How FDR’s New Deal Harmed Millions of Poor People

By Jim Powell of Cato.

"Democratic presidential candidates as well as some conservative intellectuals, are suggesting that Franklin Delano Roosevelt’s New Deal is a good model for government policy today.

Mounting evidence, however, makes clear that poor people were principal victims of the New Deal. The evidence has been developed by dozens of economists — including two Nobel Prize winners — at Brown, Columbia, Princeton, Johns Hopkins, the University of California (Berkeley) and University of Chicago, among other universities.

New Deal programs were financed by tripling federal taxes from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and so-called “excess profits” taxes all went up.

The most important source of New Deal revenue were excise taxes levied on alcoholic beverages, cigarettes, matches, candy, chewing gum, margarine, fruit juice, soft drinks, cars, tires (including tires on wheelchairs), telephone calls, movie tickets, playing cards, electricity, radios — these and many other everyday things were subject to New Deal excise taxes, which meant that the New Deal was substantially financed by the middle class and poor people. Yes, to hear FDR’s “Fireside Chats,” one had to pay FDR excise taxes for a radio and electricity! A Treasury Department report acknowledged that excise taxes “often fell disproportionately on the less affluent.”

Until 1937, New Deal revenue from excise taxes exceeded the combined revenue from both personal income taxes and corporate income taxes. It wasn’t until 1942, in the midst of World War II, that income taxes exceeded excise taxes for the first time under FDR. Consumers had less money to spend, and employers had less money for growth and jobs.

New Deal taxes were major job destroyers during the 1930s, prolonging unemployment that averaged 17%. Higher business taxes meant that employers had less money for growth and jobs. Social Security excise taxes on payrolls made it more expensive for employers to hire people, which discouraged hiring.

Other New Deal programs destroyed jobs, too. For example, the National Industrial Recovery Act (1933) cut back production and forced wages above market levels, making it more expensive for employers to hire people - blacks alone were estimated to have lost some 500,000 jobs because of the National Industrial Recovery Act. The Agricultural Adjustment Act (1933) cut back farm production and devastated black tenant farmers who needed work. The National Labor Relations Act (1935) gave unions monopoly bargaining power in workplaces and led to violent strikes and compulsory unionization of mass production industries. Unions secured above-market wages, triggering big layoffs and helping to usher in the depression of 1938.

What about the good supposedly done by New Deal spending programs? These didn’t increase the number of jobs in the economy, because the money spent on New Deal projects came from taxpayers who consequently had less money to spend on food, coats, cars, books and other things that would have stimulated the economy. This is a classic case of the seen versus the unseen — we can see the jobs created by New Deal spending, but we cannot see jobs destroyed by New Deal taxing.

For defenders of the New Deal, perhaps the most embarrassing revelation about New Deal spending programs is they channeled money AWAY from the South, the poorest region in the United States. The largest share of New Deal spending and loan programs went to political “swing” states in the West and East - where incomes were at least 60% higher than in the South. As an incumbent, FDR didn’t see any point giving much money to the South where voters were already overwhelmingly on his side.

Americans needed bargains, but FDR hammered consumers — and millions had little money. His National Industrial Recovery Act forced consumers to pay above-market prices for goods and services, and the Agricultural Adjustment Act forced Americans to pay more for food. Moreover, FDR banned discounting by signing the Anti-Chain Store Act (1936) and the Retail Price Maintenance Act (1937).

Poor people suffered from other high-minded New Deal policies like the Tennessee Valley Authority monopoly. Its dams flooded an estimated 750,000 acres, an area about the size of Rhode Island, and TVA agents dispossessed thousands of people. Poor black sharecroppers, who didn’t own property, got no compensation.

FDR might not have intended to harm millions of poor people, but that’s what happened. We should evaluate government policies according to their actual consequences, not their good intentions."

The government’s own data show no correlation between prescription volume and the non-medical use of opioids or opioid use disorder

See Shaking Down Drug Makers Won’t Stop IV Drug Users by Jeffrey A. Singer of Cato.

"On August 26 Oklahoma State Judge Thad Balkman ruled that Johnson & Johnson must pay $572 million to the state of Oklahoma for contributing to the local opioid addiction crisis. Johnson & Johnson sold two opioids: a fentanyl skin patch with the brand name Duragesic, and Nucynta,a synthetic opioid similar to tramadol but stronger.

Nucynta is not as addictive as most other synthetic and semi-synthetic opioids and has been shown to have low levels of abuse in post-marketing studies. Fentanyl skin patches are very difficult and inconvenient to convert for non-medical use. The Drug Enforcement Administration claims that nearly all the fentanyl seized is so-called “illicit fentanyl,” manufactured mostly in powdered form in clandestine labs in Asia and Mexico, and then smuggled in to the U.S., sometimes via the Postal Service.

Johnson & Johnson was also charged with contributing to the overdose crisis because it owns two subsidiaries that make the active ingredients and narcotic raw materials used by other opioid manufacturers.

Two other opioid manufacturers, Purdue Pharma and Teva Pharmaceuticals, settled with the state, but Johnson & Johnson decided to take the case to trial. Their attorneys say the company plans to appeal the decision.

This is nothing more than a shakedown. As I have written here and here, the government’s own data show no correlation between prescription volume and the non-medical use of opioids or opioid use disorder. In fact, as prescription volume has come down, overdoses have gone up. That’s because as it has become more difficult and expensive to divert prescription pain pills to the underground market for non-medical use, non-medical users have migrated to heroin and fentanyl that the efficient black market is supplying in abundance.

Policymakers and politicians refuse to accept the fact that it is the current policy—drug prohibition—that is the cause of the opioid overdose crisis. Rather than taking a hard look at the dismal failure of America’s longest war, the war on drugs, they just double down on what clearly isn’t working, and seek scapegoats for the death and destruction the war continues to bring.

Oklahoma has extracted some tribute from Purdue Pharma and Teva Pharmaceuticals and, pending appeal, hopes to extract even more from Johnson & Johnson. If enough jurisdictions are successful in getting their piece of the action, we might see drug makers pull out of the pain reliever business altogether. That will not be good for millions of pain sufferers.

While state and municipal coffers may get some quick cash infusions, and some political careers may get a needed boost, this shakedown will not get one IV drug user to pull the needle out of their arm."

Marijuana dispensaries might cut neighborhood crime

Not in my backyard? Not so fast. The effect of marijuana legalization on neighborhood crime. By Jeffrey Brinkman David Mok-Lamme. Published in Regional Science and Urban Economics.

Abstract

This paper studies the effects of marijuana legalization on neighborhood crime and documents the patterns in retail dispensary locations over time using detailed micro-level data from Denver, Colorado. To account for endogenous retail dispensary locations, we use a novel identification strategy that exploits exogenous changes in demand across different locations arising from the increased importance of external markets after the legalization of recreational marijuana sales. The results imply that an additional dispensary in a neighborhood leads to a reduction of 17 crimes per month per 10,000 residents, which corresponds to roughly a 19 percent decline relative to the average crime rate over the sample period. Reductions in crime are highly localized, with no evidence of spillover benefits to adjacent neighborhoods. Analysis of detailed crime categories provides insights into the mechanisms underlying the reductions.

Short Selling Reduces Crashes

By Alex Tabarrok.

"Short sellers are often scapegoated for market crashes but a rational market requires rational buyers and sellers. When the markets are dominated by irrational exuberance only the short sellers are speaking sanity. Short-sellers, therefore, should make prices more informative and reduce the Wile E. Coyote moment when it suddenly dawns on the irrational that gravity exists.
Deng, Gao and Kim test the theory and find it holds up; lifting restrictions on short sales reduces prices crashes.

We examine the relation between short-sale constraints and stock price crash risk. To establish causality, we take advantage of a regulatory change from the Securities and Exchange Commission (SEC)’s Regulation SHO pilot program, which temporarily lifted short-sale constraints for randomly designated stocks. Using Regulation SHO as a natural experiment setting in which to apply a difference-in-differences research design, we find that the lifting of short-sale constraints leads to a significant decrease in stock price crash risk. We further investigate the possible underlying mechanisms through which short-sale constraints affect stock price crash risk. We provide evidence suggesting that lifting of short-sale constraints reduces crash risk by constraining managerial bad news hoarding and improving corporate investment efficiency. The results of our study shed new light on the cause of stock price crash risk as well as the roles that short sellers play in monitoring managerial disclosure strategies and real investment decisions."

Corruption is more damaging for productivity at higher levels of regulation

By Dan Mitchell. 

"When I wrote last month about the Green New Deal, I warned that it was cronyism on steroids.

Simply stated, the proposal gives politicians massive new powers to intervene and this would be a recipe for staggering levels of Solyndra-style corruption.

Well, the World Bank has some new scholarly research that echoes my concerns. Two economists investigated the relationship with the regulatory burden and corruption.

Empirical studies such as Meon and Sekkat (2005) and De Rosa et al. (2010) show that corruption is more damaging for economic performance at higher levels of regulation or lower levels of governance quality. …Building on the above literature, in this paper, we use firm-level survey data on 39,732 firms in 111 countries collected by the World Bank’s Enterprise Surveys between 2009 and 2017 to test the hypothesis that corruption impedes firm productivity more at higher levels of regulation. …estimate the model using sample weighted OLS (Ordinary Least Squares) regression analysis.

And what did they discover?

We find that the negative relationship between corruption and productivity is amplified at high levels of regulation. In fact, at low levels of regulation, the relationship between corruption and productivity is insignificant. …we find that a 1 percent increase in bribes that firms pay to get things done, expressed as the share of annual sales, is significantly associated with about a 0.9 percent decrease in productivity of firms at the 75th percentile value of regulation (high regulation). In contrast, at the 25th percentile value of regulation (low regulation), the corresponding change is very small and statistically insignificant, though it is still negative. …after we control for investment, skills and raw materials, the coefficients of the interaction term between corruption and regulation became much larger… This provides support for the hypothesis that corruption is more damaging for productivity at higher levels of regulation.

Lord Acton famously wrote that “power corrupts, and absolute power corrupts absolutely.”
Based on the results from the World Bank study, we can say “regulation corrupts, and added regulation corrupts additionally.”"

Asking the correct questions about poverty and slavery

From Mark Perry.

"A couple examples below of asking the wrong question.

Wrong Question No. 1: What is the cause, explanation, or origin of poverty?

Reason it’s the wrong question? Because human history is a story of abject poverty that has been the natural state of mankind for many, many thousands of years (see chart above) and therefore no explanation is needed or necessary to understand the historical origins of poverty.

Thomas Hobbes famously described the natural state of mankind in the 17th century as “solitary, poor, nasty, brutish, and short.” More recently, Jonah Goldberg in his 2018 book Suicide of the West wrote that “The natural state of mankind is grinding poverty punctuated by horrific violence terminating with an early death. It was like this for a very, very long time.”

As the natural state of the human condition for millennia, poverty really has no “cause” or “origin” and therefore the question “What causes poverty?” is meaningless and irrelevant.

Correct Question: Not what causes poverty, but what caused the unprecedented and phenomenal “hockey stick” rise in economic growth and human prosperity and flourishing illustrated in the chart above that suddenly started a few hundred years ago, especially in the West?
As Thomas Sowell explains in the video below:

It’s not the origins of poverty that need to be explained. What requires explaining are the things that created and sustained higher standards of living [illustrated in the chart above]. There’s no explanation needed for poverty. The species began in poverty. So what you really need to know is what are the things that enable some countries, and some groups within countries, to become prosperous.”

Wrong Question #2: What’s the reason for slavery and why did it exist in the US and elsewhere?
Reason it’s the wrong question? Because slavery was practiced everywhere for most of human history and is still practiced today. For example, according to that National Geographic article titled “21st Century Slaves“:

There are an estimated 27 million men, women, and children in the world who are enslaved — physically confined or restrained and forced to work, or controlled through violence, or in some way treated as property.

Therefore, there are more slaves today than were seized from Africa in four centuries of the trans-Atlantic slave trade [11 million total, and about 450,000, or about 4% of the total, who were brought to the United States]. The modern commerce in humans rivals illegal drug trafficking in its global reach—and in the destruction of lives.

And as Thomas Sowell wrote:

Of all the tragic facts about the history of slavery, the most astonishing to an American today is that, although slavery was a worldwide institution for thousands of years, nowhere in the world was slavery a controversial issue prior to the 18^th century. People of every race and color were enslaved – and enslaved others. White people were still being bought and sold as slaves in the Ottoman Empire, decades after American blacks were freed.

Therefore to ask the reason for any type of human cruelty including slavery, which have existed for millennia and continues to exist today is to ask the wrong question as Gary Saul Morson points out in his article “How the great truth dawned“:

To ask the reason for cruelty is to ask the wrong question. People sometimes ask the reason for slavery, but since slavery was practiced everywhere for most of human history, the right question is the opposite one: why was slavery eventually abolished in many places? In the Bolshevik context, it is mercy and compassion that require explanation.

So there we have the Correct Question: Why was slavery eventually abolished in so many places including the US following thousands of years of the practice, and what’s the explanation for the rise of mercy and compassion that motivated the end of slavery in the US and elsewhere?
Here’s more from Sowell on the topic of abolishing slavery:

Everyone hated the idea of being a slave but few had any qualms about enslaving others. Slavery was just not an issue, not even among intellectuals, much less among political leaders, until the 18^th century – and then it was an issue only in Western civilization. Among those who turned against slavery in the 18^th century were George Washington, Thomas Jefferson, Patrick Henry and other American leaders. You could research all of the 18^th century Africa or Asia or the Middle East without finding any comparable rejection of slavery there. But who is singled out for scathing criticism today? American leaders of the 18^th century.
Deciding that slavery was wrong was much easier than deciding what to do with millions of people from another continent, of another race, and without any historical preparation for living as free citizens in a society like that of the United States, where they were 20 percent of the population.
It is clear from the private correspondence of Washington, Jefferson, and many others that their moral rejection of slavery was unambiguous, but the practical question of what to do now had them baffled. That would remain so for more than half a century.
In 1862, a ship carrying slaves from Africa to Cuba, in violation of a ban on the international slave trade, was captured on the high seas by the U.S. Navy. The crew was imprisoned and the captain was hanged in the United States – despite the fact that slavery itself was still legal at the time in Africa, Cuba, and in the United States. What does this tell us? That enslaving people was considered an abomination. But what to do with millions of people who were already enslaved was not equally clear.
That question was finally answered by a war in which one life was lost [620,000 Civil War casualties] for every six people freed [3.9 million]. Maybe that was the only answer. But don’t pretend today that it was an easy answer – or that those who grappled with the dilemma in the 18^th century were some special villains when most leaders and most people around the world saw nothing wrong with slavery.

MP: There’s a lot more time spent discussing the two wrong questions above rather than the two correct questions. Focusing on the correct questions would be a lot, lot more productive than wasting time on the wrong questions."

Scientists studying satellite image data from the fires in the Amazon rain forest said that most of the fires are burning on agricultural land where the forest had already been cleared

By K.K. Rebecca Lai, Denise Lu and Blacki Migliozzi of The NY Times. Excerpts:

"Most of the fires were likely set by farmers preparing the land for next year’s planting, a common agricultural practice, said the scientists from the University of Maryland."

"The majority of the agricultural land currently in use in Brazil’s Amazon region was created through years of deforestation. 

“Most of this is land use that have replaced rain forest,” said Matthew Hansen, who is a co-leader of the Global Land Analysis and Discovery laboratory at the University of Maryland. 

“Brazil has turned certain states like Mato Grosso into Iowa,” said Mr. Hanson, referring to the Brazilian state on the southern edge of the Amazon region. “You’ve got rain forest, and then there’s just an ocean of soybean.”"

"The increase in fires every August to October coincides with the season when farmers begin planting soybean and corn."