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Liberalizing cities | From the bottom up

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How FDR’s TVA Went Wrong

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Jim Powell’s latest article at Reason discusses the Tennessee Valley Authority, FDR’s most ambitious infrastructure program:

It was heralded as a program to build dams that would control floods, facilitate navigation, lift people out of poverty, and help America recover from the Great Depression. Yet the reality is that the TVA probably flooded more land than it protected; much of the navigation it has facilitated involves barges of coal for coal-fired power plants; people receiving TVA-subsidized electricity have increasingly lagged behind neighbors who did not; and the TVA’s impact on the Great Depression was negligible. The TVA morphed into America’s biggest monopoly, dominating an 80,000 square mile region with 8.8 million people—for all practical purposes, it is a bureaucratic kingdom subject to neither public nor private controls.

The article seems like it could easily be rescripted for just about any major government infrastructure project, especially our federal highway system.

As a remedy for the Great Depression, the TVA didn’t work. It created no new wealth and, through taxation, transferred resources from the 98 percent of Americans who didn’t live in the Tennessee Valley to the two percent who did. Any spending that happened in the Tennessee Valley therefore was offset by the spending that didn’t happen elsewhere. Those taxes reduced net incomes.

Much like any other complex public works project, it took an inordinate amount of time to build the TVA. Only three TVA dams were completed during the 1930s. The dams themselves were small—with less than one-twentieth the power-generating capacity of big western dams like Grand Coulee. Although the building process provided work for engineers and skilled construction workers—who earned above-average incomes—the dams simply came too late to have much impact on most people in the Tennessee Valley during the Great Depression.

Nonetheless, expect governments to remake the same mistakes over and over, regardless of their past record.

Comments

  1. It created no new wealth and, through taxation, transferred resources from the 98 percent of Americans who didn’t live in the Tennessee Valley to the two percent who did. Any spending that happened in the Tennessee Valley therefore was offset by the spending that didn’t happen elsewhere. Those taxes reduced net incomes.

    This is the crux of their argument but the article offers no evidence, no facts, no references, cites no books or academic papers to back up this assertion. I am disappointed that Reason requires me to take so much on Faith.

  2. It created no new wealth and, through taxation, transferred resources from the 98 percent of Americans who didn’t live in the Tennessee Valley to the two percent who did. Any spending that happened in the Tennessee Valley therefore was offset by the spending that didn’t happen elsewhere. Those taxes reduced net incomes.

    This is the crux of their argument but the article offers no evidence, no facts, no references, cites no books or academic papers to back up this assertion. I am disappointed that Reason requires me to take so much on Faith.

  3. Good points Justus. The article wasn’t targeted towards an academic audience, but I too would have appreciated more rigor. Nonetheless, it doesn’t take any data to see that the program was funded by the federal taxpayers (98% of which do not live in Tennessee) for the benefit of the 2% that do live in Tennessee. Nor does one require data to prove that the TVA spending “was offset by spending didn’t happen elsewhere”. The money came from people, who were then unable to spend the money that had been taxed away from them – it had to come from somewhere.

    One does not take that on faith, but on logic. Let me know if you are familiar with alternative sources of the money spent, other than taxpayers (at that time or future) who would have otherwise spent or invested that money.

  4. Good points Justus. The article wasn’t targeted towards an academic audience, but I too would have appreciated more rigor. Nonetheless, it doesn’t take any data to see that the program was funded by the federal taxpayers (98% of which do not live in Tennessee) for the benefit of the 2% that do live in Tennessee. Nor does one require data to prove that the TVA spending “was offset by spending didn’t happen elsewhere”. The money came from people, who were then unable to spend the money that had been taxed away from them – it had to come from somewhere.

    One does not take that on faith, but on logic. Let me know if you are familiar with alternative sources of the money spent, other than taxpayers (at that time or future) who would have otherwise spent or invested that money.

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