Politics Mondays: Why Did FDR's New Deal Harm Blacks? By Jim Powell

Good intentions are over-rated. Franklin Delano Roosevelt's New Deal, for instance, has been hailed for its lofty goals of reforming the American economy and helping the under-privileged. Yet mounting evidence, developed by dozens of economists across the country, shows that the New Deal prolonged joblessness for millions, and black people were especially hard hit.

The flagship of the New Deal was the National Industrial Recovery Act, passed in June 1933. It authorized the president to issue executive orders establishing some 700 industrial cartels, which restricted output and forced wages and prices above market levels. The minimum wage regulations made it illegal for employers to hire people who weren't worth the minimum because they lacked skills. As a result, some 500,000 blacks, particularly in the South, were estimated to have lost their jobs.

Marginal workers, like unskilled blacks, desperately needed an expanding economy to create more jobs. Yet New Deal policies made it harder for employers to hire people. FDR tripled federal taxes between 1933 and 1940. Social Security excise taxes on payrolls discouraged employers from hiring. New Deal securities laws made it harder for employers to raise capital. New Deal antitrust lawsuits harassed some 150 employers and whole industries. Whatever the merits of such policies might have been, it was bizarre to disrupt private sector employment when the median unemployment rate was 17 percent.

The Agricultural Adjustment Act (1933) aimed to help farmers by cutting farm production and forcing up food prices. Less production meant less work for thousands of poor black sharecroppers. In addition, blacks were among the 100 million consumers forced to pay higher food prices because of the AAA.

The Wagner Act (1935) harmed blacks by making labor union monopolies legal. Economists Thomas E. Hall and J. David Ferguson explained: "By encouraging unionization, the Wagner Act raised the number of insiders (those with jobs) who had the incentive and ability to exclude outsiders (those without jobs). Once high wages have been negotiated, employers are less likely to hire outsiders, and thus the insiders could protect their own interest."

By giving labor unions the monopoly power to exclusively represent employees in a workplace, the Wagner Act had the effect of excluding blacks, since the dominant unions discriminated against blacks. The Wagner Act had originally been drafted with a provision prohibiting racial discrimination. But the American Federation of Labor successfully lobbied against it, and it was dropped. AFL unions used their new power, granted by the Wagner Act, to exclude blacks on a large scale. Booker T. Washington, W.E.B. DuBois, and Marcus Garvey were all critical of compulsory unionism.

The Tennessee Valley Authority -- FDR's government-power-generating monopoly funded by the 98 percent of American taxpayers who didn't live in the Tennessee Valley -- was touted as a bold social experiment. But, among other things, the TVA flooded an estimated 730,000 acres of land behind its dams, and 15,654 people were forced out of their homes. Farm owners received cash settlements for their condemned property. But tenant farmers -- a substantial number of whom were black -- got nothing. After chronicling victims of the TVA "population removal program," historians Michael J. McDonald and John Muldowny reported: "TVA's social experiment was a failure."

What about New Deal spending programs? They were channeled away from the poorest people, including millions of blacks, who lived in the South. These people were already on FDR's side, so, from a political standpoint, there wasn't anything for FDR, as an incumbent, to gain by giving them money. The bulk of New Deal spending went to western states and eastern states where previous election returns had been relatively close, because FDR was focused on winning the next election. Moreover, getting congressional funding required giving states the power to administer programs like the Works Progress Administration (WPA). Indiana Democratic county chairman V.G. Coplen told FDR's 1932 and 1936 campaign manager James Farley, "use these Democratic projects to make votes for the Democratic party."

If FDR's New Deal policies weren't conceived with racist intent, they certainly had racist consequences. Hopefully in the future, more people will try to better understand the often startling, unexpected consequences of government interference with the economy.

Jim Powell, a senior fellow at the Cato Institute, is author of FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003). This op-ed appears on www.cato.org

Jim Powell

Monday, April 18, 2005