November 24, 2008
THE NEW DEAL.... A few days ago, Tyler Cowen had an op-ed piece in the New York Times questioning the efficacy of FDR's New Deal policies in addressing the Great Depression. The Heritage Foundation also recently went after the New Deal.
Yesterday, on ABC, George Will summarized the conservative line nicely: "Before we go into a new New Deal, can we just acknowledge that the first New Deal didn't work?"
Actually, no, we can't. Paul Krugman explained reality a few weeks ago, but since some political observers seem to have missed his piece, it's worth reemphasizing.
The New Deal brought real relief to most Americans. That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the '30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful "not because it does not work, but because it was not tried."
This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn't all these public works amount to a major fiscal stimulus?
Well, it wasn't as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren't felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.
And F.D.R. wasn't just reluctant to pursue an all-out fiscal expansion -- he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs.
This may be difficult for some to wrap their heads around, but FDR's New Deal was less effective when it was too conservative. The lesson to be learned, then, is to be bolder and deliver a more expansive recovery through a more aggressive stimulus.
—Steve Benen 8:50 AM
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Lie, rinse, repeat. And the corporate media duly repeats.
Posted by: Gore/Feingold '16 on November 24, 2008 at 9:01 AM | PERMALINK
ANd remember that WWII required sacrifice and rationing and war bonds and government controlled economy and even some rich companies doing the right thing. A vertible hot bed of socialism.
Posted by: martin on November 24, 2008 at 9:02 AM | PERMALINK
Ah, but we're talking about "print the legend"* here, and Will et al. are trying to create an instant one, based on "Forgotten Man" by Amity Thing. Like the "Democrat" party and "partial birth" abortion, you repeat the thing often enough and the likes of Tom Brokaw start to talk about it like it's a reality.
*John Ford had a newspaperman say "When the legend becomes fact, print the legend." in "The Man Who Shot Liberty Valance". The line is often misquoted as Ford's own attitude, but the movie itself is a ruthless dissection of the legend, and the line was given to Carlton Young, one of Ford's biggest gasbags.
Posted by: Steve Paradis on November 24, 2008 at 9:10 AM | PERMALINK
A quick question--if WWII helped get the thing moving because of the vast investment, how is our hundreds-of-billions investment helping ours? If we weren't at war, would we be better of economically, or worse off?
Posted by: Paul on November 24, 2008 at 9:11 AM | PERMALINK
WWII was not a public works project in Iraq. It was, of course, much larger and involved employing millions of people in uniform and out.
One of the things about right-wing alternative reality is that it hardly matters what the evidence is. It is, simply, a belief system, and like all religions depends on the credulity of the person espousing the dogma. George Will is a high priest in this religion and probably knows what a sham it is. On the other hand, he is George Will. Gigs like that don't come along very often so it's a good career move to keep the faith.
Posted by: walt on November 24, 2008 at 9:18 AM | PERMALINK
If we weren't at war, would we be better of economically, or worse off?
In this case, we'd be better off. Today less than 1% of the population is in the military. WWII necessitated that a far greater percentage served. The huge expansion of labor-intensive manufacturing in WWII provided good-paying jobs for hundreds of thousands. There was an overnight need for literally tens of thousands of aircraft, guns, tanks, hundreds of ships, etc. There has been no such manufacturing boom attached to the Iraq and Afghanistan wars.
Posted by: Dennis-SGMM on November 24, 2008 at 9:23 AM | PERMALINK
I think we should start by admitting that the "Current Deal" is for shit.
Wait...the electorate just did admit that.
Posted by: chrenson on November 24, 2008 at 9:25 AM | PERMALINK
I keep listening to Republicans answers and all I hear is double down the last 8 years. Yeh,right lets keep on doing the same things we have been doing and pray for a different result.
When George Will, the Heritage Foundation, and the rest of the Republican establishment come up with solutions that aren't based on magic I will listen, until then they should shut up.
Posted by: Ron Byers on November 24, 2008 at 9:31 AM | PERMALINK
I am not an economist but: I don't see how it can make complete sense to say the new deal did not work despite the fact it employed millions of Americans. It seems obvious that it sure as hell worked for those millions.
Posted by: Layne on November 24, 2008 at 9:32 AM | PERMALINK
The plastic yellow car magnet manufacturing companies are doing very well economically. Too bad all the factories are in China and Bangladesh.
Posted by: grinning cat on November 24, 2008 at 9:32 AM | PERMALINK
It's worth recalling that Keynes's "General Theory" wasn't published until 1936, the year FDR was elected for his second term.
Posted by: Dave on November 24, 2008 at 9:36 AM | PERMALINK
Wait a sec, aren't these the same windbags who scream bloody murder about the evils of "revisionist history"* if someone so much as hints that America's wartime efforts have ever been anything less than exemplary?
*that's one pejorative term that sets this history grad's teeth on fire (to muss metaphors beyond all comprehension ;)
Posted by: neilt on November 24, 2008 at 9:38 AM | PERMALINK
Didn't Paul Krugman explain this to George Will in a recent This Week? Walt is correct, George Will is espousing the conservative theology, which is never contradicted by facts.
Posted by: KevinMc on November 24, 2008 at 9:44 AM | PERMALINK
When Will spoke that line on a previous show, Nobel laureate Paul Krugman smacked him down with actual historical fact. Yesterday it was Robert Kuttner (I may have the name wrong).
As long as ABC keeps booking libruls with spines to appear with George, I'm fine with him constantly reciting right-wing drivel and getting corrected on camera.
Posted by: Lifelong Dem on November 24, 2008 at 9:44 AM | PERMALINK
Paul asked:
if WWII helped get the thing moving because of the vast investment, how is our hundreds-of-billions investment helping ours? If we weren't at war, would we be better of economically, or worse off?
If you're asking, why isn't the Iraq war helping our economy, the answer is that we're spending the money differently for Iraq.
After Pearl Harbor, the U.S. pushed it's heavy industry into overdrive, building ships, tanks, trucks and planes -- by the end of the war we built almost 200,000 new planes -- for a fight in two theaters.
In Iraq, we are actually deferring the replacement of equipment. The money that's flowing out is going to politically-connected contractors like Blackwater, where we're paying their mercenaries $100K per man, and to KBR where we're paying them millions for buildings that aren't being finished and millions more in bonuses . . . just because.
So far, the $300 billion that's been spent on the "stimulus package" has been to buy pieces of paper that show ownership of other pieces of paper. We're not actually building anything and as a result we haven't put a single unemployed person to work.
Here's my idea: the federal government should order a couple hundred thousand solar panel units from American manufacturers, and a couple thousand wind mill turbines. Pre-pay part of the contract -- enough to allow the manufacturers to expand their capacity and hire new workers.
An important part of solar and wind units are batteries to store the generated power. The increased demand for batteries will help offset the decreased demand for car batteries.
At the same time, hire out-of-work construction workers now and put them through training courses to learn to install the solar panels and windmills. Then put them to work doing the installation as soon as the products become available. Install the solar panels on all government buildings where solar power is viable, and when that's done, offer them to the public at 10 percent of cost and to private industry at 50 percent of cost.
Posted by: SteveT on November 24, 2008 at 9:45 AM | PERMALINK
There's a couple of important "facts' missing from this argument. My mother and father lived through the great depression and they recounted how many of the programs that were implemented by Roosevelt kept people alive and families together. It's easy to take the human part out of the equation as if it were just a meaningless component yet let's not forget the actual suffering that comes along with economic disaster.
Posted by: Gandalf on November 24, 2008 at 9:53 AM | PERMALINK
Whenever Will writes anything, other than hoping the Orioles will return to greatness, or such as the Sen Shelby types speak, file it under the "But, we think we are still relevant" category.
One aside about that WWII effort; it included the first major recycling - Paper drives, tin can drives were held across the land - Funny thing, about those, including glass, following the war, many driving in their newly built and bought cars, simply threw the like from their car windows as they enjoyed driving without gas rationing.
And, following saving the economy came the stupendous GI Bill. Obama is correct concerning including education in the mix.
Posted by: berttheclock on November 24, 2008 at 10:00 AM | PERMALINK
Gandalf,
No Republican alive has ever suffered through hard times. If any had they wouldn't be so insufferable.
I am sick to death of the Republican belief in magic.
Posted by: Ron Byers on November 24, 2008 at 10:05 AM | PERMALINK
just to reiterate what lifelong dem had to say: this is truly amazing. will already embarassed himself once this matter only several weeks ago. rather than go home and learn something, he repeats the lie.
when people ask what do the republicans need to do to rebuild their brand, the first part of the answer is: stop making shit up all the time.
Posted by: howard on November 24, 2008 at 10:28 AM | PERMALINK
A little over a year ago, Amity Schlaes made the same ridiculous assertion in a debate with Jonathan Alter at the Central Library in downtown KC. But Jonathan could have not bothered to show up and she would still have lost in that crowd of Truman Democrats.
Posted by: Blue Girl on November 24, 2008 at 10:52 AM | PERMALINK
After years of mocking Republicans who claimed that Bush was failing because he wasn't really a conservative - that conservativism hasn't failed, it's never been tried - I'm hesitant to make the same claim about a left-wing idea.
The second point in the blockquote looks relatively clear. During the Great Depression, if things got better after the New Deal until a return to fiscal responsibility and then things got worse, then post hoc just maybe ergo propter hoc. But the first claim - the infusion of government spending wasn't as big as it seems, because a tax increase matched it and because it was balanced out by a drop in state and local spending - isn't the same thing likely to happen again? 49 states have balanced budgets amendments to their constitutions.
Posted by: Cyrus on November 24, 2008 at 10:55 AM | PERMALINK
Cyrus writes:
After years of mocking Republicans who claimed that Bush was failing because he wasn't really a conservative - that conservativism hasn't failed, it's never been tried - I'm hesitant to make the same claim about a left-wing idea.
It was tried, and it succeeded spectacularly. It was called "World War II". The spending involved in getting the US onto a war footing was many times the amount involved in the New Deal. Of course, if there weren't the threats of Hitler, Mussolini and Tojo, I doubt FDR would have ever gotten away with such massive spending.
Posted by: Daryl McCullough on November 24, 2008 at 11:06 AM | PERMALINK
Those at the top in our capitalistic system will do anything to maintain the status quo. It's that simple.
What we need is a new New Deal focused on energy for the 21st century. But we're not going to get it, I'm afraid. Instead, we're devoting all our resources to fighting the implosion of trillions and trillions of phony assets. How is it that the loss of literally nothing, the loss of that which was never there in the first place, can so cripple our economy as to cause it to sink into a deep recession?
Something is wrong when you are dependent upon a financial system that is based on phony money. And we are trying desperately to prop this system up instead of finding one that actually works.
Posted by: hark on November 24, 2008 at 11:17 AM | PERMALINK
Obama's plan should be called the New New New Deal. THIS lame duck administration is currently having the Treasury perform the New New Deal, WHICH if it doesn't work will wind up on Obama's tasks as well!!!
Posted by: iggy on November 24, 2008 at 11:26 AM | PERMALINK
Without the New Deal the US does not create its huge middle class.
Posted by: Brojo on November 24, 2008 at 11:43 AM | PERMALINK
Last week: George Will says New Deal didn't work, Krugman smacks him around.
Yesterday: George Will says New Deal didn't work, Kuttner puts him in his place.
Next week: George Will says New Deal didn't work, this time there is no progressive economist on the show, Cokie Roberts agrees with Will. Will wins.
Posted by: Ohioan on November 24, 2008 at 11:54 AM | PERMALINK
Help me out here. In what sense did the New Deal work? Unemployment in 1933 was 25%. Unemployment in 1939 was 17% (or 10 million unemployed). As far as I can see, we were still in a depression in 1939.
Posted by: Sweating Through Fog on November 24, 2008 at 1:25 PM | PERMALINK
We're still awaiting the coming of the One-Armed Economist for final judgement.
Posted by: Luther on November 24, 2008 at 2:19 PM | PERMALINK
I think George Will has jumped the shark.
Put down TWICE on this recently, I should think ABC will quickly become embarrassed by his presence.
Or perhaps they can't find another "conservative" columnist who is less clueless than Will and THAT's why they keep having him back.
Posted by: Cal Gal on November 24, 2008 at 2:56 PM | PERMALINK
Remember George Will is the guy who praised Reagan as "a thoroughbred” after the first Carter-Reagan debate, some how neglecting to mention he had stolen a copy of Carter’s briefing papers and given them to Reagan. Not only a thief, but a liar too, and not a particularly bright one at that.
Posted by: J. Frank Parnell on November 24, 2008 at 3:47 PM | PERMALINK
Sweating theough fog @ 1:25 PM posted:
"...Unemployment was at 25% in 1933. Unemployment in 1939 was 17% (or 10 million unemployed)..."
Three things: in 1933 there was little or no unemployment insurance. That 25% unemployment rate meant no income at all (except for charity, if available). There were millions more under-employed workers (less than 40 hours a week). You might also want to check into the various reports published during the 1920's about the very low levels of pay for workers; there may have been a boom in the '20's, but most workers weren't part of it. And farmers definitely not.
Second: 10% unemployment in 1939 would have been closer to 4-6 million, not 17 million. The US population in the 1930's was between 120-130 million; the total population of the US didn't reach 170 million until well after WWII. Subtracting half the total as minors/retired/housewives would leave a pool of 60 million people hunting for jobs - 10% of that is 6 million.
Fnally, unemployment started dropping in 1934 as government spending starting flowing through the economy. It continued to drop until 1937, when FDR cut Federal spending to prove his fiscal bone fides. The recession that followed lasted until 1939 and wasn't fully ended until the Federal Government started the massive spending required for rearmament/supplying the Allies in late 1940.
No, the New Deal didn't end the Great Depression. To be honest, I don't think it was ever designed to do so. The aim of the New Deal was to put enough people back to work at fair wages to "prime" the economy into starting back up. Until the Federal spending cuts of 1937, that was what was happening, although slowly.
What the New Deal did show however, was that the Federal Government, if allowed, could have a major positive impact on the economy during recessions/depressions. And the right will tie itself into all sorts of knots rather than admit that. Had the Federal Government actually implemented Keynesian policies, which were being talked about even if the book didn't reach print until 1936, the economic results produced on the home front during WWII could have begun earlier.
Posted by: Doug on November 24, 2008 at 6:05 PM | PERMALINK
What Krugman ignored was the federal government set up cartels to force prices higher and thus, used up wages and espeically higher wages.
The economic boom of WWII was the value of America's capital resources grew as the U.S. bomb the capital resources of most of the rest of the world out of existence.
What Krugman is also not mentioning is that in the 1930's the U.S. had both closed borders and a domesitc consumer goods industry. In 2008 the U.S., has open borders, the economy is globalized, and the U.S. does not have much of a consumer goods manufacturing base.
Hiring people for make work programs will result in illegal aliens building things that are funded with money borrwed from China. The wages paid to the illegal aliens will be spent on consumer goods manufactured in China and sent to Mexico and Central America as remitances.
Keynesian policies will have a much harder time working with open borders, international flow of funds, and no manufacturing base.
Posted by: superdestroyer on November 24, 2008 at 7:55 PM | PERMALINK
Doug,
On your first point, you seem to be making that people were, in general, better off in 1936 - at the peak of the New Deal, then they were in 1928. I'm sure that all the millions of still-unemployed in 1936 would happily have one of those low-wage 1928 jobs.
On your second point, I wasn't saying that the unemployment rate in 1939 was 10%. I was saying it was 17%. And it was. Check the figures.
You say Roosevelt's New Deal efforts were abandoned in 1937. Yet at that majestic peak of Roosevelt's New Deal programs - 1936, unemployment had plummeted all the way from the 1933 peak of 25% to ... 16.9%. Not 6.9% but 16.9% Roosevelt was known for trying one thing, then another until he found something that worked. It seems by the end of 1936 he himself had concluded that the New Deal hadn't worked.
Posted by: Sweating Through Fog on November 24, 2008 at 9:59 PM | PERMALINK