Review 6: The Political Economy of the New Deal
by Jim F. Couch and William F. Shughart

Anderson, Gary M,
California State University,
Public Choice Vol. 106, Nos. 3-4, pp 389-390 (March 2001)

The New deal is the “holy of holies” to modern socialists, a period of Big Government in which federal programs were (supposedly) insulated from the petty corruption and mundane rent-seeking associated with contemporary “tax-spend-and-regulate” Liberalism. The New Deal is widely touted as a real-world example of an idealized Progressive agenda implemented by Government, an array of programs untainted by the sordid activities of special interest groups’ intent on securing entry barriers or simply naked wealth transfers. In the mythology of the welfare state, the New Deal purportedly exemplifies government intervention as it is “supposed” to be, a triumph of the public interest over selfishness. In this book, Jim Couch and William Shughart carefully critique this mythos using Public Choice theory, and in the process thoroughly demolish this liberal legend.

Arrington (1969) was the first writer to compare New Deal spending per capita across states. To his surprise, he found that there was not only substantial variation in the distribution of New Deal funds per capita across the jurisdictions, but also that the pattern did not seem to be correlated with the severity of the Depression. Reading (1973) found that, contrary to the popular mythology, New Deal funds were not being disproportionately sent to poorer areas more seriously impacted by the Depression. This study called into question the Liberal legend of the New Deal. Wright (1974) added presidential politics into the mix, and showed that a major aim in distributing New Deal funds was to secure the reelection of Franklin Delano Roosevelt. New Deal expenditures were systematically allocated to “swing” states where the funds stood a better chance of increasing electoral votes for FDR. Wallis (1987) investigated the distribution of New Deal spending using more detailed annual data, and found a similar “political “ patter in the distribution of spending. Anderson and Tollison (1991) then added congressional politics into the equation, finding that the relative “clout” of a state’s congressional delegation helped to determine the allocation of New Deal Transfers.

Couch and Shughart expand on this theme, and provide the first full monograph devoted to a Public Choice analysis of this problem. They describe the bewildering array of New Deal spending and loan programs, offer numerous case studies relating the economic impact and the apparent political motivation of these spending sprees, and report the outcome of considerable further econometric analysis on the determinants of New Deal spending and loans across states. Couch and Shughart’s econometric results show that relief from the effects of the Great Depression played only a relatively minor role in the distribution of New Deal largesse.

In the debate between the critics and the proponents of activist government, the New Deal is commonly held up as an example of government intervention “done right”. This book effectively debunks the popular mythology about the New Deal, and represents a watershed in the application of Public Choice analysis to an important episode in recent economic history.

References

Anderson, G.M. and Tollison, R.D. (1991). Congressional influence and patterns of New Deal spending, 1933-1939. Journal of Law and Economics 34: 161-175

Arrington, L.J. (1969). Western agriculture and the New Deal. Agricultural History 49: 337-352.

Reading, D.C. (1973). New Deal activity and the states, 1933 to 1939. Journal of Economic History 33: 792-810.

Walliss, J.J. (1987). Employment , politics, and economic recovery during the Great Depression. Review of Economics and Statistics 69: 516-520.

Wright, G. (1974). The political economy of New Deal spending: An econometric analysis. Review of Economics and Statistics 56: 30-38.