FDR's Folly

I just read Jim Powell's FDR's Folly -- How Roosevelt and His New Deal Prolonged the Great Depression, and I swung back toward the right a bit. He showed how Roosevelt had great intentions but was always thwarted by his reliance on centralized planning.

- He misunderstood the real problems
- Therefore, his solutions had unintended consequences

100 million people making small choices based on local, real-time information or intuition will produce more growth than 10 people (even 10 extremely smart people) who don't have that information. Worse, when central planners get it wrong, they can affect an entire country's economy. When private individuals get it wrong, the effect will be local only.

I hadn't heard before how much FDR attempted to control the economy. He tried to set prices on everything from dry cleaning to automobiles. Businessmen who sold below the federally mandated minimum price were fined and in some cases imprisoned. Too bad for any consumers who didn't have much money -- and remember, this was during the Great Depression. If they couldn't afford the federally mandated minimum price, they went without. No soup for you, come back after World War II!

The author pointed out that Social Security tends to transfer money from lower income black people to higher income white people. This is mainly because of different life expectancies. Interesting quote from the book:

"What would be the public reaction if I propsed a plan to collect monthly contributions from working black men and women, then transferred a good portion of that money to older white women? Or what would happen if I tried to sell a retirement investment plan to 24-year-old black American males that would end up paying each of them $13,400 less in benefits than they paid into my plan? Most likely, if I were successful in conning people into these schemes, I would be arrested, tried, and convicted of fraud."

The sad fact is that not every good and nice idea is affordable. Guaranteeing a living income to the elderly is a good and nice idea, but it kind of breaks down when there are only 1.5 workers per retiree (projection for 2030). Government funded health care is also a good and nice idea. The problem is that it's going to require higher taxes; at least it has everywhere else in the world it's been tried. Once taxes get too high, why would an entrepeneur risk losing everything to start a business? After all, she knows that if she succeeds, almost nothing will be hers to keep anyway.

The weakness in FDR's Folly is that the author doesn't acknowledge any role for government regulation of private enterprise. Some things, like the environment, don't have much correlation to the bottom line and so aren't affected by Adam Smith's invisible hand of capitalism. When capitialism's natural rules don't apply, government needs to step in with rules for the common good.