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What Is Unseen about FDR’s New Deal

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It’s funny to see liberals harkening back to Franklin Roosevelt’s New Deal as a model for how the federal government should deal with the nation’s current economic woes. Liberals just don’t get it: It’s because of the socialist revolution wrought by FDR’s New Deal that America is suffering its current economic distress.

A recent example of New Deal nostalgia is an op-ed in the August 12 issue of the Washington Post entitled, “Imagining a World Without the New Deal” by David F. Weiman, where the author points out all the things that Americans would not have had but for the New Deal. Weiman mentions such things as Social Security, cheap electricity, increases in federal jobs, and roads, bridges, dams, and water-and-sewage treatment plants.

In pointing out the things that FDR brought into existence, Weiman is guilty of a fundamental fallacy, one pointed out long ago by the French free-market advocate Frederic Bastiat and later by American 20th-century economist Henry Hazlitt. The fallacy is what Bastiat described as “that which is seen and that which is unseen.”

Consider a simple example. Suppose the federal government builds a new community center in, say, Newton, Iowa, the state where the presidential caucuses will be held next January. On the day of the grand opening of the center, President Obama arrives with his entourage and gives a glorious speech, pointing people’s attention to their new center.

“Look at this beautiful center I have brought you,” the president declares. “I am pleased that not only did I create jobs for your community, I also have provided you with a nice place to have your community events.”

Residents in Newton break out in wild applause. “Thank you, Mr. President. Thank you for giving us this center and for creating jobs in our community.” Newspaper editors and reporters provide glowing news reports and commentaries on the president’s ingeniousness, generosity, and benevolence. The president immediately soars in election polls.

What everyone (except libertarians) misses, however, are the unseen consequences of the community center. You see, what most liberals overlook is that the federal government is not a fountain of wealth. Why, it’s not even like a private business, which gets its money by providing goods and services to people who are willing to pay for them.

The government gets it money by force, through the process of taxation. It confiscates wealth, and it imposes fines and imprisonments for anyone who refuses to permit his money to be confiscated.

Let’s say that the community center cost $10 million to build. So, to build the center, federal officials must have first taken the $10 million from people in the private sector who earned it. That means, obviously, that the people from whom the money was taken no longer have it. If they had the $10 million, they would spend it, save it, invest it, donate it, or some combination thereof. They would do something with their own money.

Suppose, for example, the people from whom the $10 million was taken were going to purchase new cars and new suits, remodel their homes, and donate to their churches. That would have meant increased revenues for people in those sectors. The car company might have built a new showroom and hired new salesmen. The clothing manufacturers would have expanded staff and inventory. The construction industry would have hired new workers. The churches would have installed new pews.

But none of that happens, obviously. The reason? The $10 million never gets saved, spent, or donated by the people from whom it is taken. The people in the car, clothing, construction, and church sectors never see it. Those sectors never experience the expansion the money would have brought them because the consumers had their money taken away from them so that it could be used to buy that community center.

Thus, obviously it’s much easier for President Obama to point people’s attention to the community center and say, “Look what I have brought you” than it is for people in the automobile, clothing, and church sectors to say, “Look at what he deprived us of.”

Liberals need to understand that the federal government cannot create wealth out of thin air. With its socialist projects, the most that the federal government can do is confiscate and redirect the use of people’s money and other resources into what are usually unproductive, dependency-producing, dead-end types of projects. The principle was true for the New Deal. It was true during for Lyndon Johnson’s Great Society. It holds true today under Barack Obama.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.