The New York Post carried a column this morning by me on the errors in the New Deal. One that I’ve been thinking about lately, and that I haven’t given enough attention yet, is the question of high labor costs. In a recent column Paul Krugman talks about how FDR’s New Deal had a limited success, especially in the second half of the 1930s, because FDR didn’t spend enough.
Other factors seem to me more important — that high labor price, jacked up by the then-new Wagner Act. The very unpredictability of FDR petrified employers. David M. Kennedy notes in his wonderful book that businesses lacked the heart to reinvest. This baffled FDR, but it shouldn’t have. “Why, the president asked one night at dinner, did they lack confidence in the economy? Because, Eleanor replied tellingly, “they are afraid of you.”