Higher Taxes on High Earners and Increased Unionization Didn't Work for FDR

Tyler Cowen does us the signal service of reminding us which of Franklin Roosevelt's New Deal policies worked and which didn't. Policies that didn't work include higher taxes on high earners (also a policy of Roosevelt's predecessor, Herbert Hoover) and increasing unionization (which helped some who held jobs but did nothing for or hurt those who didn't). The Detroit autoworkers who unionized in 1937 (by the way, through the sit-down strikes that were illegal then and now under any legal standard anyone has advanced) were not the most downtrodden of Americans at that time. More downtrodden were the unemployed in Detroit who would happily have taken those jobs at significantly lower wages.

It's worth noting that Roosevelt did a couple of good things that Cowen passes over lightly. Cowen decries the tight money policy followed by the Federal Reserve in the Hoover years and the contractionary policy it followed in 1937-38. But in between, as I understand it, the Fed was more accommodative in the Roosevelt years.

Cowen is correct in saying that the cartelization policies of the New Deal, particularly the National Recovery Administration (1933-35), made no economic sense and postponed recovery—though I wonder whether NRA's 700-plus industry codes prohibiting lower prices and wages helped break the downward deflationary spiral (ultimately, I trust Cowen's judgment on this more than my own). And he makes the point that the wartime expansion of the economy didn't translate immediately into better living standards, thanks to high taxation, rationing, banning production of many consumer goods, and very high savings (through government-encouraged purchase of savings bonds). I would take the more optimistic view that the war did expand the overall economy vastly—but that gets us a long way from the question of how to handle a sharp economic downturn and potential deflation.

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