Powersite was for generation and you're right that the population was sparse. That is why it is small, 1 meg if I remember right, and PRIVATE!
The lower White river has been an important agriculture area for decades and hardly marginal in potential, but it was also prone to flooding. There was little more than small farms in the upper region and their value was small. The sides of hollers didn't have much value then so the area was perfect, at the time, to build flood control lakes. The Buffalo was also in the mix, but it's value was recognized in time.
The success of a project can't be measured by one season and overall the lakes have been successful in their primary purpose and secondary also.
Don't forget JD, we're talking 40's priorities.
I made a quick search and it appears that the authorization for flood control was in the Flood Control Act of 1938. The act states, for the most part that the construction for flood control, and other purposes is under the War Department. This was followed by the Flood Control Act of 1941, for “flood control and hydroelectric power, and other beneficial water uses.”