FDR's New Deal & Uncertainty

For those social studies teachers that haven't read Amity Shlaes book, "The Forgotten Man," I suggest giving it a glance before introducing the topic of the Great Depression. But, in light of the current economy crisis and choices president-elect Obama may face, she has some interesting thoughts on FDR's uncertainty, and constantly changing policies, that froze markets:

"Using emergency powers, FDR yanked the country off the gold standard. Both American and international markets looked forward to a London conference at which a new monetary accord was to be struck among nations. Over the course of the conference, though, FDR changed orders to his emissaries multiple times. Some days he was the internationalist, sending wires about international currency coordination. Other days he was the cowboy, declaring that all that mattered was what the dollar bought in farm states. The conference foundered.

Some of the worst destruction came with FDR's gold experiment. If he could drive up the price of gold by buying it, he reasoned, other prices would rise as well. Roosevelt was right to want to introduce more money into the economy (the United States was deflating). But his method was like trying to raise an ocean level by adding water by the thimbleful. What horrified markets even more was that FDR managed the operation personally, day by day, over a breakfast tray. No one ever knew what the increase would be. One Friday in November 1933, for example, Roosevelt told Treasury Secretary Henry Morgenthau that he thought the gold price ought to be raised 21 cents. Why that amount, Morgenthau asked. "Because it's three times seven," FDR replied.

Morgenthau later wrote that "if anybody knew how we set the gold price, through a combination of lucky numbers, etc., I think they would be frightened."

They were. The "Roosevelt Rally" flattened. The arbitrary quality of other initiatives reinforced concerns. The New Deal centerpiece, the National Recovery Administration, helped some businesses compete and criminalized others for the same behavior. Sometimes Roosevelt goaded federal prosecutors into harassing corporate executives. Other times, he schmoozed the same execs at the White House. In 1936, FDR pushed through deficit spending. In 1937, he was Mr. Budget Hawk.

Uncertain, markets froze. Businesses refused to hire or invest in equipment. Unemployment stayed stuck in the teens. The 'deal' part of the New Deal phrase was problematic; businesses didn't want individual favors, they wanted clear laws for all. Industrialist Ernest Weir summed up what his community was desperate for FDR to do: "Above all to make the program clear and then stick to it."

You can read the entire article here.