But then a funny thing happened: The conservative utopia of shrinking government, financial deregulation and upward income distribution became a hulking disaster. Major investment banks teetered on the brink of oblivion in the catastrophic Panic of 2008; pension funds spiraled into free-fall; the auto industry went on federal life support; and home foreclosure after home foreclosure has rendered many onetime boomtowns virtual diorama showcases for the wreckage bequeathed by alchemical works of market triumphalism, such as credit default swaps, mortgage-backed securities and the efficient market hypothesis.
And just like that, the idea-intoxicated American right vanished. As the federal government stirred out of its decades-long regulatory slumber and started to meet the financial calamity with urgently needed deficit spending, conservatives of the Gingrich vintage, who had long advertised their fealty to the high-tech, low-tax future, morphed seemingly overnight into the intellectual equivalent of historical re-enactors. Much as the Mormon faithful trek annually to the upstate New York festival in Palmyra to see their faith’s creation myth in a lavishly produced pageant, so have the conservative faithful repaired en masse back to the musty site of their modern genesis, the 1930s New Deal.
But this pageant of faith is a disorienting spectacle indeed. Instead of reckoning with a starkly transformed global economy, or the crucial ways in which their core precepts have been rudely upended, conservative thinkers are reviving 70-odd-year-old talking points from the Liberty League—the network of rock-ribbed Roosevelt haters who clustered in corporate boardrooms and Chamber of Commerce lobbies during the Thirties—thereby, one supposes, to finish the job their ancestors started: discrediting the New Deal and its legacy once and for all.
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Letting the free market administer its mystic remedies—reallocating capital and labor in more efficient fashion—is the de facto position of all right-wing Thirties revisionists, from the impressionistic Shlaes to the various von Mises hardliners. But nothing like that outcome would ensue in a laissez-faire approach—then or now—for the simple reason that laissez-faire conditions are what eroded demand and pumped up speculation in the first place. It’s very much like trying to cure pneumonia by standing out in the rain.
Free market shibboleth remains serenely oblivious to such considerations, however. After all, Shlaes counsels, “the market had its own natural laws.” And it’s the law, evidently, that business interests should never be molested—for they, and they alone, dictate the course of the common good. Hence the 1937-38 recession—which most students of the era attribute to Treasury Secretary Henry Morgenthau’s abrupt call to slash federal spending as demand still faltered—was actually caused, in Shlaes’ judgment, by artificially high wages, frightening investors (of course) and driving up unemployment. Which means the FDR-empowered labor movement was a principal culprit.
By this reasoning, the labor movement itself, like the socialist outlook it recklessly foments, is a thing of perversity, which did not, in the case of the more militant Congress of Industrial Organizations “necessarily, represent the average worker.” What’s more, as unions secured stronger footholds in American workplaces, their success “only seemed to make them more bellicose.” As for the Wagner Act, which legalized collective bargaining, thereby triggering these manifold disasters, it “was continuing to hurt profitability” at U.S. corporations. Even as General Motors, for instance, saw its sales rise in the wake of the historic 1937 sit-down strikes that marked the founding of the United Auto Workers, its earnings declined: “The new wages and the costs of the strikes had made the companies less valuable.” Never mind that by any honest reckoning of the Flint sit-down strikes, GM executives bore at least as much responsibility for their costs as the striking workers—especially since their basic strategy was to starve out the UAW organizers. Never mind, in addition, that those same “new wages” helped make generations of autoworkers—many of them recent African-American transplants from the Jim Crow South—relatively prosperous members of a middle class whose wages stoked broader consumer demand. No, if companies are made less valuable, then any social movement or incremental progress toward industrial democracy reflects perverse “belligerence” and must be judged a miserable failure.
Of course, as Shlaes has admitted elsewhere, blaming wage increases for chronic unemployment through the Depression requires a critical bit of number-fudging: She uses figures that count WPA and other work-relief employees as unemployed, since, you know, everything the government does is by definition illegitimate. This trick allows Shlaes to omit fully a third of American workers drawing government pay from her tallies— and contend that unemployment during the 1937-38 downturn “was again hitting a full two in ten.” ...
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