Another New Deal? Let's Hope Not

President-elect Barack Obama frequently referred to the state of the economy as the worst since the Great Depression during the most recent campaign. But adopting New Deal policies like those imposed by Franklin Roosevelt would be a mistake according to author Amity Shlaes (The Forgotten Man: A New History of the Great Depression):

The historical model that the Democrats are choosing to hold up as they ponder our financial crisis isn't Harry Truman's Fair Deal or Lyndon Johnson's Great Society. It is Franklin D. Roosevelt's New Deal. At least three economic reforms under discussion now were also central in the New Deal package. Trouble is, these reforms didn't necessarily work well when they were first tried - and some failed outright.

Roosevelt tried a stimulus package and investment in infrastructure both of which are being considered under the incoming Obama administration. But Roosevelt's leadership style was also a huge liability:

Even more than specific New Deal projects, Obama and his fellow Democrats are evoking Roosevelt's leadership style. In school, we learned that it was FDR's personality that pulled the country through the Depression. If only, the suggestion is, we can have a strong enough leader, Americans will also find recovery again. We need some "bold persistent experimentation" of the Roosevelt variety.

There is evidence, however, that FDR's very strength was a negative, because he used it to give himself a license to do true experimenting. In his second inaugural address, FDR said that he sought "an instrument of unimagined power for the establishment of a morally better world."

No one knew what it meant, and markets were terrified. Everyone feared FDR would regulate or prosecute them next. Businesses refused to invest. The 1930s' second half proved frustrating for the country: The economy was always recovering but never quite recovered. The Dow didn't get back to its 1929 level until the mid-'50s.

President-elect Obama will be under tremendous pressure come Inauguration Day to do something to fix the economy if it isn't already back on track by then. If history is any guide, repeating the failed policies of FDR is not the answer that America needs.