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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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