[Tennessee Valley Authority]

The New Deal: Admissions against Interest

Though Kuttner thinks the New Deal a great success, he acknowledges that it hurt American blacks.

The wide array of relief agencies that delivered such practical benefits to the depressed rural South honored the tradition of segregation. Blacks were paid less than whites, and for the most part kept in separate relief projects, The TVA [Tennessee Valley Authority] employed not a single black foreman or clerk, and blacks were not allowed to live in the TVA’s showcase community of Norris…. Public housing complexes had to be rigidly segregated…. New Deal racial policies for homeownership were even worse…. When the New Deal created the Federal Housing Administration to insure and standardize mortgages, racially restrictive covenants and racial redlining maps became universally mandated practice…. This residential apartheid policy was reinforced by the secondary mortgage market created by Fannie Mae, and by the Home Owners’ Loan Corporation, which financed mortgages with direct federal loans…. These agencies were dead serious about enforcement. (pp. 40–42)

Kuttner also acknowledges that in “some ways, World War II intensified the New Deal revolution. In other respects, the war short-circuited it. The wartime buildup finally produced the return to full employment that had eluded Roosevelt throughout the 1930s. It gave government even more emergency powers, such as temporary wage and price controls. The war created a system of national economic planning” (p. 45). The planned economy leads to war, as John T. Flynn long ago taught us: a government powerful enough to control the economy is also powerful enough to embroil us in war, and those who wish to avoid war should for this reason give planning a wide berth, even if otherwise inclined to favor it.

Our author tells that “Roosevelt … hoped that wartime planning could be carried over into a postwar planned ‘reconversion’ program for full employment. Economists were worried, and with good reason, that the return of 12 million GIs, coupled with the end of the extraordinary wartime stimulus, would cause the economy to sink back into depression” (p. 46). Of course, it did not do so, but this does not cause Kuttner to lapse from his faith in planning.

Our confidence in postwar economic arrangements does not rise when we learn that “the Roosevelt Treasury was the home of radicals. The most radical was Harry Dexter White, the top U.S. government architect of the postwar global financial system…. In the 1930s. White had been either a communist or a fellow traveler” (p. 63). That is a considerable understatement; it is likely that White remained a Soviet agent until his death.

The close association between a powerful government that aims to control the economy and war continued under Lyndon Johnson, who “revived the New Deal coalition and its philosophy of activist government, working to complete FDR’s unfinished business on economic and racial justice…. He was easily primed to be the greatest president since Roosevelt” (p.  69). But just as he thought he could control the economy, he thought he could control the world: “He would show the doubters, by doing it all—winning civil rights, and winning Vietnam…. Vietnam was a distraction that could be solved only by winning, despite the mounting evidence that it could not be won. Johnson kept receiving reports from senior officials warning that the war could not be won. He chose to listen to those who insisted that it could” (pp. 77, 79).

Unfortunately, Kuttner is unlikely to draw the connection between economic planning and war. If there is a place for the free market in his economic cosmos, it is minuscule, and he would be happy to see the onset of socialism. He tells us that in “a democracy that is also a capitalist economy, there is an immense undertow of big money that undercuts possible policies. In the 1930s and 40s, there was a famous argument between John Maynard Keynes and his protégé, the more left-wing economist Michal Kalecki. As a matter of technical economics, Kalecki agreed with Keynes that it was indeed possible to have full employment in a capitalist economy. But as politics, he observed, the capitalists would never let you do it. When I was coming of age during the postwar boom, it looked like Keynes had the better of the argument. Today, Kalecki seems pretty persuasive” (p. 23). I suspect that readers of the Mises page will look at the matter rather differently.