FDR & LBJ-60

I know that many people (mostly Democrats) believe Franklin Delano Roosevelt was a great president and they also believe that Lyndon Baines Johnson initiated or pushed many good government programs for the country. I may not dissuade them, but let me present a contrary view anyway, supported by facts, not just opinions and assertions.

First for the mensuration of FDR. Whenever government spends money there are bound to be recipients who benefit. Important questions to ask are: at the expense of whom and would there have been greater good done if the private sector of the economy had been allowed to operate in those areas instead of government? The TVA (Tennessee Valley Authority), initiated under FDR, brought electricity to many rural homes and businesses in that area – a good thing. The negative aspect is that it was done at the expense of other taxpayers who did not benefit at all. Private utility companies would have eventually provided electricity to that region as they did to other rural areas so it was just a matter of time for those people being electrified and how efficiently it was done.

The Great Depression was one of many depressions or recessions in the history of United States. There have been 47 defined recessions or depressions in the USA since 1790. The difference between a depression and recession is not well defined, but is simply its severity. An old joke is: A recession is when your neighbor loses his job; a depression is when you lose yours. The Great Depression of the 1930’s was the longest in American history. There has to be a reason for that, so the question is why. Never in previous economic downturns has the federal government intruded into the private economy nearly to the degree that, first President Hoover, then President Roosevelt did even much more so. There is a perception by some people that WWII brought us out of the depression. I do not subscribe to that position; it is too facile. What the war did was to effectively create full employment. When there is rationing or a scarcity of basic commodities such as autos, gasoline, tires, sugar, clothing, shoes, and many other items, in my opinion, that is hardly an economic boom one would expect coming out of an economic depression. After the war the pent up demand and money people had saved did cause an economic boom. When new automobiles started being sold, such was the demand that for a while customers were paying more than the auto companies suggested retail price. I remember one slogan from the period immediately following the war was “beer in cans will soon be back”, although for the life of me, why beer in cans was better than beer in bottles left me, and still leaves me, perplexed.

From 1934 to 1940 the median annual unemployment rate in the United States was 17.2%. At no point during the 1930’s did unemployment go below 14%. Year by year the unemployment rates were: 1931,15.9%; 1932, 23.6%; 1933, 24.9%; 1934, 21.7%; 1935, 20.1%; 1936, 16.9%; 1937, 14.3%; 1938, 19.0%; and 1939, 17.2%. Our current rate of unemployment seems a bit benign by comparison. While there was episodic recovery between 1933 and 1937, the 1937 peak was lower than the previous peak in 1929, a highly unusual occurrence. Progress had and has been the norm. In addition, the 1937 peak was followed by a crash. As economics Nobel laureate Milton Freidman observed, this was “the only occasion in our record when one deep recession was followed immediately on the heels of another.”

Owing to this intensifying of the recession in 1937 the stock market went into a nosedive and by November 1937 unemployment had soared to 11 million with another 3 million working only part time (the population of the country was approx. 130 million). Statistics showed that the United States was lagging far behind other countries in recovering from the depression. American national income in 1937 was 86% of the 1929 high water mark while Great Britain’s was 124%. Japan’s employment figure was 75% above the 1929 number. Chile, Sweden, and Australia had economic growth rates in the range of 20% compared to the United States’ dismal -7%.

During the Hoover administration congress passed the Smoot-Hawley Tariff Act – a bill that more accurately could be called the Smoot-Hawley-Hoover Act because Hoover not only signed it, but supported it all the way through congress. So when the United States imposed tariffs on foreign imported goods, surprise, guess what? Go to the head of the class, you are correct; these other countries retaliated by imposing tariffs on imported American goods thereby compounding the worldwide depression. While FDR cannot be blamed for passing this destructive piece of legislation he did nothing to attempt to repeal it.

What FDR did was triple taxes during the Great Depression, from $1.6 billion (when a $ billion was more than chump change) in 1933 to $5.3 billion in 1940. Federal taxes as a percentage of the gross domestic product (GDP) jumped from 3.5% in 1933 to 6.9% in 1940. FDR increased the tax burden with higher personnel income taxes, higher corporate income taxes, higher excise taxes, higher estate taxes, and higher gift taxes. He introduced the undistributed profits tax. Ordinary people were hit with higher liquor taxes and Social Security payroll taxes. All these taxes meant there was less capital for businesses to create jobs, and people had less money in their pockets.

At this point the well-known admonition of philosopher George Santayana (1863-1952) comes to mind: “Those who do not know history are condemned to repeat its mistakes.” Despite the deleterious effect of raising taxes during the Great Depression, Obama and the Democrat leadership in congress wanted to raise taxes in this current recession. Of course they only wanted to raise taxes on the wealthy; that is to say on the people who create jobs, so perhaps we can excuse them – not.

Lyndon Baines Johnson won a Democrat primary election (which was tantamount to the general election in Texas at that time) as a United States Senator in 1948 by a margin of 87 votes over former Texas Governor Coke Stevenson. It has been widely believed since and documented by Democrat leaning LBJ biographers Robert Caro and Robert Dallek that there were more than 200 fraudulent votes, and in some estimates double that given to Johnson. For this extremely slim and questionable margin of victory, Johnson acquired the moniker ‘Landslide Lyndon’.

The Gulf of Tonkin Resolution was passed by congress in 1964 to allow President Johnson to carry the Vietnam War to North Vietnam. Even Johnson himself later admitted that the circumstance of the military naval incident with North Vietnam was misrepresented to congress at the time. Do you get the idea that LBJ was far more dishonest than the average American politician?

To his credit President Johnson pushed through the Civil Rights Act in 1964 and the Voting Rights Act in 1965, both initiatives of President Kennedy, with the help of Northern Republicans – many of Johnson’s fellow Southern Democrats opposed him on these pieces of legislation.

So much for the good legislation Johnson passed. How about the rest? His overarching anti-poverty programs such as the Food Stamp Act and Revenue Act in 1964 and the Economic Opportunity Act, Head Start Act, and the Vista program in 1965 were all intended to eliminate poverty in America. Over the decades these programs have cost $ trillions, but is poverty a condition of the past? Not according to official statistics and the definition of poverty in this country. All of the federal aid to single mothers has done one thing – it has created more of them. Bill Bennett did a study of single motherhood in the 1960’s and declared there was a crisis in the big inter-cities. That rate of single mothers in now similar to the average of all populations in this country with the rate in the big inter-cities approaching 90%. It is the old, old story of the best of intentions being negated by unintended consequences.

And speaking of unintended consequences, let us consider one of FDR’s social programs, Social Security (created in 1935) and two of LBJ’s, Medicare and Medicaid (created in 1965). One could argue that millions of Americans (and some illegal immigrants) have benefited from these programs. However, let us consider what are the biggest threats to the financial wellbeing of this country today. Yes indeed, these are the ever-increasing unfunded liabilities of those three federal programs. When these benevolent programs were initiated it seems nobody anticipated the overwhelming financial burden that would accrue for the country in the future. There is considerable debate over how big the unfunded liabilities of Social Security, Medicare, and Medicaid are and over what time period, but all agree that the number is in the 10’s of $trillions. Medicare and Medicaid are creating more than 5 times the unfunded liabilities than Social Security so they are the bigger problem. According to the nonpartisan CBO (Congressional Budget Office) if these three programs continuing growing 2.5% greater than the GDP then they will consume nearly the entire federal budget by 2050!

There are now only two choices: (1) significantly reduce the payouts and increase the pay-ins of the participants in these programs or, (2) let the country collapse economically and socially. Anyone game for that? It is a truism that once entitlement programs are given curtailment of the benefits are greatly resisted. But done it must be, whether by so called “means testing” or across the board cuts in payouts, or reduced or withheld services, or all of these. The solution will not be pleasant or welcomed by the public. By all means let us give thanks to FDR and LBJ for the unavoidable coming pain.

If anyone either agrees or disagrees with my thesis in this essay I would welcome hearing it. Just remember the oft quoted words of the late Democrat U.S. Senator from New York, Daniel Patrick Moynihan (1927-2003), “Everyone is entitled to their own opinion, but not their own facts.”