictated by socialist policies or wartime policies. The case can be made that it was MORAL to reallocate labor and capital towards victory against Hitler, but it cannot be argued that it was economically efficient. It's the "broken window" fallacy. The broken window fallacy states that a window, broken by something like vandalism, benefits a community because of the economic activity created when the window is replaced. The fallacy lies in the fact that the money used to replace the window is money NOT used for more efficient uses. The owner of the window had many other uses for the money available to him other than replacing a window, but those uses are now precluded. It's simply common sense that killing workers and blowing up capital cannot be helpful to an economy. In addition, wartime economic statics are misleading. Millions of laborers were shipped overseas, and hence removed from the unemployment rolls, government spending increased astronomically on war equipment, causing a corresponding rise in GDP, price controls and rationing distorted consumer price index measurements, and civilian sacrifices further distort the economic picture. Most problematically, the wartime era operated as a centrally planned economy rather than as a free-market, which has proven time and again to be the most efficient way to allocate scarce resources. Ludwig von Mises states, "Capitalism is essentially a scheme for peaceful nations. But this does not mean that a nation which is forced to repel foreign aggressors must substitute government control for private enterprise. If it were to do this, it would deprive itself of the most efficient means of defense. There is no record of a socialist nation which defeated a capitalist nation. In spite of their much glorified war socialism, the Germans were defeated in both World Wars."

Murphy ends the book with lessons for today. Yes, we are doing it again. Yes, with Obama, we are heading in the same direction.

Books to read to follow up:
Great Myths of the Great Depression, by Reed
The Causes of the Economic Crisis and Other Essays Before and After the Great Depression, by Mises
The Great Depression, by Robbins
The Politically Incorrect Guide to American History, by Woods
The Politically Incorrect Guide to Capitalism, by Murphy
Free to Choose, by Friedman
America's Great Depression, by Rothbard
Out of Work: by Vedder and Gallaway
The Memoirs of Herbert Hoover, by the Macmillan Company
The Ethics of Money Production, by Hulsmann
A Monetary History of the United States, by Friedman and Schwartz
Less than Zero, by Selgin
The Case Against the Fed, by Rothbard
What Has Government Done to Our Money? by Rothbard
The Creature from Jekyll Island, by Griffin
Salvos Against the Neal Deal, by Garrett
The Roosevelt Myth, by Flynn
Rethinking the Great Depression, by Smiley
FDR's Folly, by Powell
Economics in One Lesson, by Hazlitt
Depression, War, and Cold War, by Higgs
Against Leviathan, by Higgs
The Costs of War, by Denson

Basic Economics by Thomas Sowell

Well this took forever to read! At 634 pages, it's not a quick, light read for the faint of heart.

But it is an essential book for all Americans. Everyone needs to know the common sense principles contained in this book so that we can make sense of economic policies and not be taken advantage of by power-hungry politicians counting on our economic ignorance to keep voting for them.

First the most basic of all things: a definition. Economics - the allocation of scarce resources that have alternative uses. I wrote that from memory because Sowell repeats it so frequently. (It probably takes up about 200 of the 634 pages!) But that's because he wants this ingrained in our minds! Scarce resources, whether gold, beach-front property, oil, time, talent, money, all must be allocated one way or another and all have alternative uses.

A free-market, capitalist economy like ours uses prices to allocate these scarce resources with alternative uses. Some economies use lotteries, or personal connections, or the spoils system, but all economies allocate scarce resources one way or another. The beauty of the price system is that it is so efficient and much less bloody than other methods. It is a mechanism of instant feedback. Prices rise when a scarce resource is considered more valuable in a particular usage. For example, if I have a dairy, my milk could be bought by milk vendors or ice cream manufacturers. If the ice cream manufacturer believes he can bid up the price of my milk because he knows he can recoup the cost in his sales price for ice cream, my milk will most naturally flow to him. Consequently we will have no shortage of ice cream! Another reason to love the free market.

When the price mechanism is messed with and not allowed to work naturally, shortages and surpluses occur. This is why price controls never work. If prices are kept artificially low (as defined by the price which would have been set by the free market) we will experience shortages as people buy up and over use what appears to be cheap or free - think healthcare or gasoline in the 70's. If prices are kept artificially high, in order to prop up an industry for example, we will suffer sometimes crippling and cruel surpluses. During the Depression, food was destroyed by the ton in order to keep food prices artificially high and prop up farmers. Americans literally starved to death because they couldn't afford the food. The same thing is happening with ethanol subsidies which artificially inflate the price for ethanol and therefore the scarce resource of corn is diverted from food to fuel, resulting in mass starvation around the world. 

A most important point made by Sowell is about the role of profits and LOSSES in regulating our free market to most efficiently allocate scarce resources that have alternative uses. Business have every incentive to provide what the public wants at a price the public is willing to pay. The promise of profits keep businesses working hard to innovate and lower production costs to consistently deliver what their customers want. The threat of losses is just as important, as loses provide very powerful feedback as to what not to do - think Edsel or New Coke. Business can respond very quickly and very efficiently or risk losing it all. While they may do it out of pure greed or an altruistic heart to better provide for their fellow citizens, the result is the same: better products at cheaper costs and a higher standard of living for all.

When the profit and lose mechanism is taken out of the picture, the result is ALWAYS inefficiency and a lower standard of living - think DMV. This is not because those involved in organizations like government bureaucracies are always incompetent and inefficient, it's simply that there is no other result possible. They have no feedback to tell them if what they are doing is working or not. Even if an agency begins with the best possible intentions and product, like the East German car, Tabrant, which was cutting edge when first entering production, but remained the EXACT SAME CAR for 30 years, they will very quickly become inefficient and wasteful simply from a lack of feedback provided by a free market. Ask yourself, would you be excited to buy a 1981 Ford today? They had no reason whatsoever to modernize and update the only car in existence in a government-run economy.

Sowell shines when he takes on economic fallacies and myths. A particular enlightening passage destroys the myth of "trickle-down economics." He states this has never been an economic theory and never will be. Money does not "trickle-down" in a business. It trickles-up. The owner and investors are the last to get paid, not the first. He uses Amazon as an example. Amazon went several years without making a profit at all. But their investors were willing to wait many years for a payout while continuing to pay employees, vendors, and other costs associated with the business. The little guy was paid first! The big guy was paid last, and many never get the payout if they run out of capital before they have a chance to make a profit. Yet you will never hear this told in the media. It's always "Tax cuts for the rich in the hopes of trickle down prosperity."

He also discusses the fallacy of greed controlling the markets. The simple fact is that everyone is greedy. That's human nature. Would you willingly give up 20 - 30% of your salary because you personally are not greedy? Of course not. You are not paid according to your greed or according to your employers stinginess. You are paid because that's what you are worth. Of course, every business would love to pay their employees nothing and charge millions for their products. But they cannot. Why? The beauty of the self-regulating free market. No one would work for free and no one would pay millions for a toothbrush. So the ostensibly greedy business man MUST pay his workers to make toothbrushes and charge only a few dollars each so people will buy them. Too bad for him.

This leads to a discussion of the job-killing minimum wage. It's a simple fact that an employer CANNOT pay you more than you are worth. If the minimum wage is $7.25/hour and you do not produce more than $7.25/hour benefit to your employer, you are unemployable. Read that again. The minimum was has had the effect of making certain members of our society, fit, able-bodied, reasonably smart, people unemployable. This is a crime! It is particularly hard on minority youths, who through no fault of their own, do not yet have the skills to provide economic benefits to an employer. With a high level of entry pay, they may never be able to obtain the skills to make them employable.

Read this book. If you cannot stomach 634 pages, read the "Overviews" at end of every chapter. They provide an excellent summary. The book will change your life and expose you to how stupid politicians think you are.

In Defense of Faith - day 6

Christians and people motivated by the Judeo-Christian worldview have been at the forefront of moral activism throughout human history, certainly more so since the addition of "Christian" to Judeo-Christian. Yet their reputation has taken a beating and now atheists howl that "religion poisons everything." This mischaracterization can be largely traced back to the Scopes Trial of 1925.

Reporter H.L. Mencken covered the famous trial between those who wanted to promote evolution in school as a fact and the Christians who rightly recognized the dangerous outcomes of such an idea - social Darwinism, divisions of humanity, genocide, slavery, eugenics. A bitter foe of Christians and their representative at the trial, William Jennings Bryan, Mencken painted these foreward thinking believers as buffoons and worse. He stereotyped and caricatured those who had spent their lives dedicated to helping the downtrodden. As a result, Christianity experienced a major turning point.

Christians had been at the lead in every major fight for justice, but with the rejection and mischaracterizations now widespread in the media, this activism "came to an abrupt halt." They would not rise from the ashes for another 50 years. And when they did, the culture around them had changed in huge ways. The sleeping giant awoke to a nation with legalized abortion, no prayer in schools, and traditional society in upheaval. While they initially retook their role of champion for justice with an anger borne of great fear, the tone has come down in recent years. Christians are once again at the front of the pack in speaking up for the poor, the orphaned, and the widow.

Both believers and non-believers need to approach our current world with humility. Christians must recognize with pride the role they have played in history as advocates for the downtrodden, but at the same time recognize that in their zealousness, they can do more harm than good. In addition, at no time in history have all Christians been the reformers. Many times Christians battled Christians. Atheists must recognize their extremely limited role in the historic fight for human sanctity and their part in the worst massacres. They must acknowledge and respect the believers who are even today leading the charge. In fact most non-believer activists are actually motivated by their own victimhood rather than a pure altruistic "disinterested benevolence." We cannot rely on only the victims of injustice to lead the fight. We must have those who are willing to battle because it is the right thing to do. We create that mindset with the inculcation of the Judeo-Christian worldview.

Moving forward, Christians must answer the call of their sacred text, to recognize and fight for the sanctity of ALL human life, fight for justice (true justice, not the bastardized "social justice"), and act with disinterested benevolence. We must answer Wesley's call to:
"Do all the good you can
By all the means you can
In all the ways you can
In all the places you can
To all the people you can
For as long as you ever can."
Our Judeo-Christian faith requires it.

In Defense of Faith - day 5

Finally, Brog tackles the Myth of Enlightenment Perfection. Many will say they don't need the Judeo-Christian worldviews, that they rely on the Enlightenment way of thinking. Of course, our most famous Enlightenment thinkers still regarded humans as divided into classes, whether it be based on race, nationality, gender, slave, free, religion or even physical and mental abilities. "Indeed, this idea - that certain groups of humans are inherently inferior to others - is nothing less than the mother of genocide." In taking a very utilitarian viewpoint and with their own inescapable biases and self-interest, the highly esteemed "enlightened" thinkers defended slavery, genocide, and eugenics. Brog uses example after example of the views of these intellectuals, people like Thomas Jefferson, Thomas Hobbes, John Locke and Montesquieu, who believed contrary to the Judeo-Christian idea of the sanctity and equality of all human life.

It is tempting to say that these thinkers should be judged by the standards of their day rather than hold them up to modern sensibilities. This is true to an extent, however, "one need not judge these thinkers by our current standards to find them wanting. Men like Jefferson, Buffon, and Kant fall short when judged by the standards of contemporaries such as Wilberforce... who unequivocally rejected slavery and racism." They even fall short when compared to those who, centuries earlier, defended Native Americans in the name of Christianity.

Finally he traces the Enlightenment from Kant to Herder to Hegel to Marx and even to Hitler. Their ideas, when enacted apart from their theoretical beginnings and put into practical reality gave us the bloodiest century in human history. "The twentieth century was, from start to finish, a century punctuated by genocide. The past century was truly without precedent when it comes to both the number of genocides and the vast death toll they left behind. Almost every one of these genocides was motivated by one or more of the modern ideologies of racism, nationalism, and Communism. It is bitterly ironic, yet unavoidably true, that the greatest atrocities in human history were fueled by these competing visions for the perfection of man."

Jews and Christians already know that man can not be perfected except through the grace of God alone. Discarding God and the sanctity of all human life is neither moral nor particularly "enlightened." These God-abandoning philosophers have much to answer for!

In Defense of Faith - day 4

Next, Brog confronts the "Myths about Judeo-Christian Atrocities," specifically the only two named, the Inquisition, and the Crusades. He begins by showing the shallowness of the debate: critics have to reach back hundreds of years to prove the harm in Christianity. They then  make the leap to "therefore all religion is poisonous and should be rejected." Discussing each, he shows "the wide gap between rhetoric and reality."

As far as the Crusades, the atrocities attributed to the Crusaders, and by extension to all Christians, can be traced almost exclusively to one man, Count Emicho of Flonheim. He and his followers attacked Jewish towns in the Rhine Valley, going directly against statements from the Pope and town Bishops not to hurt the Jews. It was these town Bishops that put their own lives on the line to protect the Jews from the murderous mob headed by Emicho. Far from killing tens of thousands or millions as its infamy seems to suggest, only three to four thousand Jewish lives were lost in the Crusades - a tragedy, to be sure, especially given such a small population, but hardly in the same category as a Hitler (6 million), Stalin, (100 million) or a Mao (70 million). Yet the "Crusades" is thrown around as a reason to hate Christians and to disregard Christianity. These murderous thugs never had the church sanction or theological support. They were anti-Semites, pure and simple and used an ongoing war for territory between the west, "Christian" nations and the eastern, Muslim nations as an excuse to slaughter innocents.

As for the Inquisition, it too was similarly limited in scope and much of its abuses were not sanctioned by the official church. Again, the Inquisition's horrors are the story of anti-Semitism run amok. Jews had been forced by earlier prosecutions to convert to Christianity. This conversion had it's upside as many doors were now opened to this community. They succeeded in their new-found positions so well, and were protected by their Christian faith, that the anti-Semites had to find a new way to prosecute them. So was born the Inquisition and it's attempt to prove the converts guilty of heresy and of continuing to practice their Judaism. All together it is believed that 2000 people were put to death on the charge of heresy. Again, this is a tragedy for those at the time, but a very small number in the scale of global tragedies. The church again played the role of trying to curb the abuses, but once again the passions and interests of the people triumphed. The church can only do so much with decrees and threats of excommunication to the perpetrators, yet history slaps the church with the one word indictment, "Inquisition" and all rational discussion is silenced. It is unfortunate for the church and the faithful that they live in a world governed by human failings. The church and Christianity gets the blame for what it did not start and was powerless to prevent, despite her best efforts, time and again.

In Defense of Faith - day 3

Finally, David Brog confronts the Myths that surround the Judeo-Christian worldview, beginning with the Myth of Biblical Immorality.
Just as the Constitution had within it the seeds of it's own perfection, despite early culturally-constrained language and compromises, David Brog states that the Bible must be subjected to interpretation and viewed in the light of its most dedicated adherents resultant behavior. Too often the harshest criticism of the Bible comes from those without a proper understanding of the text. Whether it's the alleged advocating of genocide or slavery Brog makes a convincing case that those who understand the Bible best, interpret it in the most humanitarian manner.

He begins with the command to wipe out the tribes living in Canaan when the Israelites arrived there. He shows how both Jewish and Christian scholars believe this applies to a one-time event and in no way calls for current annihilation of a people group. While Brog does not make this point, many scholars point out the excessive evil committed by these groups and the 400 years they were given to repent. The Amalakites were particularly evil towards the Israelites in picking off their weakest members as they journeyed toward the promised land. Today these scriptures are used to urge the faithful to destroy the internal Amalakite - our own inherent evil predisposition.

Next, he discusses the topic of the Biblical acceptance of and seeming encouragement of slavery. First he makes a distinction in the wording. "Slavery" in the Bible in no way represented "Slavery" as understood in America. Biblical "slavery" was in fact more like indentured servanthood. People willing sold themselves into slavery when in crippling situations. In addition, they were to be treated extremely well, with the same living conditions as the master. Finally, if a slave was injured, he would be freed immediately. In face, "man-stealing" was a capital crime! But people with ulterior motives ignored these Biblical facts and in order to preserve their own economic well-being, claimed the Bible supported their "peculiar institution." But just as their brothers in the faith were the only ones to defend the American Natives, Christians were the only ones who stood up to a hostile society, risking everything to end slavery. "Given the enormous price that would have to be paid to end slavery, it is easy to understand why so many Christians were willing to accept the pro-slavery narrative. The only surprise is that so many other Christians nevertheless saw the truth, answered the call, and stood up against the great evil of their day. It is a testament to the power of the Judeo-Christian idea that it - and it alone - was able to inspire and sustain a mass abolition movement in so hostile an environment."

It is the record of noble activism that should be the gauge of the Bible's true meaning. Time and again, it is the true believers that stood up to the evils of this world. Yet the cynics ignore this and point instead to their own twisted understanding of a book many of them have never read, much less studied.

In Defense of Faith - day 2

David Brog moves on from the Christian's role in doing all they could to save natives in America from genocide to the Judeo-Christian idea against slavery. He begins with such luminaries as William Wilberforce in Britain and his influence on the American abolitionist, William Lloyd Garrison. He traces the roots of abolition in America to the 1st and 2nd Great Awakenings and highlights the involvement of the churches in every step of the way. His case for role of the Judeo-Christian idea of the equality of all mankind in ending the slave trade and eventually the institution itself is quite powerful and compelling. As a fellow Christian, it makes me proud to be part of this heritage.

He contrasts these noble believers who, relying on their strong faith in a just God, fought evil with all they had, to the societies where a belief in God was not only not fostered, but openly abandoned. He states, "The great insight of the Judeo-Christian tradition is that we are the source of the evil in this world. The great promise of the Judeo Christian tradition is its power to inspire men to overcome the evil in their hearts. The West has yet to produce another system that has enabled so many people to so effectively transcend our impoverished genetic morality." The first attack on God began with Darwin. Seeing way to effectively break from "Jewish nonsense," Hitler embraced the survival of the fittest advocated by Darwin's disciples. "When Hitler cut his society loose from Judeo-Christian morality, he unleashed and encouraged the very worst in human nature. His new evolutionary ethics opened the door wide to some of the most abhorrent practices in human history. These horrors returned almost instantly."

Brog moves from the godless terrors of the Nazis to the horrors of Communism. "Soviet ideology was strikingly similar to Nazi ideology. Both flatly rejected the Judeo-Christian idea of the sanctity and equality of all humans.... In each case, these regimes acted on their theories to the exclusion of any external morality. Each enslaved millions, Each murdered millions. By almost any metric of human suffering the crimes of the Soviets rival those of the Nazis." Neither of these regimes represented anything new or rare in human history, rather they both reflect the danger of a God-rejecting society. From the Spanish Conquistadors to Mao, atrocities produced by these worldviews stemmed from the same fatal flaw - the rejection of the Judeo-Christian idea of the equality of man which they replaced with their own morality, thereby stripping a designated outgroup of their humanity.

Next Brog uses the example of the Civil Rights Movement to once again contrast the godless with those who understood and respected the Biblical call for the brotherhood of all mankind. In a wonderful connection back to the Judeo-Christian morality, he follows the Reverend Martin Luther King to Ghandi to Tolstoy back to Christian abolitionist William Lloyd Garrison. After detailing many of the offenses suffered in segregated America, Brog quotes Catholic thinker, Thomas Merton, "It is simply impossible to comprehend how these and so many other heroes were able to persevere in their struggle without falling victim to despair, hate, or violence without understanding the deep Christian faith which inspired and sustained them."