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Welfare Corruption in the New Deal

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How likely is it that a big government-spending program — Obama’s or anybody else’s — won’t be manipulated by politicians pursuing their special interests?

In two of his recent New York Times columns, Nobel Prize-winning economist Paul Krugman claimed that Franklin Roosevelt’s New Deal was free from corruption. Consequently, he thought it was likely that Obama, too, can have an honest administration that will take good care of the taxpayers’ money as if it were their own.

Truth be told, the New Deal did have some issues. Congress passed the Federal Emergency Relief Act (FERA) on May 12, 1933. Roosevelt’s friend Harry Hopkins was sworn in as the chief administrator of the program. FERA had some 150,000 administrative jobs, and there was a mad scramble to control this patronage. As a result, FERA involved government bureaucracies loaded with political hacks and crooks. Gov. William Langer of North Dakota was convicted of misappropriating FERA funds and went to prison. Lorena Hickok, Hopkins’s chief field representative, reported, “Texas is a godawful mess. As you know, they’re having a big political fight in Austin … there’s been nothing but delay, confusion, and politics — politics first, last, and always….” Roosevelt’s campaign manager and political fixer, James Farley, had to approve every major FERA appointment.

On May 6, 1935, Roosevelt issued Executive Order 7034 to establish the Works Progress Administration. Congress appropriated $4.8 billion, but stipulated that the states had the power to administer the program and control the patronage. In West Virginia, supporters of Gov. Herman Kump battled with supporters of Sen. Matthew Neely. Hickock observed, “It is just one awful political mess. A Kump-controlled relief administration set out to wreck a Neely-Nolt–controlled works progress administration. I declare, I don’t know who is worse.”

Hickok reported that “our chief trouble in Pennsylvania is due to politics. From the township to Harrisburg, the state is honeycombed with politicians all fighting for the privilege of distributing patronage….” According to Harvard historian Frank Freidel,

In December, 1935, Governor Gifford Pinchot of Pennsylvania wrote a public letter to Roosevelt charging that Joseph Guffey, a “notorious spoilsman,” was holding Pennsylvania work relief in “political bondage.”

Freidel added that the WPA

was an important factor in building Democratic organizations in the cities. Through work relief patronage, the Pittsburgh Democratic machine grew in power while the anti-New Deal mayor futilely protested, “Who is going against Santa Claus?”

Brown University historian James T. Patterson showed in detail how Democratic governors scrambled to consolidate their power through the use of federal money. Patterson described the schemes of governors in Florida, Idaho, Nebraska, Ohio and Oklahoma. He reported that New Mexico’s governor, Arthur Seligman, “requested — and got — lists noting the political preference of all relief and CCC workers in the state.”

Indiana Democratic County Chairman V.G. Coplen told James Farley, “What I think will help is to change the WPA management from top to bottom. Put men in there who are … in favor of using these Democratic projects to make votes for the Democratic Party.” And, historian Henry H. Adams, biographer of Harry Hopkins, noted, “Occasionally it would be found that a person carried on WPA payrolls had been dead for a year or more. The practice was commonest in New York.”

There were many reported cases where relief and public-works money were directed not to the neediest but to political supporters. In Kentucky, for instance, Hopkins saw to it that WPA money was channeled to those who would support the candidate Roosevelt supported for U.S. Senate, A.B. “Happy” Chandler. Apparently pressure was brought to bear on the 17,000 people getting WPA checks in Kentucky’s first WPA district. For example, wrote journalist John T. Flynn,

A district supervisor of employment in District 4 told a woman that the election was drawing near and that she might be criticized if she did not contribute, since she was employed on WPA. She should be in sympathy with the program and be loyal, and he stated also that he was a Republican but he was going to change his registration. Then he told her she would be permitted to contribute if she liked in the amount of two percent of her salary.

Virginia’s Democratic senator Carter Glass acknowledged, “The 1936 elections would have been much closer had my party not had a four billion, eight hundred million dollar relief bill as campaign fodder.”
Buying votes

A number of politicians complained that New Deal spending was being channeled away from the poorest people, who lived in the South. This was confirmed by historian Patterson in 1969. He reported the remarkable variations from one state to another in average monthly relief payments. For instance, “A Kentucky family received only $6.78 while New Yorkers received $18.53. Most Middle Atlantic, Middle Western, and mountain states received higher amounts per capita than southern and New England states.”

In 1969, Utah historian Leonard Arrington discovered long-lost documents from the little-known Office of Government Reports, which provided more detail about New Deal spending state by state. Apparently the data were generated during the 1940 election campaign, to show voters what the New Deal had done for them. Arrington published a preliminary analysis, a major point of which was that western states benefited more than any other region. He ranked states according to the amount of New Deal spending per person, and the top 14 states were all in the West. In a subsequent report, Arrington reported New Deal loans and spending per capita from 1933 to 1939. The high was $1,130 in Nevada. The low, $143, was in North Carolina.

What was going on? In 1974 came the first of a succession of “public choice” analyses that showed how New Deal spending, though perhaps initially conceived as a humanitarian program, became driven by Roosevelt and state politicians eager to buy votes. It isn’t enough for a presidential candidate to win the popular vote nationally because of the Electoral College, where each state has votes equal to the total number of its congressmen and senators. Victory goes to the candidate who wins a majority of electoral votes. If the national vote total were all that mattered, a presidential candidate could focus on the most populated states and ignore smaller states, but the Electoral College system provides a compelling incentive to court smaller states.

Stanford University economic historian Gavin Wright performed a statistical analysis of New Deal spending which was supposed to help the poor, and he estimated that 80 percent of the state-by-state variation in per-person New Deal spending could be explained by politics. Wright explained that less New Deal spending went to Southern states that Roosevelt had carried with more than 67 percent of the vote in 1932, presumably because he was sure to win those states again. More New Deal spending went to western states, where he had won less than 60 percent of the vote in 1932, to help secure victories there. Wright observed that “WPA employment reached peaks in the fall of election years.”

In 1991, economists Gary Anderson and Robert Tollison reported that Roosevelt’s ambition wasn’t the only political factor affecting the pattern of New Deal spending. The seniority of Democratic senators and congressmen and their presence on appropriations committees were associated with higher per-capita New Deal spending in a state.

Economists Jim F. Couch and William F. Shughart II, in their book The Political Economy of the New Deal, provided further evidence that New Deal spending was channeled away from the Democratic South. They reported that hourly pay for an “intermediate grade” WPA recipient ranged from 23¢ in Tennessee to $1.57 in New York. Hourly pay for “skilled” WPA recipients ranged from 31¢ in Alabama, Kentucky, Tennessee, and Virginia to $2.25 in New Jersey. Shughart remarked, “The money didn’t go South, because the South was solidly in the Democratic Party’s camp. Those votes were already bought and paid for.”
Fighting enemies

Sometimes Roosevelt used his control of federal spending to lash out at political enemies. For instance, he hated Robert Moses, the New York City Parks Commissioner. Moses was a strong-willed Republican. In 1934, Mayor Fiorello La Guardia of New York named Moses to the board of the Triborough Bridge Authority, which managed the bridge complex being built by Roosevelt’s Public Works Administration — this was the largest PWA project in the East. Roosevelt was outraged when he learned about the Moses appointment and demanded that Moses be ousted. Moses refused to go quietly. He warned La Guardia that if he were forced out of the Triborough Bridge Authority, he would resign as parks commissioner, too, and let the public know that he was being forced out. Roosevelt let La Guardia know that if Moses remained in office, there wouldn’t be any more PWA bridges, hospitals, schools, subways, or other projects in New York. La Guardia stalled because the public liked the parks that Moses had been building. On November 21, 1934, PWA projects were cancelled in New York City.

Moses told the newspapers about Roosevelt’s behind-the-scenes scheming. He said, “If personal or political considerations are to govern the expenditure of public works and relief funds by the Federal Government, this fact should be known to the public.”

Roosevelt was denounced by almost all the New York newspapers. “The day after the storm broke,” wrote historian Robert Caro,

the Long Island Chamber of Commerce, the Conference on Port Development of the City of New York, the Park Association of New York City, the City Club, the Bronx Board of Trade, the New York Board of Trade and the Merchants’ Association of Sheepshead Bay all held separate meetings and passed resolutions backing Moses…. [The next day] it was the Elmhurst Manor Community Council, the Jackson Heights Taxpayers Association, the North Woodside Community Association, the Astoria Property Owners’ Association, the Madison Manor Civic Association, the Atlantic Avenue Business Men’s and Taxpayers’ Association, the Automobile Club of New York, the Corona Community Council and the New York Chapter of the American Institute of Architecture.

The language of the resolutions was indignant….

Roosevelt remained adamant that Moses be ousted, and Moses provided the press with weekly reports about New York PWA projects that were running out of money. More and more civic associations registered their protests, including the United Neighborhood Houses, the Citizens Union, the Women’s City Club, the Alliance of Women’s Clubs, and the Fortnightly Library Club of Brooklyn — 147 organizations altogether.

Every day, the White House received more mail protesting Roosevelt’s efforts to inject politics and personal hatred into the way public works money was spent. There was talk in the House of Representatives about a congressional investigation. In the Senate, Louisiana’s Huey Long suggested an investigation, for which he would seek testimony from Robert Moses. Then Roosevelt’s Democratic rival Al Smith issued a statement to reporters, among other things calling the Roosevelt administration “narrow, political and vindictive.” Roosevelt relented, as quietly as possible.

Revelations that relief and public works money were often being used to serve the interests of Roosevelt and state politicians led Congress to pass the Political Activity Act (1939), better known as the Hatch Act, after Sen. Carl Atwood Hatch of New Mexico. It prohibited federal employees, employees of the District of Columbia government, and state and local government employees who administered federal programs from trying to influence the outcome of a political campaign, offer jobs to political campaign workers, or manage a political campaign.
No recovery

Quite apart from the hijacking of relief money by politicians pursuing their own interests, did New Deal relief programs contribute to recovery from the Great Depression? Unemployment averaged 17 percent throughout the New Deal period (1933-1940), and it never went below 14 percent, so the bottom line is that the New Deal failed to achieve a sustained revival of private-sector growth and jobs.

Why should the New Deal have done that? Money doesn’t come out of thin air. Every dollar that the New Deal spent on any program had to come from taxpayers one way or the other — direct current taxation, borrowing (direct future taxation), or inflation (just another kind of tax). Money spent in one place is offset by money not spent in another place, because taxes depress people’s net incomes. More welfare spending simply generates upward pressure on taxes, and federal taxes tripled during the New Deal period, which meant employers had less money for hiring and consumers had less money for spending.

If one considers what people actually did in New Deal welfare programs, it’s hard to imagine how they could ever have helped to revive private-sector employment. Take, for instance, the National Youth Administration, a bureaucracy that was part of the WPA. It made grants enabling students to stay in school, and it provided work for recent graduates who couldn’t find a productive job. Some of the graduates received useful training, but a lot of the work involved cleaning parks. “No doubt this approach was of benefit to communities,” wrote historian John Salmond, “but it scarcely gave the enrollees the training they needed to find jobs at the end of the emergency.”

Then there was the WPA Theater Project. Among other things, it produced a musical show, Sing for Your Supper, with the song “Leaning on a Shovel,” which attempted to make light of and answer widespread criticism of malingering at the WPA. The song had these lines:

Here we stand asleep all day,
While F.D. shooes the flies away.
We just wake up to get our pay.
What for? For leaning on a shovel!
Buying influence

It certainly was no secret that government spending served the special interests of New Deal-era politicians. For instance, Congressman Lyndon B. Johnson, a big admirer of Roosevelt, advanced his political career by finding jobs for his supporters as well as the supporters of fellow congressmen.

When a Kansas congressman mentioned that a local labor union official was out of work, Johnson found him a job in Roosevelt’s Federal Surplus Commodities Corporation. A Pennsylvania congressman asked Johnson to help arrange a pay raise for a labor union leader employed in the General Accounting Office, and Johnson did it. For a Washington congressman, he cut through red tape and secured approval for a WPA project at Moon Island Airport — in time for the congressman to brag about the project in his reelection campaign.

Because of all the favors Johnson did his fellow congressmen, he gained support for an amazing number of WPA projects in his rural Texas district — roads, schools, libraries, and federal farm loans, among other things, all of which helped solidify his influence in the House of Representatives and prepared him for higher office. “He got more projects and more money for his district than anyone else,” said Thomas Corcoran, one of Roosevelt’s “Brain Trusters” and a friend of Johnson.

Johnson didn’t gain political influence by turning down incompetent job seekers who wanted government work. Nor did he concede that taxpayers’ money might be better spent in another congressman’s district. Nor did he believe money would be spent most effectively if taxpayers could keep it and make spending decisions themselves. Power was the name of the Washington game, then as now.

If the question is whether it’s possible for a big government program to avoid losing, stealing, or squandering a lot of money, about all one needs to know is that people aren’t as careful with other people’s money as they are with their own money.

This article originally appeared in the September 2009 edition of Freedom Daily. Subscribe to the print or email version of Freedom Daily.

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    Jim Powell is policy advisor to the Future of Freedom Foundation and a senior fellow at the Cato Institute. He is the author of "FDR’s Folly", "Bully Boy", "Wilson’s War", "Greatest Emancipations", "The Triumph of Liberty" and other books.