Do you remember where you were?

I mean, do you remember where you were in October 1929?

The Brits usually do this better than we do: some comic relief while the financial crisis continues to lurch forward. It's impossible to get through these things without some gallows humor.

There's no stopping Biden's gaffe-o-matic:

When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed," Biden told [Katie] Couric. "He said, 'Look, here's what happened."

'Cuz when the stock market crashed in 1929, FDR had already become president, and there was a television in every living room -- really :) There's a real point there, somewhere: the level of political eloquence and plain-speaking has, on the whole, dropped noticeably since then. And it's not a forte of our current president or, actually, almost any of our current politicos.

But this brings up a more serious point. Another one of those encrusted, hoary myths is that the 1929 stock market crash "caused" the Great Depression, even though the American economy wasn't in depression territory before 1932. It was, however, already in recession at the end of 1928, according the the National Bureau of Economic Statistics, founded in 1920, an outgrowth of the World War One era's burgeoning interest in statistics and planning.

It would be more accurate to say that the stock market in late 1929 was, relative to an economy already in recession, wildly overvalued by speculative excess (by a factor of about six to eight, an overvaluation not seen since then). The crash was a sharp correction to that overvaluation.

Meantime, what was a severe recession need not have become the "Great" Depression. It didn't, for example, in Britain and France. But the string of bank failures that started in late 1930 ensured that it would. By early 1933 (when Roosevelt actually became president), one US bank in three was shut. Following exactly the wrong policy, the Federal Reserve caused the money supply to contract by about a third, and a severe deflation followed (about a 40% drop in prices), ruining debtors -- like home mortgagors.* Instead of keeping their money in banks, people started putting it under mattresses, where it did no good.

It's not so much that these monetary and banking failures caused the Great Depression; they were the Great Depression. Of course, they caused more negative developments, like 26% peak unemployment, and prompted governments in reaction to essentially shut down international trade and raise taxes in a vain attempt to balance their budgets -- making everything even worse.

POSTSCRIPT: Why do these financial crashes seem to happen in the autumn? Is it the falling leaves, perhaps? The end of summer and intimations of mortality?

POST-POSTSCRIPT: The cure has been found for wild financial market behavior: estrogen. Seriously: that, plus some old guys.
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* Deflation is hell on debtors: they have to pay back fixed money amounts in dollars that are worth more and more each day that passes. Creditors love deflation for just that reason.

Conversely, debtors love inflation: they pay back fixed money amounts in dollars that are worth less and less as time passes. Creditors, and indeed, investors and savers generally, hate inflation for the same reason.

The conflict between debtors and creditors is one of the great perennials, a key "class conflict," if you like, in American history, going back to the days of Hamilton and Jefferson.

The New Deal reconsidered: Whats and whys

The welfare-regulatory state of all Western societies, built in waves since the late 19th century, is headed for unstoppable, wrenching change. But choices lie ahead; the outcome is not predetermined. It behooves every sentient adult citizen of wealthy advanced democracies to understand the coming crisis in at least its basics.

The welfare state was built from a variety of motives, some benevolent, some not. In some cases, it was the conscious goal; in others, the residue of more radical, failed experiments in centralized planning. The practical breakthroughs in the evolution of the West away from classical liberal politics and limited government came as a result of the First World War and the Great Depression. But even before these watershed events, mass political movements and educated prejudice alike were starting to run against free societies, democratic government, and markets - for complex reasons: some political, some based on confused economic ideas, some imperialist, racist, or even esthetic. The common denominator was replacing spontaneous social development with the "engineered" society. Marxists believed in false theories of progressive immiseration and replacing the supposed "anarchy" of markets with the supposed "rationality" of central planning. "Welfare" liberals and progressives saw a need for a much more powerful regulatory and redistributive state, along with a strong dose of paternalism to guide the masses. The imperial-minded wanted government to redirect resources toward a society more fit militarily and better prepared to sustain itself without trade with other countries. The First World War provided the paradigm of "total" war, with quotas, price fixing, and direct government command of resources. The state took an aggressive role in suppressing social conflicts, in some cases peacefully, in others coercively and violently. Institutions of culture were seen in a new light, as available for and needing "co-ordination" to become aligned with unified social goals put forth by the political class. Contrary to myth, the supposedly "conservative" 1920s saw these measures remain half-in-place: price boards, trade and immigration restrictions, discriminatory labor laws.*

By the 1930s and the onset of the Depression, the collapse of free societies was evident everywhere. Liberal-capitalist democracy seemed obsolete; collectivism, the "wave of the future." Political intellectuals of many stripes searched for authoritarian alternatives, including fascism (a fact conveniently forgotten later). But after 1945, wartime sacrifice, and the belated discovery of what collectivist societies really looked like, retreat and compromise set in. The new push for the contemporary "entitlement" state came as a result of postwar prosperity, but had much shakier justification as serving the larger public good. Politically-designated grievance and entitlement classes emerged and began to steer the politics of the welfare state. The era of powerful, charismatic leaders able to impose limits on the greed of interest groups ended. The era of lobbyists and entrenched interests began, all seeking a piece of government power for their own use.

The larger price of the welfare state became evident: governments printing or borrowing money to pay for false promises; regulatory agencies, litigants, and activists misusing systems created earlier to serve broad social purposes for their own power-building agendas. By the late 70s, the smell of voter revolt was everywhere in the West. The generation that followed saw a revival of respect for markets, a wave of deregulation, and the re-emergence of the globalizing capitalism that had flourished before 1914, before it was wrecked by the two world wars and the Depression.

But real dangers remain. Totalitarian forms of collectivism have either been defeated or have largely collapsed from their own economic failure. But, while most democratic countries have dismantled most of their classical socialist experiments, the "half-socialized" regulatory and redistributive features remain. Their costs, and their tendency to "privatize the gains and socialize the losses," keep expanding. In the US, the economy as a whole has expanded fast enough to keep the bill from getting completely out of control - at least so far. Other wealthy countries, lacking US-style economic growth and the willingness of foreigners to lend and invest, haven't been so lucky. All of them have been forced to cut the welfare state and reform their redistributive systems, such as socialized medicine and old age pensions.

The rationale then - and now. When the welfare state was created, the world was a different place. National economies were more self-sufficient, and national governments had an easier time controlling them. The birth rate in most wealthy societies was higher than today and longevities shorter, meaning that social security systems could count on an adequate number of new taxpayers and sufficient economic growth to keep going. Many of these welfare state features were poorly designed for the long run. Keeping their most negative tendencies - the emergence of greedy interest groups misusing the power of government at the expense of everyone else - in check required disciplined and powerful political parties and charismatic political figures that, for the most part, no longer exist. Our politics today is dominated not only by powerful narrow interest groups, but by the news media, to which we have conceded much of the role once played by the parties and higher education. The result is not pretty. No one forced it on us; we just let it happen.

Reforming the welfare state will mean starting the debate on the proper functions of government over again from scratch. We must start by recognizing that, whatever the failures of markets and the larger society, "government failure" is just as real.** The debate will have to proceed without the discredited baggage of central planning or phony economic arguments. Every civilized society needs a government of some sort. The question is not just, what do we want it to do, but also, what can government do? It doesn't create wealth; it can only redirect or restrict it. And the welfare state debate cannot be framed in terms of rights, which are limitations on government power, not expansions of it. Concern for the poor, the disabled, and the otherwise helpless; making sure the able-bodied avoid chronic bad decisions affecting their welfare; and regulation of complex economic and technological systems, must be framed in terms of the responsibility of the society at large. In a free society, what is legitimate and not legitimate for political regulation? How much power should government have to redirect the citizenry's lives and decisions?

POSTSCRIPT: Much of this history is retold more completely and authoritatively by Robert Skidelsky's excellent The Road From Serfdom, a basic work for understanding the last century. Jonathan Rauch's Government's End (first edition, Demosclerosis) is an indispensable complement to understanding the late welfare state paralysis of interest groups.
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* For example, before 1914, only diplomats needed passports. During and after World War One, almost all countries adopted much tighter restrictions on travel and immigration for everyone.

** As the citizens of New Orleans well know. We must also speak of "media failure" as well: grotesque, "narrative"-driven misreporting of even basic facts on a grand scale.

The New Deal reconsidered: The Holocaust crisis

Another important corrective to the hazy nostalgia in which the FDR years were later enveloped is a look at the reaction, or failure of reaction, of the US to the Holocaust. As David Wyman recounts in his essential book on the subject, the nature and scope of the genocide were known in the US by late 1942. For fear of appearing "pro-Jewish," the War and State Departments, respectively, refused and blocked any action to stop it. Until his death, FDR was indifferent to both the genocide itself and the refugees in flight from it. The State Department, under the influence of the British Foreign Office, was also hostile to Zionism and declined to press for Jewish refugees to be allowed into Palestine. The contrast with Churchill is striking. Once he knew of it, he spoke publicly about the genocide and devised schemes for getting weapons to resistance movements in continental Europe. His complaint about Anglo-Jewry was its timidity and lack of organization. In spite of his courageous and public statements and actions in connection with the Holocaust, there were sharp limits on how far he push the rest of the British government on the issue. But there was no question where he stood.

It wasn't supposed to turn out that way. FDR's presidency, and especially his landslide victory in 1936, cemented the love affair of American Jews with the Democratic party. There have been periods of erosion of that affair (Eisenhower in 1956, Nixon in 1972, and Reagan in 1984, all received close to half of the American Jewish vote), but never a real prospect of dissolution. Although anti-discrimination laws before the late 1950s were more limited in scope, applying only to government, the influence of the New Deal's public hiring practices, and later their application through much of the US economy during the war, essentially started the modern civil rights era. The 1930s was not only the most isolationist decade in US history, it was the most nativist, a period of strong intergroup tensions and bigotry. The Depression itself, of course, was the largest single cause. But the message emanating from Germany also exerted a distinct influence. American Jews looked to FDR as "King of the Jews," the "good czar" who would protect them. American Jewish leaders like Rabbi Stephen Wise and Sam Rosenman acted as American versions of "court Jews" familiar from Europe.

And it was "court Jew" politics that failed in the war years. This influential establishment of lay and rabbinical leaders, allied with FDR, were determined to maintain the palace-intrigue approach to Jewish issues. Far from being a help, they seriously harmed Jewish self-interest in those years: for all their backroom dealings, they came up empty on antisemitism, Zionism, or rescuing European Jews.

Eventually, a new, more American type of "bottom-up" politics emerged in response to the Holocaust. Its emergence was too late for most of Europe's Jews. But it led to a stunning breakthrough for America's. After the end of the war, it became clear that, for all his greatness as a leader, FDR and his "court Jews" were the ultimate obstacles to progress on these issues. While he repeatedly used popular anti-semitism as an excuse for inaction, the circumstances of the war itself rapidly changed American opinion, and FDR was left behind by change he himself had helped to instigate. Treasury Secretary Morgenthau's plan to rescue Jewish refugees was largely drawn up by non-Jews. Former president Herbert Hoover, who first made his name leading war relief efforts during and after the First World War, offered to head up a refugee commission. It did form but failed to accomplish much, because of State Department and White House resistance. Even the State Department itself, once the war was over, relented enough to negotiate a settlement of refugee property claims with the Swiss government.*

A critical mass of Jewish groups finally gave up on palace intrigue, organizing and protesting publicly in 1943 and 1944, making Zionism and the rescue of Europe's remaining Jews broadly accepted, nonpartisan issues. By the 1944 election, both parties endorsed this platform, and within a few years, rapid political change led to dramatic changes in American acceptance of Jews and the start of the sharp decline in antisemitism that marked the postwar decades. This decisive change occurred in a space of a few years. Contrast with the 1940 election, where in spite of the bipartisan support for intervention in the war, America First and important isolationist leaders like Lindbergh made discreet but effective use of social prejudice against Jews to bolster their case. The America we live in now was made in those few short years by people (some of them returning from the war) who abandoned the 1930s politics of fear. Given FDR's opposition to Zionism and his stubborn refusal to do anything about the genocide in Europe, it's almost a miracle.**
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* Contrary to mythology pushed by the media in the 1990s, Switzerland had instituted the secret, numbered bank account system in the 1930s so that people fleeing Germany could move their assets to a safe place. It was generally less antisemitic than the rest of Europe and, in spite of the fact that much of its population was German-speaking, never fell for Hitler's Aryan vision. But most of the owners of the financial assets moved to Swiss banks perished, and several billions (in present dollars) were left unclaimed at the end of the war.

** Kenneth Levin's The Oslo Syndrome retraces Wyman's history in abbreviated form, then relates it to the return of Jewish self-ghettoization in the 1990s. Except that in a liberal democracy, self-ghettoization means self-defeat. "Court Jew" politics and palace intrigue don't work. While Clinton, unlike FDR, was not personally prejudiced against Jews, the political failure was similar, the Oslo "peace process" being the most damaging result.

The New Deal reconsidered: The war years

Dedicated to the memory of my parents

To organize a society for a cause means facing everyone in one direction, toward an external goal, and what better goal than crushing an enemy? If there is no foreign one, then, as FDR discovered, domestic ones have to be invented. After his 1936 landslide victory, FDR began to do just that, ultimately overreaching with his 1937 Supreme Court-packing scheme. This crisis proved the beginning of the end for the New Deal. And 1938 saw a recession, wiping out the partial recovery that had taken hold in 1935-36, and large losses in Congress for the New Dealers, who were replaced by Republicans and conservative Democrats. The court crisis set off a wave of disillusionment, as more and more voters realized how limited the New Deal's accomplishments were. Voters recoiled in horror at the blatant violation of separation of powers inherent in FDR's attempt to manufacture a Supreme Court that would rubberstamp what he wanted. America would not become a dictatorship.

And then international crisis came. The 1930s was the most isolationist decade in American history (check out Little Orphan Annie and Daddy Warbucks). For much of the decade, FDR not only went along with it, he helped to destroy the world trading system by leaving the gold standard. Central planning is a lot easier with a closed economy, after all. With the New Deal on the way out, however, Roosevelt, like many presidents frustrated with domestic stalemate, turned to foreign affairs. The Spanish Civil War (1936-39) gave a preview of coming attractions, so to speak, not only with fascist Italy and Germany supporting Franco, but the Soviets trying to control the anti-fascist opposition for their own purposes. Roosevelt's distant cousin, Winston Churchill, then on the outs of British politics, was already sounding the warning about Germany. By 1940, the war was underway, and American shipping was being attacked by German submarines in the Atlantic.

But there was nothing close to approaching consensus about whether the US should enter or even support the Allies. Bad memories of Wilson and the "war to end all wars" twenty years earlier were still fresh. The largest peace movement in American history, America First, was formed in 1939 to head off American intervention. These isolationists were a motley collection: opponents of the New Deal and FDR mixed with labor, church, and pacifist leaders. Even with the New Deal gone, modern "total" war would mean a large and possibly permanent increase in federal and presidential power. In the Middle West, Republicans of German and Scandinavian extraction looked favorably upon the Third Reich. Democrats of Irish background (like Kennedy père) looked unfavorably upon Britain. At the fringe were a small but vocal (if embarrassing) group of Nazi fellow-travelers. With the Soviet Union an ally of Germany after August 1939 and the fall of France in June 1940, the anti-German cause looked lost anyway. Only after Britain refused to fold in the summer and fall of 1940, did American public opinion begin to change. Even so, while most Americans in 1941 hoped for an Allied victory, until Pearl Harbor, most were still unwilling to intervene directly. Only the attack on Pearl Harbor banished, at least for a while, the antiwar and anti-FDR voices.

Popular historian Thomas Fleming's witty, readable, and controversial The New Dealers' War: FDR and the War Within World War II details the suspension of normal politics "for the duration" and how FDR and his administration kept grumbling and discontent at bay. The result was remarkable: the US reached a level of consensus on international affairs in those years that, while attacked from various directions afterward, did not fully dissipate until the 1990s. This in spite of serious deception (hiding how ill FDR was in the 1944 election) and strong illusions in some quarters about Stalin's designs on postwar Europe.

The full disillusionment with the New Deal never had time to sink in before America began to turn its attention in 1940 to war. The economic build-up finally did what the New Deal never could, namely, end the Depression. In less than two years, the US economy went from idle capacity and high unemployment to shortages. International crisis - preparing for war, then hot war, the start of the Cold War - delayed the reaction against the New Dealers until the 1950s, in fact. Invented domestic bogeymen were not necessary; for a while at least, there were real ones, on the outside.*

Moral inequivalencies. In spite of the similarities of the different collectivist tendencies, comparison is not equation. In the 1930s, the United States had no concentration camps, no liquidation of political or class enemies, no genocides, no destruction of the Constitution. It did experience under FDR an astonishing transformation of presidential power: compared to the handful of 19th century executive orders, and the hundreds of Wilson, we got thousands in the 1930s and 40s. Congress alienated an entire chunk of its law-making power to executive agencies. Ordinary freedoms were partly suspended "for the duration," and a hundred thousand Japanese-Americans were put into temporary camps. But the political system mostly remained in place, limiting presidential reach. Towards the end of the war, as the nature of the fascist enemy become clear to Americans, an even sharper disillusionment with the all-powerful state set in. Whatever problems a free society suffered from, the modern omni-state had turned out to be the most lethal weapon ever created. Deeper awareness a few years later of the Stalinist system reinforced the lesson. This was era when everyone started reading Orwell's Animal Farm and Hayek's Road to Serfdom, both published in Britain in the war's last years.

Follow the yellow brick road. For FDR's subsequent reputation, the war years made all the difference. The New Deal ended on an ambiguous and largely negative note. It had, in all probability, prolonged the Depression and certainly not ended it. But if FDR is counted among the greatest presidents, it is because of his skillful leading of Americans into the largest conflict in history, one that it was not initially obvious could be won.

When we compare successful war presidents (FDR, Lincoln, Washington, as well as other democratic leaders like Churchill and De Gaulle) to less successful ones (McKinley, Wilson, Bush), the obvious thing that leaps out is the degree to which the political ground was properly prepared before the conflict was engaged. Pearl Harbor, like the attack on Fort Sumter and the battles at Concord and Lexington, was the culmination of a process, not its beginning. The other key to successful war leadership is that, however indispensable they might seem at the start, great democratic leaders, by evoking popular initiative and enthusiasm, make themselves superfluous in the end. Churchill and Roosevelt were indispensable at the outset. Yet the war ended successfully without them, one dead, they other turned out of office by voters. This is far removed from a cult figure like Hitler, whose suicide just a few weeks after FDR's death, marked the end of his entire regime and movement.

Two years before Americans went to war in 1941, they sat in theaters and watched the film version of The Wizard of Oz. In the story that everyone knows, Dorothy and her friends set off to receive prized human virtues from the mysterious and powerful Wizard, who turns out, after his booming, amplified voice is turned off, to be less than imposing. From him, they receive the courage, love, and intelligence they seek, but come to realize that they actually had them all along. After all, they defeated the Wicked Witch of the West and done other marvels without the Wizard's gifts. After the Wicked Witch, even Hitler would seem like a piece of cake.
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* Several hundred Soviet agents working in Washington in the late 1930s and during the war have been firmly identified from Soviet records available to historians after the Cold War ended. However, the defection of two of them (Elizabeth Bentley and Whittaker Chambers) in 1945 caused the Soviets to shut down their espionage operations. By 1948, there was nothing left of it. Leading liberal lights, however, such as Eleanor Roosevelt and President Truman, could not bring themselves to admit that such things had been going on and that establishment figures such as Alger Hiss, of good family and reputation, were involved in it.

Their lack of honesty on this issue made liberals politically vulnerable. If the Korean War had not broken out, the resulting attacks, by McCarthy and others, probably would have remained on the fringe. But American soldiers dying in a country supposedly already secure made it an irresistible issue.

The New Deal reconsidered: The forgotten man

After looking at the rise and fall of collectivism over the last century with Jonah Goldberg, let's focus more narrowly on the New Deal itself with Amity Shlaes, author of the recent and remarkable The Forgotten Man: A New History of the Great Depression. The history is again not hidden, merely forgotten. After voters largely repudiated the New Deal in the 1938 midterm elections, the truth about the 30s became more and more obscured in a haze of myth. FDR's reputation, which was sinking from the end of 1937 on, was utterly transformed by his wartime leadership. America's triumph in 1945 put the reality of the New Deal behind a fog of nostalgia.

Understanding the New Deal period and its legacy makes it easier to understand how the rise of the federal welfare state and vote-buying created the interest groups that now dominate American politics. Before, there were local and state governmental welfare functions, but (veterans apart) no federal welfare role. After, the US had something like today's federal welfare state. More pieces have been added since (Medicare, Medicaid, partial federal funding and control of education), but the New Deal remains the watershed. While the New Deal is remembered as a period of experimentation with central planning and government ownership of certain sectors of the economy, those quasi-socialistic features had a short life and were mostly gone by 1939. But the New Deal transformed the older state and local Democratic party machines that doled out money and patronage to Democratic-voting groups (urban ethnic voters, white Southerners, other groups later) into a truly national political machine of "tax and tax, spend and spend, elect and elect."*

That wasn't the way the New Deal was viewed at the time. The Great Depression was an unprecedented emergency of uncertain origins that demanded a reaction. Deeply impressed by experiments in collectivism in Russia, Italy, and Germany, the conventional wisdom for much of the decade was, if not "red," at least a "pink-brown" mix. Even otherwise conservative types (businessmen, Republican farmers in the Middle West and West) were bewitched, for a while, by the false promise of central planning and state ownership (all facts, BTW, conveniently forgotten by the 1950s). Shlaes makes effective use of the large body of work by economists and historians done since the 1930s in better understanding the causes of the Depression. In 1930, while America was still a largely rural country, its farmers had become so productive that there were simply too many of them, trying to hang on by borrowing, only to see grain and other food prices crash periodically, wiping them out. Meanwhile, Europe, America's largest export market, was no longer able to pay its way after 1918. Major European countries had become indebted to the US. But the US, like almost all wealthy countries after World War One, imposed high tariff barriers on the very European goods that could have paid off those loans. American farmers were shut out of their most important foreign markets, leaving that sector weak well before the October 1929 stock market crash. In fact, the US was already in a serious recession by the end of 1928.

What turned a serious recession into the Great Depression was the combination of protectionism, which ended most international trade by the early 1930s, and extraordinarily bad decisions by the Federal Reserve, which had been created in 1913 precisely to prevent from happening what proceeded to happen, a monetary collapse. In order to defend the value of the dollar against the price of gold (the US was on the gold standard in those days), the Fed in effect raised interest rates to member banks to levels never seen before or since. Banks never have enough money to pay all their depositors at any one time in any case, but the resulting deflation (as the money supply contracted sharply) put US banks in a terrible bind. Depositors began to stand in long lines to get their money out, and pretty soon, a third of the country's banks were closed. Without money and credit, a modern capitalist economy comes to a stop. Twenty-six percent of the work force were unemployed. Similar banking collapses happened in certain other countries - most fatefully, Germany and Austria - leading to similar results.**

At the time, various competing theories, most of them partly or completely wrong, were widely debated and believed in: Marxism ("the end of the capitalism"), what eventually became Keynesianism (inadequate aggregate demand), and other, loopier theories. People were desperate, and political niceties like constitutions were looked upon as luxuries. It was in this atmosphere that FDR was elected in 1932. Contrary to later myth, federal reaction had already started under Hoover, including government intervention similar to the New Deal, albeit on a smaller scale. One of the largest mistakes of these policies was their attempt to keep prices and wages up at any cost, instead of letting them float downwards to a new equilibrium, which would have returned the economy to something more like full employment. These measures amounted to a make-believe of wrong-headed, politically decreed prices and wages (see here for a look back at these).

Shlaes takes her title from the late 19th century writings of William Graham Sumner, a forgotten man himself these days, but once a significant light in post-Civil War America. In his earlier work, he was a follower of the Herbert Spencer, the English popularizer of "social Darwinism" in a libertarian, quasi-pacifist form palatable to English-speaking audiences. While he modified his views in later years, Sumner, like most serious social thinkers of that era, never totally abandoned the Spencerian paradigm of peaceful, decentralized social evolution. Such thinkers were already under pressure at the end of the 19th century from various directions: the imperially-minded preaching the "white man's burden," the militaristically-minded who saw (with some reason) the commercially-oriented societies of western Europe and north America as not prepared to face the rising might of Germany, and social reformers who wanted to use government power to coercively bring about social changes and perhaps a planned utopia. Few wanted to abandon political democracy, yet these programs conflicted with the most important features of liberal society. In America, they were called the Progressives, and their frequently misguided crusades form a pre-history of later collectivist ideologies - the "liberal fascism" of Goldberg, with all its inherent internal contradictions.

Sumner put his finger on the core problem with all such collectivist schemes. A agrees to help B at the expense of C. If A and B are organized and vocal pressure groups, they can get away with it for a while, at least. But C must remain oblivious for A and B to keep it going. If C becomes conscious of being exploited and revolts, then A and B are in trouble. The scheme has to be abandoned, at least if democratic practice is to be maintained. The only alternative, Sumner concluded, is violent revolution and coercive dictatorship to keep C in his place. Sumner did not live to see the communist revolutions in Russia or China or the various types of fascism that flourished in the 1920s, 30s, and 40s - but he already had their number. In democratic societies, C is the unorganized majority.

The evidence of this central failure of the New Deal was widely understood by the end of the 30s. Voters started to see that it was impossible to, say, improve the lot of workers overall by raising wages and prices in one industry while making everyone else pay for it. Such policies never made any economic sense. As the New Deal faded away, what was left was something different from 19th century laissez-faire, although well short of socialism: the modern redistributive-regulatory state. It didn't abolish private ownership or markets, but it did come to regulate them, sometimes heavily, and redirect the larger society's consumption and investment patterns. The political heart of it was just the Democrats' old machine politics, but now writ large on a national scale. Favoring certain groups with federal largess, making state and local politicians dependent on federal hand-outs, the New Deal began the move of political life in America away from local and state governments toward Washington (including the beginnings of the centralization and consolidation of political journalism) and the end of federalism.

What kept this system from flying apart were strong political parties and the imperial presidency. These held the underlying centrifugal tendencies in check. But starting in the 1960s, this self-discipline broke down. After Nixon's resignation and the end of the imperial presidency, it was no longer possible to control the abuse of governmental tax, spending, and regulatory power. The modern lobbying industry, born in the 1970s, descended on Congress looking for favors on a scale far larger than before, and Congress was only too happy to oblige - and help itself to pork as well. Sometimes, these favors were sold to voters at large as serving the larger public good (which was rarely true). Modern conservatism started as an attempt to push back against this trend. But it was only partly successful and for a limited time. By the late 90s, the forces of "tax and tax, spend and spend, elect and elect" got the upper hand again - except now, curiously, they were "borrow-spend-elect" Republicans.

POSTSCRIPT: Shlaes gave this talk last fall at Hillsdale College. Consider also this review by David Boaz of another recent book on the 1930s, German historian Wolfgang Schivelbusch's Three New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933–1939.

A somewhat older classic on the rise and fall of 20th century collectivism is Robert Skidelsky's The Road from Serfdom, an excellent complement to these books by Shlaes and others.
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* Harold Ickes' words from 1938.

** Britain and France experienced no banking collapses and so suffered less. But even they faced high unemployment from the late 20s on, especially Britain, which insisted on overvaluing its currency and pricing its exports out of world markets.

The New Deal reconsidered: Liberal fascism

PRE-POSTSCRIPT: Here's a podcast interview with Jonah Goldberg.
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Up there on Amazon's best-seller lists for months now has been Jonah Goldberg's Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Meaning. The book has brought back a debate that should be at the forefront of our politics, but rarely is. One of Goldberg's goals is to lay to rest a mythology that has been central to the American left and more mainstream liberals since the 1930s, that Anglo-American conservatism is somehow "fascist"; and more generally the misuse of fascism to describe the free-market and individualist right. It's only become "right" because the left foisted this mythology on us all those decades ago, that leftism and fascism are mutually exclusive and exhaustive poles of politics. Having the slightest familiarity with modern political history, especially from a European perspective, no one educated person could have fallen for this. But in our age of media-induced amnesia, it's helpful to now and then wake up and read some real history for once. It's history that's not hidden, just forgotten, sometimes deliberately so. Readers of Hayek's 1944 classic, The Road to Serfdom, will recognize the essentials.

Most of what is called "conservative" in the English-speaking world in the last 80 years is really a blend of what 19th- or 18th-century educated people would have correctly called "liberal" (meaning limited government and individualist) and "conservative" (meaning traditionalist). The two are still in tension (we think of "conservative" versus "libertarian," for example), but they were also in tension then. In the generation before the First World War, a new force, not answering to either label, arose in opposition to the older limited-government liberal ideal. It went under various names: "reform" liberalism, the "new" liberalism (as opposed to the "old"), "progressivism." Influenced by Marxist and socialist doctrines, they came to dominate American politics in the teens and then again during the Great Depression and the New Deal. It's the basis today of what is conventionally and very misleadingly called "liberalism" in the US and more correctly called "social democracy" or "welfare liberalism" in the rest of the world. We're all familiar from our history classes what this meant: in democratic societies, a much larger and more powerful government; far more overt political involvement in social and economic decisions; the state (to an extent) taking over once-private or familial functions (education, old age and sickness insurance), and so on. The political values associated with classical liberalism largely remained, but its economic and social values were transformed into a form of democratic statism.

But in countries with weaker or non-existent democratic traditions, while it meant all those things, it also meant something else: a comprehensive alternative to liberal democracy altogether. In reconstituted empires like the Russian and Chinese, it was the fantastic and deadly fake, coercive utopia of communism. In countries with old cultural identities but recent and weak political unification (Italy, Germany, Japan), the new collectivism and statism were merged with a post-nationalist imperial chauvinism, eventually christened "fascism" by Mussolini. He named his idea and movement after the Roman fasces, the bundled sticks that represented the supersession of individuals going about their business by a concentrated unity of purpose embodied in the person of the dictator. Hitler and Nazism then did it all better by adding a mystical romantic racism and a Teutonic thoroughness the Italian model lacked.

The non-democratic forms of 20th-century collectivism, rather than being opposites, are best viewed as rival siblings. They were born at around the same time and answered similar needs. The career of Mussolini illustrates their entangled origins: born to radical parents (who named him Benito after the Mexican revolutionary Benito Juarez), drifting through Marxism (too German-pedantic) and anarchism (fit the Latin temperament better), then to the realization that he could really make a big splash if he fused the two rivals, chauvinistic nationalism and socialism. The epiphany came to him, as it did to many, during the first modern "total" war. World War One demonstrated the apparent practicality of nationalized economies, centralized control, and total unity, with the hope that they could be carried over permanently into peacetime.

There were parallels in various countries and between democratic and non-democratic forms. Progressivist Woodrow Wilson viewed the limited government paradigm of the American founders as obsolete, to be replaced by an organic system, with the President as the "head" of the body politic. His younger colleague, Franklin Roosevelt, later succeeded where Wilson failed. H. G. Wells coined the term "liberal fascism" in a 1931 speech in which he called for a synthesis of the older "liberal" (what we now misleadingly call "conservative") political values with state manipulation and control of society and economy. Wells wasn't thinking of Soviet Russia, but of Fascist Italy, where Mussolini had done more than make the trains run on time. Wells had seen this apparent "wave of the future," and it seemed to work. After 1918 and especially after the onset of the Great Depression, liberal democracy, free societies, and free economies seemed passé. All of this was of course deliberately forgotten after 1945. From then on, "liberalism" and "fascism" were supposed to be opposites.*

But Goldberg arrives to tell us otherwise, exhumes this repressed history, and updates it with the distinctive excesses of the 1960s New Left, its eroticized cult of violence and worship of exotic foreign dictators, both reminiscent of fascism and its 30s fellow-travellers in democratic countries. In certain ways, Goldberg exaggerates: the tragedy of American liberalism since Wilson is not that it is fascism (it isn't), but that it tries to combine what cannot be: unlimited government in the service of liberal goals. It has led modern liberals to one predictable disaster after another.
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* We also can't ignore the effect of the Popular Front period (1936-39), when Stalin and Soviet-oriented zombies worldwide tried to manipulate the democratic left and liberal middle-class parties with a common program in opposition to fascism. The real controlling factor was Soviet policy towards Germany, which zigzagged from neutrality, to hostility, to friendship, all in a few years. In Europe, the PF program made at least superficial sense. In the US, there wasn't much to oppose really - except, strangely, the New Deal itself, which had multiple features in direct and conscious imitation of Mussolini's system. The emotionalistic use of "fascist" as an empty epithet to label anyone not with this program started in the Popular Front era, then reappeared in the 60s.

The Hitler-Stalin pact of August 1939 brought the Popular Front to an end, although the crude manipulation of gullible non-communists to serve Soviet foreign policy goals was already evident before then. And the illusions of the Popular Front survived long after the Popular Front itself.

William F. Buckley, Jr.: An appreciation

Where to start? A giant of the postwar world, one of the founders of modern conservatism, and a leading light who remade American politics, died just over a month ago. Many tributes have appeared, and his positive influence is everywhere you look.

When World War Two ended, American conservatism seemed to be finished. Although opposition to the increasingly statist bent of liberalism came from many and often conflicting points of view (individualism, religion, nativism, etc.), the two large forms of opposition were isolationism (opposition to American entry into the war - although that was not in any way purely a cause of the Right) and hostility to the dramatic expansion and pretensions of the federal government. Both oppositions appeared discredited, although disillusionment with the New Deal and federal intervention in general was widespread by the time of the 1940 election. And a significant part of the Republican party - its East Coast, Anglophile wing, led by Wendell Wilkie - did support intervention, in fact preventing foreign policy from becoming a major partisan issue in the 1940 and 1944 elections and marginalizing isolationism to a great degree. Nonetheless, while much of the New Deal had been repudiated after the 1938 midterm elections, everyone in 1940 knew what the great question was: to intervene or not, how fast and how deep. Of course, the Germans' undeclared submarine war of 1940-41 and the attack on Pearl Harbor at the end of 1941 rendered that debate moot. The US did intervene in World War Two, on the Allied side, and few regretted it afterwards, in spite of the immense cost and the dubiousness of having the Soviet Union as an ally.

Other factors were at work in the fragmented state of the American right in 1945. It had some of the same components familiar today. There were conservatives, people who deferred to tradition because it was tradition. The fact that the American political tradition was largely a liberal one (with one major exception) created something of a paradox.* That tradition was one of limited government, one overturned by the socialist-tinged "new" or "reform" liberalism of the Progressive and New Deal eras. (The change was large enough that it is questionable whether the adjective "liberal" should be used at all.) Classical liberals (later called libertarians) never bought into tradition-for-tradition's-sake and based their views on straightforward, historically informed ideas (abundantly confirmed by recent experience in the world wars and totalitarian dictatorships) about the negative effect on human liberty and prosperity by too-large and too-powerful a government. Some went further and re-developed the familiar 18th-century theories of natural rights and consensual government in terms understandable to a 20th century audience. To that they added a more modern and deeper appreciation of the limits of social knowledge and the impossibility of social planning.

A striking fact astute readers might notice is that I make no mention of the "religious right" in this potted history. That's because, after the liberal-fundamentalist battles of the late 19th and early 20s centuries, the fundamentalists retreated to their own, anti-political, subculture. To the extend that they were political, they largely voted Democratic, because they were largely southern or urban-ethnic Catholic - and in those days, virtually all white southern and Catholic voters voted Democratic. The "religious right" as we now know it, an alliance between conservative Catholics and conservative Protestants, was 30+ years in the future at the end of the war. In 1945, a few feeble attempts at ecumenism apart, the relation between Protestants and Catholics was one of mutual suspicion, laced with ignorance and prejudice - although the war itself had had a strong positive impact on this state of affairs. The full scope of this impact is in large part the complete transformation of religious and ethnic identity in America in the postwar era. This transformation made black civil rights easier to swallow (for whites), gave rise to a new level of interreligious understanding, and made Buckley's type of "big tent" conservatism possible. All of these were out of reach and almost unthinkable before 1945. In his relationship with American Jews, Buckley's approach was even more radical, given the level of anti-Jewish prejudice still prevalent in 1945. By the late 1950s, his nascent movement and its allies counted a significant number of Jewish thinkers, many of them refugees from Europe and carrying first-hand experience of life under the totalitarian dictatorships. Well before the Republican party, under Nixon, fully embraced support of Israel, Buckley adopted such support as a matter of course, because he understood the basic issues at stake. When the Soviet Jewry movement started in the mid-1960s, Buckley and his followers were among its early non-Jewish allies and supporters.

Buckley was a wealthy liberal Catholic, a man from a social background (including a father who was an American ambassador) that, on the surface, seemed conventionally WASP. It was his quirky Catholicism that initially made the difference. It made him have to think - really think - about political issues in a deeper way than most people have to, people who take their political views without much thought from their parents, teachers, and peers. This led him initially to oppose modern American liberalism from a traditionalist point of view, but also made him open to libertarian approaches. From these experiences, he formed a clear conception of how to rebuild the American right around a few simple and broadly appealing stands that any rational person could assent to, without regard to ethnic or religious background: opposition to the growth of government at home and opposition to the dominant form of collectivist tyranny abroad, communism. Buckley and his allies founded National Review, still the flagship of American conservatism, and began a campaign that stretched from the early 1950s to the late 70s to absorb all opposition to modern liberalism in this way. By doing this, Buckley sidestepped the leftover isolationist-interventionist debate and ended the American right's parochialism. By the late 1950s, all sorts of people, many Protestant, but a large minority of Catholics, and a surprising number of Jewish thinkers had been pulled into Buckley's movement, so much so that by the 1960s, the movement had become a broad political tendency in its own right and no longer a "movement." Buckley concentrated on the crucial common ground, dispensed with the provinciality and ethnocentrism of the prewar right, and even proved ecumenical enough to accept individualist and libertarian followers. (They often rejected him anyway, but that was their doing, not Buckley's.) Buckley even flirted with libertarianism himself, in his 1965 run for Mayor of New York and his famous, offshore 1960s pot parties on his yacht.

The era of Buckley's and conservatism's success was the late 70s and 1980s. In the 1960s, American liberals had obtained a blank check, under Kennedy and Johnson, and led themselves and the country, both domestically and internationally, into a gratuitous mess: instead of triumphing, liberalism went haywire and, after 1965, began a free-fall from which it has never recovered. The fact that the president who brought the Kennedy-Johnson tendencies to their logical conclusion - Richard Nixon - was a Republican seemed at first to set back the conservative cause. But Nixon was not a conservative. He was nominated in 1968 in part because he wasn't Goldwater and couldn't be tarred as a "crazy radical." The Watergate crisis (and the war that led to that crisis) were largely, and correctly, perceived as failures of the new, expensive, obtrusive, and frequently dysfunctional expanded government introduced by liberals. Nixon went along with it ("we are all Keynesians now," he famous said in 1972) and did big government a few times better - wage and price controls, entitlements and affirmative action as we now know them, and so on. His fall opened up a singular opportunity for conservatives, one taken by Reagan. The rest is history: a halt in the growth of domestic spending in the 1980s and 1990s, the successful and peaceful end of the Cold War, the end of "stagflation" and a generation-long success of low-inflation economic expansion and moderating the growth of the federal government. It was a stunning achievement, especially for a political movement - conservatism - that never gained majority acceptance. Buckley's approach saw to it that what we now call "identity politics" would not wreck his coalition and that, even when not having a strong influence over the Presidency, conservative ideas and policies shaped by those ideas would have their continued impact. Certainly, the rise of Clinton in 1992 was a direct response - "neoliberalism" - to the prior failure of liberalism and the success of conservatism. Clinton went on, chastened by the 1994 mid-term elections, to become the most conservative Democrat since - well, Grover Cleveland.

Buckley, like his movement, spent more recent years in ill-health. Certainly, the decline of conservatism after 1994 troubled him. Even more troubling was the return of "Nixonism," in the form of Bush Jr. and Karl Rove. This tendency started at the end of the 90s with a grand throwing-up-of-the-hands by conservatives, a giving-up on ever implementing a conservative program. Being the majority party in Congress put them into the position of actually having to decide whether to go ahead with serious reform, and they couldn't do it. (Many thought conservative reform politically impossible.) Another disturbing trend was the return of authoritarian, big-government populism, as signaled by Perot in 1992 and 1996, with its powerful tendency to split the right-leaning vote. (Indeed, Perot made Clinton's election and re-election possible.) To capture these voters for the Republican party meant dropping much, if not all, of conservatism as Buckley and others had defined it. The prize was permanently incorporating white southern and Catholic voters into the Republican coalition. The price: alienating everyone else - and proving multiple times over that big government fails for an inherent reason, not just when it's done by liberals. It also led, on an intellectual level, to nasty disputes between conservatives and libertarians on one side and neoconservatives on the other, those disaffected liberals who dropped out of the Democratic party in the 1970s and 80s. The opposition of many conservatives and libertarians to the Iraq war sharpened the nastiness.

Buckely's synthesis of traditionalism and "classical" liberalism (to use the L-word in its original and best sense) seemed unstable and incoherent to many. But it has proved enduring, like his very Catholic mix of faith and philosophical reason. It is both seriously intellectual, answering to that part of us that is consciously rational, and attractive because it recognizes the limits of individual reason. It combines with a classical liberal understanding of government a solid understanding of the limits of politics. Conservatives view society as more important than government, culture as more important than politics, and custom as more important than law. Buckley made his own contribution to culture as a prolific author and as host of public television's Firing Line for more than 30 years.**

He will be missed.
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* That exception was the semi-medieval views that had taken hold in the antebellum South regarding slavery, which then influenced the dominant American thinking about race from the end of Reconstruction, in the 1870s, until the 1950s.

** When Binah was a youngster, he was confused by Buckley's sometimes notoriously Latin-inflected discussions on Firing Line, reflecting Buckley's high-level Catholic education. Latin came later to Binah and, with it, some understanding of what Buckley was talking about. Buckley himself adopted a less erudite and more straightforward style in later years.