One reason the New Deal couldn’t end the Depression and probably extended it is because it wasn’t merely a quick economic boost or the shoring up of vital institutions that, once fallen, might set off a domino effect on other businesses. Rather, over many years its programs merely swiped money from the relatively efficient private sector and gave it to government programs that were often deliberately inefficient. Anybody familiar with the architecture of structures built under the Works Progress Administration knows they are readily identified by their use of too much material, too much space, and hence too much labor.As free-market economist Henry Hazlitt observed in his classic 1946 book, Economics in One Lesson: “For every public job created by a bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.”
FDR also spooked entrepreneurs, corporations, and would-be stock market investors with a tremendous tax attack. The income tax top marginal rate increased to 79% between 1930 and 1940 (see chart above), the corporate income tax rate doubled from 12 to 24%, and Roosevelt tacked on an “excess profits” tax to boot. He imposed an excise tax on dividends, liquor taxes, and a capital stock tax, while increasing liquor taxes. Finally, he instituted the Social Security payroll tax with a 2% rate.