Shlaes' Forgotten Man

Meet the new boss
Same as the old boss
--The Who

After many starts and stops, finally finished Amity Shlaes' (2007) The Forgotten Man. The title is adopted from William Graham Sumner's 1883 essay about the individual who is robbed by the welfare state.

Rather than employing a purely economic approach (of which I have read quite a few), Shlaes views the Depression thru more of a narrative lens using a number of leading characters in the story. Thus, I became familiar with a number of people (e.g., Stuart Chase, Harold Ickes, David Lilenthal, Andrew Mellon, Raymond Moley, Rex Tugwell, Wendell Wilkie) that I previously knew little about.

Because of her approach, Shlaes' recount has a personal feel that works pretty well. She did her research, too. There are pages of notes and references although she does not employ superscripts to explicitly link her narrative to her sources.

The book consists of 15 chronologically arranged chapters. Each one has a primary theme although Shlaes is careful to insert other important events as the timeline unfolds.

Some of the highlights as they come to mind:

Calvin Coolidge was the closest we came in the 20th century to a 'hands off' president. While not perfect, he labored largely to get government out of the way of the people. On the other hand, his Commerce secretary Herbert Hoover was making a name for himself as a hands-on interventionist. Coolidge, observing the people's enthusiastic response to Hoover's handouts, decided not to run for re-election in 1928. Shlaes doesn't say this, but it is easy to posit that Coolidge's decision to bow out may have been one of the largest errors in judgment of the period. I doubt that Coolidge would have meddled anywhere close to the degree that Hoover did following the events of 1929. In turn, the entire dynamic of the 1930s may have been profoundly different had Coolidge won a second term.

Despite what mainstream history books imply, Hoover was far from a 'free marketer.' He constantly espoused that government should 'do more' to help the people. His actions place him in line with other Progressive presidents who dominated the office in the first half of the century.

Similar to Flynn (1954), Shlaes finds FDR to be more of an opportunistic politician than an ideologue. He would readily shift positions if he thought that it would earn him more votes. FDR's campaign themes demonstrate his opportunism: 1932 class warfare; 1936 building special interest groups and buying their votes; 1940 war leadership. His spontaneous inconsistency drove many of his staffers (e.g., Ray Moley) away.

Although FDR himself was not an ideologue, he populated his administration with people who possessed strong socialistic (a.k.a. 'progressive') ideologies. Progressive fascination with Stalin and Soviet Russia is something that we do not hear much about today. However, in the late 1920s/early 1930s, boatloads of Progressives, including many that wound up in FDRs administration, toured Russia and waxed poetic that this was the social/political model for the world.

FDR's staff, known as 'the brain trust' because of its weighting toward academics with little real world experience, used government force to change the nature of markets with its New Deal programs - much of it in the name of 'experimentation.' The hubris of this group - their sense that they knew better than citizenry - remains truly eye popping to this day.

Not all citizens took kindly to the experimentation of the brain trust, and it was not long before challenges to many New Deal programs began making their way thru the court system, with many winding up before the Supreme Court. The High Court, led by the Four Horsemen, struck down a number of early New Deal programs such as the NIRA, AAA, various minimum wage laws. Shlaes does a particularly good job of profiling the 'sick chicken' case of the Schechter brothers that wound up breaking the NRA.

That the Supreme Court was not falling in line with his New Deal initiative irritated FDR to no end. He publicly railed against the Court, and liberal commentators such as Pearson and Allen (1936) lambasted the justices using the Progressive party line that they were out of touch with the modern world. After his re-election in 1936, FDR proposed his court packing plan that would allow him to appoint more Supremes that shared his view. Many citizens were appalled; even his closest supporters cautioned him of overreach. After finding little support for his plan even among congressional Democrats, FDR withdrew his plan.

But he ultimately won the war. Swing justice Owen Roberts suddenly turned his hat around and began siding with leftists on the court. The Four Horsemen, all of them 70 yrs or older by 1936, began retiring, which enabled FDR to subsequently replace them with cronies such as Felix Frankfurter. The fix was then complete.

Shlaes dedicates a significant portion of her story to the TVA and the federal government's near takeover of the utilities sector. In the 1920s, electricity was a growth industry, with residences being wired for the first time. FDRs New Dealers clearly saw this sector as a major political opportunity. Using the Tennessee Valley Authority run by David Lilenthal as a pilot project, the federal government sought to demonstrate how it could help improve standard of living for commonfolk through the provision of 'cheap power.' Because government was essentially competing with private industry using tax payer funds, this put many utility company execs in the spotlight. One of these was Wendell Wilkie, who handled himself well enough in public debates on the subject to become the Republican presidential nominee in 1940. The TVA was complemented with farming projects and communes (e.g., Casa Grande) meant to demonstrate how centrally planned communities could provide benefits that competitive markets could not.

Shlaes provides compelling evidence that, despite the massive government intervention that took place first under Hoover and then under FDR, that the economic barely moved by the end of the 1930s. Many of New Deal programs were outright failures and didn't see the 1940s. Others did little to add long term value, indicated by the fact that nearly all jobs 'created' by the government were short term and when the money ran out, the jobs disappeared. Stated differently, any good coming from government supplied stimulus was temporary and unsustainable.

She astutely makes the point (although I thought she could have made it stronger), that a primary reason for the persistence of the Depression was lack of investment capital. There was not much in the way of savings that could fund productivity improvement projects. What little capital did exist either a) remained on the sidelines because of huge uncertainty among capitalists about what FDR was going to do next, b) was offset by massive government spending. On the margin, capital was being consumed. As we have discussed on these pages many times, this is a ticket for the Lower Standard of Living Express.

Unemployment and investment remained weak up until WWII. Indeed, the perverse lesson that hard core policymakers likely derive from the Depression is that war can be an effective way to jump start an economy - assuming that you wind up winning the war, of course.

One area area where Shlaes could have done more relates to her title. Sumner's Forgotten Man is the individual who pays at the point of a gun to subsidize welfare programs. I think this work would have benefited from more on-the-ground research of actual forgotten men during the 1930s. Yes, Shlaes touches on some high profile characters such as Andrew Mellon, but it would have been interesting had more research been dedicated to typical taxpayers and their thoughts and activity during the time.

Such an approach would have resulted in a work truer to its title.

Nonetheless, this book is a worthy read. The reader will experience many deja vu moments connecting characters, behaviors, and events from the 1930s to our present day situation.

Reference

Pearson, D. & Allen, R.S. 1936. The nine old men. Garden City, NY: Doubleday Doran.

Shlaes, A. 2007. The forgotten man: A new history of the Great Depression. New York: HarperCollins.