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Published by EH.NET (March 2004) 
 
Jim Powell, _FDR's Folly: How Roosevelt and His New Deal Prolonged the 
Great Depression_. New York: Crown Forum, 2003. xvi + 336 pp. $27.50 
(cloth), ISBN: 0-7615-0165-7. 
 
Reviewed for EH.NET by Ellis W. Hawley, Department of History, University 
of Iowa. 
 
In _FDR's Folly_ Jim Powell, editor of Laissez Faire Books and a senior 
fellow at the Cato Institute, resurrects the libertarian critique of the 
New Deal initially expounded by the period's business fundamentalists, 
conservative economists, and American Liberty Leaguers. The work is also in 
line with the libertarian revisionism articulated by Murray Rothbard in the 
1960s, and its recovery arguments closely resemble those subsequently made 
by historians Gary Dean Best, Robert Higgs, and Gene Smiley. More than 
they, however, Powell pulls together and draws upon recent studies 
highlighting the New Deal's contradictions and political abuses, recent 
work stressing its unintended consequences, and especially the relatively 
recent and growing literature on regulatory costs produced by Chicago 
School and public choice economists. His intended audience, moreover, is 
less one of specialists in the period than of current policy makers who 
lack the information to critique and reject the New Deal model. The work is 
engagingly written for general readers and should provide a variety of 
"talking points" for conservative political activists. 
 
Powell begins with three introductory chapters, in which he provides 
sketches of leading New Dealers, embraces Milton Friedman's monetary theory 
of the Depression's origins, and depicts President Herbert Hoover's 
interventionism as making things worse. He concludes with chapters on the 
New Deal's legacy and implications for current policy. And in the fifteen 
intervening chapters he examines the New Deal in action, organizing the 
discussion by policy areas and arguing that in each area efforts to bring 
recovery through reform "backfired" and brought continued depression 
instead. Business policy vacillated from fostering cartels to disruptive 
harassment, both becoming obstacles to renewed investment. Labor and farm 
policies fostered arrangements preventing the market system from working. 
Financial policy perpetuated a defective banking system, hampered potential 
investors, and facilitated monetary mismanagement. Welfare, public works, 
and tax policies deprived the private sector of resources that could have 
been better utilized there, and constitutional innovation worked to reduce 
the liberty needed for economic revival. In developing his case, Powell 
pushes the ideas of "crowding out" and "regime uncertainty" farther than 
some economists would go. But he offers compelling evidence for what most 
historians of the period would now concede, namely that New Deal recovery 
efforts failed and often had perverse consequences. 
 
Powell is less persuasive, however, in arguing that smaller and less 
intrusive government was the appropriate route to speedy recovery. To 
bolster this argument he cites the experiences of 1893-1894 and 1920-1921. 
But he never addresses a considerable economic literature concerned with 
industrial development and attributing "delayed recovery" to systemic 
structural impediments that had not existed earlier. Michael Bernstein's 
_The Great Depression_, for example, is cited only to document criticism of 
the National Recovery Administration, and Joseph Schumpeter only as a 
critic of "business bashing." One is never convinced that the system had 
not changed in ways that precluded speedy recovery through private-sector 
adjustments or that the vicious cycle at work in early 1933 might not have 
continued downward and become even more socially destructive in the absence 
of a New Deal. More recent experience with the austerity and laissez-faire 
policies imposed upon sick economies abroad also makes one wonder about 
their curative powers. 
 
Unpersuasive as well is Powell's depiction of the political and 
intellectual contexts in which the New Deal acted. He insists that there 
was much room for wisdom or folly, since there were virtually no political 
constraints on Roosevelt's policy choices. In doing so, he largely ignores 
what other historians have had to say about ideological commitments, 
administrative resources, constitutional considerations, a changing 
political base, and the contemporary state of economic knowledge. In 
addition, he does not fully appreciate the revulsion against and fear of 
market forces that gripped the United States and other industrial nations 
at the time, and he says little about the extent to which perceptions of a 
natural business cycle had by 1929 given way to perceptions that it was 
unnecessary. The New Deal recovery measures emerged from these contexts as 
well as from Roosevelt's prejudices and misperceptions, and they make it 
unlikely that libertarian prescriptions could have been followed, either by 
him or by anyone else who could have been elected president. 
 
As Powell sees it, FDR's greatest folly was to seek recovery by undertaking 
reform, which, he argues, was needless and often detrimental. In support of 
this he cites recent analyses claiming that investment institutions 
performed better before being reformed, that economic progress was actually 
retarded in the Tennessee Valley and other areas allegedly benefiting from 
new infrastructures, that regulatory expansion discouraged needed 
innovation and underwrote inefficiency, and that collective bargaining, 
fair labor standards, and parity price floors were harmful to those most in 
need, especially the African-American minority. Yet the system as reformed, 
partly by the New Deal and partly by a carry-over of wartime measures, did 
perform wonderfully well in the two decades after World War II, a fact that 
Powell tends to skip over rather than seek to explain. In that period the 
business community finally adjusted to institutional reforms, an enlarged 
public sector, and altered "social contracts" that much of America believed 
to be necessary steps toward a more humane and equitable order. Hence, 
Roosevelt's real "folly" may have been his undue delay in finding an 
appropriate temporary offset for the reform-induced but temporary decline 
in private investment. 
 
In his concluding chapter, Powell draws "lessons" from the New Deal's 
recovery failures, arguing that an understanding of them should help 
current and future policy makers to avoid burdensome and "soak-the-rich" 
taxes, public-sector "jobs" programs that inevitably turn into vote buying, 
laws that prevent needed price and wage adjustments, measures restricting 
freedom of trade, and monetary authorities with undue discretionary powers. 
One suspects, however, that he has produced mostly a treatise for the 
converted, not one that will lead to many political conversions or 
extensive historical revision. It may provide a history useful to 
conservative argumentation and the strengthening of conservative folk 
wisdom but, given its weaknesses, seems unlikely to be very persuasive or 
influential in other circles. 
 
Ellis W. Hawley is Professor of History Emeritus at the University of Iowa. 
He recently published "The Great Depression in the Midwest," in Robert S. 
McElvaine, editor, _Encyclopedia of the Great Depression_ (Macmillan, 
2004), 619-625, and is currently working on a book tentatively entitled 
"Herbert Hoover and the Search for a Nonstatist Progressivism, 1914-1933." 
 
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2004). All EH.Net reviews are archived at http://www.eh.net/BookReview. 
 
 
 
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