False Dawn

The Great Depression was the worst economic downturn in American economic history, and the legacy of FDR’s New Deal and its three-fold goals of reform, relief, and recovery has impacted America’s economic policy since it was first implemented. In False Dawn, George Selgin attempts, and I believe largely succeeds, to explain the impact of the New Deal on economic recovery. 

Selgin divides False Dawn into three sections: the first section provides background information on the Great Depression, banking crisis, and New Deal; the second section investigates the impact of the various New Deal programs; and the third section covers the American economic experience during and just after World War II. With this structure, the reader is informed about how America got into the Great Depression, what FDR did to try to get the economy to recover, and how the actual process of recovery took place. 

Selgin deals carefully with issues around what FDR did deliberately to help the economy recover, and what happened that was out of his control or unimportant in his own estimation. The Agricultural Adjustment Act (AAA) and the National Recovery Administration (NRA) “were the twin pillars of Roosevelt’s recovery program” (93). Both were beloved by FDR, and both failed. 

The banking crisis that kicked off the Great Depression occurred because of distortionary banking regulations and collapsing prices in agriculture. The goal of the AAA was to boost agricultural prices by limiting farm output. The AAA did end up benefiting landlords who held farmland, but the pressure to reduce output lowered wages and employment for farm laborers. Further, the higher agricultural prices made it harder for Americans to afford to eat. Overall, the AAA hurt most Americans, benefitted a few landlords, and did nothing to help America recover.

The NRA created a variety of new manufacturing and labor regulations aimed at boosting wages to spur a recovery. The NRA regulations did increase wages, but those wage increases were offset by reduced working hours. Regulations that strengthened unions resulted in strikes that brought sectors of the economy to a standstill. Efforts to curtail alleged “cut-throat competition” encouraged legalized collusion between firms. In effect firms were given monopoly power, which meant that they produced fewer goods and consumers paid higher prices. Instead of aiding recovery, the NRA reversed recovery.

There were a number of factors that did aid in the recovery, but they were not the focus of FDR’s recovery plan or were entirely outside of his control. The best example of this is how gold inflows from abroad aided economic recovery. Selgin commends FDR’s decision to devalue the dollar, but criticizes him for dragging his feet to make the decision to devalue. Instead, FDR implemented the gold purchase program, which was costly and unhelpful, before coming to the decision to devalue the dollar. 

Selgin also notes that gold inflows from Europe were critical for the limited recovery America’s economy experienced in the 1930s. However, the gold inflows from Europe had nothing to do with economic policies in America and had everything to do with political developments in Europe. The Spanish Civil War had broken out and Germany and Italy had come under the rule of fascists who were keen on expanding their borders and their militaries. Europe seemed to be heading towards war, so investors began moving their gold from Europe to America. 

FDR made many blunders of statesmanship that were fully on display in False Dawn, and the two most prominent were his unwillingness to admit when one of his programs had failed, and the abuse and ridicule he heaped on businesspeople during his administration. FDR described the New Deal as a process of trial and error, and said that once a plan had failed, it was important to admit the error frankly, and to try something else. However, despite the clear evidence at the time that the AAA and NRA were failures, FDR refused to admit the fact. He failed to keep the New Deal as a process of trial and error long after his initial trials had been proven to be failures. 

He also used aggressive and provocative language when he discussed businessmen and described himself as going to battle against them. His open hostility towards them, his willingness to dramatically increase their tax burdens, to pile regulations on them, and to break up their companies all shattered business confidence and willingness to invest. Instead of recognizing them as the class of people who could help lift the economy out of the depression if given the chance, he scolded them, blamed them, and threatened their property rights. Economic growth is reliant on investment, and investment flourishes in stable and predictable environments. The attacks on businesspeople created uncertainty and fear where certainty, clarity, and support were needed. FDR’s lack of prudent statesmanship likely fostered the conditions that prolonged the Great Depression. 

Selgin’s greatest strength in False Dawn is the depth of literature on the New Deal that he draws from, along with his willingness to steel-man those he disagrees with. There are several points in the book where he patiently describes the positions of those he disagrees with before systematically drawing from a variety of sources to substantiate his own position. For example, most of chapter two is spent presenting Eric Rauchway’s position from his book Winter War, that the New Deal was a coherent and well-advertised plan, and then bringing a wealth of evidence to show that Rauchway’s position is untenable. 

Selgin’s thoroughness also allows him to dispel other popular misconceptions about the Great Depression while building up to his conclusion that the New Deal did not help America recover from the Great Depression. He shows that Herbert Hoover actually did quite a bit to try to fight the Great Depression, John Maynard Keynes had very little influence over FDR’s decision making (the New Deal recovery plan mostly did not comport with Keynes’ recommendations), FDR tried to balance the federal budget while implementing the New Deal, and World War II was not responsible for ending the Great Depression. 

All of these points are well founded by historical and economic research but have not filtered their way down into popular conceptions of the Great Depression and New Deal. One of the greatest strengths of False Dawn is the weight of scholarly consensus that Selgin is able to use to dispel popular misconceptions. He is able to correct popular narratives while weaving together a narrative that incorporates the best available research on the New Deal and Great Depression. 

That Selgin focuses only on recovery and declines to comment on the New Deal’s other two goals, reform and relief, is both a strength and a weakness of the book. On one hand, not addressing whether the New Deal succeeded at reform and relief limits the impact of the book. At the end of the book, Selgin cannot condemn the New Deal “root and branch”, and has to limit his claim to showing that the New Deal on net impeded recovery. While showing that the New Deal impeded recovery is an important point to demonstrate, it still leaves supporters of the New Deal and New Deal–style policy with plenty of other justifications for those policies. Although it is understandable that addressing the goals of reform and relief was outside the scope of the book, it makes the conclusion somewhat anticlimactic.

On the other hand, by limiting the scope of the book to recovery, Selgin only addresses the most empirically testable goal of the New Deal. Selgin is able to draw on a robust set of empirical studies performed by macroeconomists and economic historians on the impact of various parts of the New Deal on economic recovery. Whether the New Deal succeeded in reform and relief cannot be as easily tested empirically, so including them could have muddied the water on the strength of his findings. 

Further, his devotion of all 305 pages of False Dawn to dealing with the impact of the New Deal on recovery from the Great Depression ensures that he can develop the case for the claim that the New Deal did not help America recover from the Great Depression in exacting detail. On that front, he leaves no stone unturned. 

Overall, False Dawn is a thoroughly researched economic history of the Great Depression and New Deal that challenges popular narratives. George Selgin definitively shows that the New Deal did not help America recover from the Great Depression.