In short, it goes like this. (In fact, why not just go to the link and read the whole article. all I've done is grab excerpts and make a few comments that don't add much.)
The New Deal was an unmitigated failure. For all his widely touted Keynesian innovations, it is said, Roosevelt presided over sluggish gains in employment, a skittish stock market and, in 1937-38, a “depression within the Depression” that would have finally exposed him as the patrician fraud he was, had not World War II conveniently come along to turn him into a successful war president.
The reality is, FDR and his associates were making it up as they went along: improvising and innovating. Some things worked, some didn't. But, since they were realists, they kept the things that worked and scrapped the failures. They didn't become particularly Keynesian until the aftermath of the 1937-38 fiasco. But innovation is anathema to the conservative, successful innovation doubly so. New Deal denialism has been in full flourish since the 2007 publication of Amity Shlaes depression-era fantasy posing as journalism, The Forgotten Man. Shlaes, who is neither an economist nor a historian, has become a hero of the right with her alleged economic history of the depression
All this frantic rearranging of intellectual furniture takes place within the first 15 pages of The Forgotten Man. The dreary, yet somehow also overheated 380 or so ensuing pages only multiply the confusion. A central strain of Shlaes’ argument— borrowed from the Hayek school of delusionally classical economics—is that FDR’s occasional policy reversals, such as the waffling that preceded the end of the gold standard, created “regime uncertainty,” which “made Americans doubt themselves as investors.” There are at least two difficulties with this line of argument. One is that the business community itself—and bankers in particular—lobbied aggressively to retire the gold standard, since retaining it bred no small amount of uncertainty, amid rampant deflation and a credit freeze provoked in part by bank panics.
But more fundamentally, here and throughout The Forgotten Man, FDR’s character shifts depending on what narrative use Shlaes wants to make of it: He carries 46 of 48 states in his 1936 landside victory because of his sinister drive to draft policy to serve political ends—so much so, she writes, that “the country was splitting into those who were Roosevelt favorites and everyone else.” But when framing those devilish policies, Roosevelt is both capricious and feckless—Shlaes refers repeatedly, and without evidence, to FDR’s alleged view that taxing the wealthy was “amusing,” as though he were short-sheeting the beds in his Harvard dorm. It seems unlikely that such a distractible Bertie Wooster sort of chap could engineer four successive presidential victories,—but in the insular logic of Shlaes-land, Roosevelt’s successes at the ballot box can only attest to the supreme cunning of his interest-group-fueled agenda.
The reason for these vain attempts to discredit the New Deal is to provide an opening for policies based on the classical economics "Austrian" ideas of the the Hayek variety. Hayek is the genius who surmised that German high unemployment in the 30's occurred because the unemployed chose not to work. This is the kind of nonsense that happens when reality and right wing ideology collide.
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.
Well, I don't actually believe that you catch pnuemonia from standing in the rain, but you get the point.
Then there is the massive contradiction behind the corollary talking point that seeks to deny the New Deal by insisting that only World War II brought the Depression to an end. After all, the Second World War was a mobilization of deficit-funded economic power that made the New Deal look like the work of pikers. One could go further and note that the uneven prosperity of the Reagan and George W. Bush eras were likewise textbook studies in deficit stimulus efforts—only without any pretense of finding adequate tax revenues to cover the spending costs. Weighed in the full balance of the historical record, Shlaes’ argument is not a brief about the eternally destructive character of government intervention in the economy; it is, rather, an unusually shrill insistence that government intervention is illegitimate when it serves liberal domestic policy interests.
Where Shlaes leads, van Mises acolyte Robert Murphy follows.
Murphy seems to dismiss the notion (as any consistent free market purist must) that there was anything seriously awry in 1929—or at least not anything that a little Mellon-style liquidating couldn’t rectify in short order. There could be no crisis of overproduction, or demand, or credit, or unemployment, since the market—i.e., nature—has made these things; the crisis only comes when government gets involved. “The free market, by its very nature, is self-regulating,” Murphy patiently explains. “It is government interventions that inevitably distort it, often with unintended consequences.”
Of course, to make all market outcomes seem like undeviatingly intended consequences requires some acrobatic reasoning, on a whole other plane than mere editorialists like Shlaes can manage. So rather than reflecting longer-term income and wealth inequities from the Twenties boom, the Depression itself was entirely a government creation. After all, our Austrian evangelist confidently declares, “the boom-bust cycle is not a natural feature of capitalism, but rather is caused by the Federal Reserve’s manipulation of interest rates”—specifically in this instance a decision to loosen up credit in 1927 in order to counteract drawdowns in the gold supply from British investors. That original fiscal sin fatally set the stage, Murphy argues, for “the extraordinary meddling with wage rates by Hoover and then FDR” that “prevented workers from moving to more sensible niches in the economy.” How Murphy and his fellow Miseans account for the many panics and depressions that preceded the Fed’s founding in 1913 is a mystery left largely unplumbed.
Such is the true shape of the present economic fiasco—as workers have realized steady gains in productivity over the past two decades, income and wealth have been deliberately channeled out of their hands. I guess it’s no surprise that, in the face of this dismal record, ideologues on the right prefer to talk of the mythical failures of the New Deal. The only real wonder is that at this late stage of their own intellectual bankruptcy anyone still bothers to listen.
Well, wonder or not, they are listening: teabaggers, and those poor misguided fools who get their disinformation from any of Rupert Murdoch's various outlets. Which is a big part of why we are SO screwed!