When I was in undergraduate school from 1967 to 1971, the general consensus was that the Great Depression did not end until World War II. The second great war was the event at finally put an end to it. Today there is a new generation of historians who will tell that that is incorrect. They tell us “Franklin the Great’s” policies really did end it. Unfortunately, for that point of view, the economic statistics do not support that assertion.
The economy went down in 1929 and hit rock bottom in 1933. It started to get better after that but hit another pothole in 1937. It was at this time that a number of intellectuals, who were friendly to the administration, expressed serious doubts about capitalism. They started to speculate and in some cases act upon supposed merits of socialism and communism.
The fact remains that the New Deal failed to end the Great Depression. FDR’s sunny speeches and brimming image of confidence made it more bearable, and probably derailed moves to the far left, but in the end, the New Deal failed. Why was that? At least part of the answer lies in the misguided tax laws and supply side economic policies that Franklin Roosevelt and his advisers pushed so vigorously.
In 1929 the individual income tax rates ranged from 1.5% on the first $0 to $4,000 of income. It increased using many brackets to 25% on income of $170,000 or more. The corporate rate was 11% on income higher than $3,000.
In 1932, which was the last full year of Hoover administration, the individual tax rate increased to 4% on the first $4,000 and reached a high of 63% on income exceeding $1 million. The corporate tax rate was raised to 14%. In other words, under Herbert Hoover, who is not blameless for the situation, taxes actually went up during an economic depression!
The tax rates didn’t get any better during the Roosevelt years in the 1930s. In fact, they continued to go higher. By 1939 the top rate had reached 79% for individuals and 19% for corporations. At a time when the economic recovery depended upon the expansion business investment and job creation, the government was taking more and more from those who were succeeding.
At the same Roosevelt and his “brain trust” were looking for novel ways to fix the economy. One of their schemes was to find ways to raise prices. The theory was that if prices were raised, business activity would be increased. To that end, the NRA was formed. It essentially set up cartels that allowed member business to collude to set higher prices. In a famous case, a Kosher poultry plant was prosecuted for attempted to sell dressed chickens for less than the NRA set prices.
The government also got in the business of buying up surplus goods to raise prices. In one famous action which made its way to a political pin, the government bought 8 million piglets and destroyed them to drive up the price of pork.
In the end the government’s ever increasing taxes took money from the successful businesses that would have provided the support for the economic recovery. A the same to the government “supply side” moves that were aimed at increasing prices and lowing the supply of goods, interfered with the natural price rationing function that would have gotten the economy on a even keel much faster.
In conclusion, activist government made the Great Depression deeper and longer, not better.
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