Free The New Road to Serfdom by Daniel Hannan Page A

framers had envisaged. And for what?
    For a long time, even Roosevelt’s critics tended to concede that, while the centralization of political power was regrettable, the New Deal had at least stimulated the economy. Over the past decade, however, the consensus among economists has shifted radically. Manynow argue that the New Deal in fact worsened the recession: that it encouraged cartels and crony capitalism, that its regulations burdened businesses that might have led the way to recovery, that its rules on social security and the privileges it granted to labor unions deterred employers from taking on workers.
    In 2004, two economists at UCLA, Harold L. Cole and Lee E. Ohanian, conducted a major study that concluded that the New Deal had in fact prolonged the recession by seven years.
    According to Professor Cole:
    President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services. So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.
    It is hard to argue with the proposition that much of the New Deal would be unimaginable today. One of the emergency measures, for example, was an attempt to raise farmers’ incomes by removing food surplusesfrom the market. In other words, at a time when soup kitchens were short of supplies, the federal government was ordering the destruction of comestible food.
    The New Deal Democrats, like many elected representatives today, were in the grip of one of the most dangerous of political fallacies: the idea that, at a time of crisis, the government’s response must be proportionate to the degree of public anxiety. “Doing nothing is not an option!” intone politicians, as though hyperactivity were itself a solution. Is that phrase ever true? Doing nothing is always an option, and often it is the best option.
    The Roosevelt administration certainly was active: It generated legislation at an unprecedented rate, and created an alphabet soup of new federal agencies: the Resettlement Administration, the Public Works Administration, the Works Progress Administration, the Reconstruction Finance Corporation, and many more.
    FDR is the author of the current constitutional dispensation: one that vests far more power in the White House than ever the founders intended. The architecture that he put in place was substantially enlarged by Lyndon B. Johnson, who had started out as a New Deal apparatchik, running the National Youth Administration in Texas. There was some marginal retrenchment during the Reagan years, although federal expenditure went on growing in both relative and absolute terms. But the Gipper was, as so often, the exception. Federal power continued to expand underGeorge W. Bush, especially in the fields of public education and national security.
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    Looking at the legacy of the New Deal, several lessons seem especially apt to America’s present situation.
    First, federal agencies and programs are much easier to establish than to discontinue. Many of the bodies established during the 1930s were soon redundant. Some failed even in their immediately declared objectives. Yet it took decades before they were wound up, and several of them still exist, for example the Federal National Mortgage Association: Fannie Mae.
    Second, although government spending can have a short-term stimulating effect, state agencies are unwieldy organizations. Often, the worst of the downturn will be over before their full fiscal impact is felt. In consequence, instead of having a counter-cyclical effect, they end up having a
pro-cyclical
effect, generating most of