The ‘Old’ New Deal Still Isn’t Paid For

This article appeared in Forbes on February 11, 2009
  • Related Content

What are we to make of all the talk about a “New New Deal”–starting with the current stimulus package–when we haven’t paid for the old New Deal?

During the 1930s, the old New Deal cost about $50 billion in federal expenditures from 1933 to 1940, excluding functions such as the U.S. Post Office and the State Department.

Today, the future cost of old New Deal programs still in effect is reckoned at more than $50 trillion. These programs include Social Security, Medicare (an amendment to Social Security), Aid to Families with Dependent Children (part of Social Security), Fannie Mae, the Tennessee Valley Authority, farm subsidies and large‐​scale government intervention intended to prop up troubled sectors of the economy.

We aren’t paying down these obligations inherited from the old New Deal. On the contrary, the total tab keeps getting bigger every year. While the old New Deal involved unprecedented peacetime spending during the 1930s, its current escalating obligations dwarf that spending.

None of FDR’s experts who promoted the old New Deal anticipated how costly these programs would become–despite experience with previous government programs that spun out of control. For instance, the Civil Service Retirement System was established in 1920 to provide retirement benefits for federal employees. It soon cost more than the experts predicted. Federal employees were supposed to pay for their future benefits, but their payments lagged behind benefits over the years. Political pressures eventually prevailed, resulting in taxpayers covering the deficits.

After Lyndon Johnson became president, he launched a succession of crusades, one of which was to amend Social Security with Medicare. Historian Doris Kearns Goodwin explains LBJ’s approach, “The subjects might change, but the essentials remained the same: in the opening, an expression of dire need; in the middle, a vague proposal; in the end, a buoyant description of the anticipated benefits–all contained in an analysis presented in a manner that often failed to distinguish between expectations and established realities … Pass the bill now, worry about its effects and implementation later–this was the White House strategy.”

The 1965 debate about Medicare involved a great deal of discussion about future costs. Opponents warned that Medicare could become a huge burden on taxpayers, but LBJ persuaded most members of Congress that financing Medicare would be easy because of all the baby boomers entering the workforce. House Ways and Means Committee Chairman Wilbur Mills estimated that the annual cost of Medicare would be $500 million. Today, Medicare’s annual outlays exceed $330 billion.

Jim Powell

Jim Powell, a Senior Fellow at the Cato Institute, is the author of FDR’s Folly, Bully Boy, and Greatest Emancipations