Frontpage Interview’s guest today is Amity Shlaes, a visiting senior fellow in economic history at the Council on Foreign Relations and a syndicated columnist at Bloomberg. She has written for The Financial Times and The Wall Street Journal, where she was an editorial board member, as well as for The New Yorker, Fortune, National Review, The New Republic, and Foreign Affairs. She is the author of the new book The Forgotten Man: A New History of the Great Depression. The book is a national bestseller; Forbes magazine titled its review "Unforgettable" and the National Review said it was "the finest history of the Great Depression ever written."
FP: Amity Shlaes, welcome to Frontpage Interview.
Shlaes: Good to be here.
FP: What inspired you to write The Forgotten Man?
Shlaes: After working in policy-land all these years, I'm interested both in policy and policy people. Policy people suffer their own kind of agony and no wonder. After all, what is the average life of the policy person? You go into government if you are lucky, do your best, aren't appreciated, take all the blame for policies for which you are only partly responsible, leave, realize your reputation has been damaged, maybe permanently.
One of my characters, Rex Tugwell, finds for example he can't get his old job back at Columbia, his column is spiked.
FP: What is your book's main argument?
Shlaes: That government actions, from Hoover to Roosevelt, were what made the Depression great in magnitude. Neither Herbert Hoover nor FDR appreciated the economy. Hoover did not recognize the share of economic growth that was real in the 1920s.
FP: In other words, and the liberal-Left will probably be traumatized to hear this, if the government had kept hands off of the economy during the difficult 1930s things would have actually been better?
Shlaes: I just spent the weekend with a bunch of economists, Clinton administration economists, Bush administration economists, non-political economists. They were brought together by the fact they were all pretty good scholars, not their ideology. I don't think anyone of them would have said that the New Deal was great economics. Lots of people nowadays see the limits of Keynesianism. Over dinner of the Democratic-leaning economists was complaining because he had been jumped on for questioning one aspect of one New Deal law. "They just don't let you touch it," he said. This seemed to him crazy, since he saw lots of flaws there.
Plenty of non-right policymakers want to change some of the New Deal edifice. That is basically what Secretary Rubin did at the Treasury when he was there. The principal error of the late New Deal was underestimating the damage of uncertainty. Rubin made reducing uncertainty his mantra, he zeroed in on uncertainty, he even used the word "Uncertain" in his book title ("In an Uncertain World.") I've criticized Rubin a lot in print, but the things he and Chairman Greenspan did in the 1990s were the opposite of what New Dealers did. Rubin and Greenspan had learned the bitter lesson of the Depression so well.
All of which is a long-winded answer to saying: only left-leaners who haven't thought about markets still believe that that the New Deal helped a lot.
The big difference is that those on the left or center probably believe the good in the New Deal outweighed the bad significantly, whereas my research suggests to me the bad outweighed the good, somewhat.
FP: What is original and unique about your book?
Shlaes: If there is anything original it is the narrative format. This isn't a debate club book -- the seven reasons why the Depression happened. It is the story of the people who lived through the period from their point of view. I follow Tugwell, all the way through the story, for example. I also describe the hidden heroes who have been obscured by the standard version of the period history -- Father Divine, for example, a Harlem cult leader, and Bill W., the founder of AA. These are part our Depression legacies we forgot. And, after all, didn't the AA have more impact on the country than the AAA?
FP: John Updike in the New Yorker and the Economist magazine were the two big negative reviews of The Forgotten Man. Why do you think they were negative?
Shlaes: I'm grateful first of all that the New Yorker and John Updike devoted so much space to the book. I don't think Updike's review is really negative. He just concludes differently, saying -- forgive the paraphrase -- that moot mathematics don't count and our heartfelt relationship with FDR is what mattered. I disagree. Two in ten unemployed, the rate that obtained even, at points, in the late 1930s, five or six years into FDR's tenure, do matter.
The Economist: Don't know why they didn't like it. Maybe because they haven't read some of the good histories such as that of Jim Powell and the wonderful new primer by Gene Smiley, "Rethinking the Great Depression." My book doesn't march through the arguments in that English-y way. To me a roster of arguments is tedious. But the Economist signalled that that was what it was looking for. In doing so they were someone at odds with their own forerunners at the magazine, who commented, surveying what FDR did, that America seemed to have forgotten how to grow.
There is a fairytale-ish aspect to the New Deal that we are unwilling to surrender. My son once said to me, only half ironically, "Why don't you write a children's book. Why don't you write how it was Mary's fault that the lamb followed her all around?" Roosevelt is a nearly holy figure to most journalists so anyone who criticizes him has to expect lots of skepticism.
But the bad side of Roosevelt is something many Democrats understand. Treasury Secretary Bob Rubin was so conscious of where the New Deal had gone wrong that he avoided its mistakes. The result was that President Clinton has a strong record to look back on. Rubin told Clinton: don't scare markets with egregious action and statement. Cut taxes (they cut the capital gains tax).
FP: What surprised you about the reaction to your book?
Shlaes: The superlatives in the praise. I've had books before, even another national bestseller, but never superlatives like this time. I feel really lucky.
The amazing support of numerous economists and chatmeisters in Blog Land. Arnold Kling for example devoted thousands of words to this book; Powerlineblog, one of the best blogs in the country, has been beyond enthusiastic.
Also the interest that politicians have shown -- Newt Gingrich compared the Forgotten Man's message to that of Nicholas Sarkozy.
FP: Who is your hero in the The Forgotten Man?
Shlaes: The hero who tells the story is Wendell Willkie, who understood the damage the New Deal was doing. Another is Mellon, who never caved to the prosecutors who hounded him; another is Sam Insull. The Forgotten Man is also the economy itself, which both Hoover and Roosevelt in different ways forgot.
FP: What if any economic value is there added in your book?
Shlaes: The emphasis that I place on the damage of uncertainty. Uncertainty can lengthen a Depression and it did lengthen this one. The New Dealers prosecuted the Greenspan of their day -- Mellon -- and the Steve Jobs figure -- Sam Insull. Roosevelt said he sought "an instrument of unimagined power."
We know now the damage such behavior can do-- all you have to do is watch a markets tv channel to know how an erratic and arrogant government can kill a recovery. But the New Dealers didn't know it.
And, after all, Keynesianism as practiced in the U.S. ignores the damage uncertainty does. "Bold persistent experimentation" sounds good -- Roosevelt's phrase. And it is in some instances -- Roosevelt finally realized the U.S. was in a deflation, not an inflation, as he and Hoover had thought. But FDR's experimenting generally and that of his colleagues made the Depression years longer than it had to be.
FP: What books do you like about the period?
Shlaes: Paul Douglas, the late Senator, wrote a brilliant book about his career, including that period: "In the Fullness of Time."
Paul Hollander and Sylvia Margulies wrote on the influence of Soviet communism upon the New Deal.
Beyond Jim Powell's, "FDR's Folly," and Gene Smiley's, I love Ray Moley's "27 Masters of Politics" and Benjamin Anderson's wonderful reports he wrote for Chase bank. Robert Higgs, "Depression War and Cold War'' is some of the best work on the uncertainty.
Larry Reed of the Mackinac Center has a darn good summary on his website. Burt Folsom, also of the Mackinac Center, is at work on what will be an important book. "Government Project" by Edward C Banfield -- impossible to get, but great.
Richard Vedder and Lowell Gallaway, "Out of Work," does the work on unemployment. Marian C McKenna, a legal genius, did a giant book on the court packing. More people will want to read it. "Franklin D. Roosevelt and the Great Constitutional War: The Court Packing Crisis of 1937."
FP: So how can your findings and conclusions have a positive influence on the debate over our economy today?
Shlaes: Two ways: The first is recognizing that the forgotten man today is the young generation -- those who will pay the taxes we burden them down with because we don't have the guts to question some aspects of our own New Deal nostalgia.
Here are the taxes that will go up in the next decade: Social Security tax, income tax, and Medicare taxes.
The second way knowing New Deal history helps now is by reminding us that policy matters. These day people treat the economy like weather -- they hope it will stay good, and they assume there is nothing they can do about it. Sunshine or Katrina, they still throw up their hands.
The lesson of the 1930s is: bad policy changes the course of the economy. Had Hoover and Roosevelt not screwed up so often, the economic weather would have been a lot better.
Since we know a lot more know about how economies work than they did, there is less excuse to ignore the importance of policy.
FP: Amity Shlaes, thank you for joining Frontpage Interview.
Shlaes: Thank you Jamie.