New Deal Revisionism

by on April 4, 2009 at 10:12 am in Economics | Permalink

The NYTimes has a short piece in the arts section on "new deal revisionism."  Rich Vedder gets the best line:

Mr. Vedder playfully offered another analogy: the recession of 1920. Why was that slump, over and done with by 1922, so much shorter than the following decade’s? Well, for starters, he said, President Woodrow Wilson suffered an incapacitating stroke at the end of 1919, while his successor, Warren G. Harding, universally considered one of the worst presidents in American history, preferred drinking, playing poker and golf, and womanizing, to governing. “So nothing happened,” Mr. Vedder said.

Of course Mr. Vedder does not wish ill health – or obliviousness – on any chief executive. Still, in his view, when you’re talking about government intervention in the economy, doing nothing is about the best you can hope for from any president.

By the way, I am looking forward to hearing Bob Higgs on C-Span this weekend.  Higgs is a top-rate economic historian from whom I learn something new everytime I hear him.

Barkley Rosser April 4, 2009 at 10:17 am

To all the folks who think that “doing nothing” brings back an economy quickly
that has gone into recesion, please explain why this did not work in the 1870s
or the 1890s.

hughz April 4, 2009 at 10:51 am

Hmm…maybe because 1919-1921 was not associated with a meltdown in the financial sector.

Bob Murphy April 4, 2009 at 12:41 pm

One of the Roosevelt defenders said that unemployment by 1936 was under ten percent. Actually, the official figure is 16.9%. (Here is a WikiAnswer sheet on it, but I know the Statistical Abstract has a similar number. In any event, it’s well in the double digits.)

Is that guy counting people with public works employment as having jobs? I.e. how is he getting such a different number?

Andrew April 4, 2009 at 1:38 pm

Thank God government innovation has made booms and busts a thing of the past.

James April 4, 2009 at 2:38 pm

Funny that people are deriding Hoover as a big government spender. The US was running a surplus through 1930, and only due to decreasing revenue from taxes did deficits appear, which Hoover vociferously fought through tax increases:

http://books.google.com/books?id=HjeMj1DB6w8C&pg=PA116&lpg=PA116&dq=hoover+budget+surplus&source=bl&ots=uJbvZjKnA0&sig=VtDM6XwpAxrbi9B08Xdlt3lbJhc&hl=en&ei=9qTXSZ2jIY3aMdnHyfwO&sa=X&oi=book_result&ct=result&resnum=6

http://lcweb2.loc.gov/ammem/collections/moldenhauer/2428143.pdf

The attempt to revise history and paint Hoover as a new-dealer is an outright lie. The facts remain unchanged, Hoover saw declining revenue and fought the situation by raising taxes. He fought spending increases:
http://en.wikipedia.org/wiki/Bonus_Army

Which is funny because I remember *some people* claiming that the short recession of 2001-2002 was because of Presidential policy. And I remember *some people* telling me that the longest period of economic growth in US history wasn’t due to Presidential policy. So convenient, isn’t it?

Jeremy H. April 4, 2009 at 3:24 pm

@James

only due to decreasing revenue from taxes did deficits appear

The “only” qualifier of that sentence is incorrect. Yes, revenues fell. But spending also increased. Dramatically. From 3.3 billion in 1930 to 6.5 billion in 1934 (almost a doubling). This makes your statement an “outright lie,” rather than the attempts reassess Hoover’s policies.

Source: http://www.presidency.ucsb.edu/data/budget.php

liberalarts April 4, 2009 at 3:52 pm

Is Vedder an objective researcher? It seems every time I see his name, he is in the midst of some ideological advocacy.

MW April 4, 2009 at 5:31 pm

I got a kick out of this line in the article:

“Yes, unemployment bumped up in 1937, but it was caused by Roosevelt’s ill-advised attempt to balance the budget, he said. When Roosevelt reversed that policy, unemployment began to inch down again.”

1937 was after four years of Keynesian stimulus. When the hell, exactly, are you supposed to start paying back deficits, or do you just devalue the currency?

In the end, private investors have to be the ones to finance real economic growth. Not sure I believe this, but one could argue TARP and other government interventions has kept investors from becoming confident in any bank’s balance sheets since we have no ideas which ones are truly insolvent without the usual signal of bankruptcy. While a couple of very bad years of a debt-deflation cycle might have persisted, we might be much better off after the economic recovery.

Again, not sure if I believe that, but the data on the panic of 1873 certainly made me rethink government stimulus deficit spending. Perhaps T-bills (or Japanese public debt in the 90′s) really do crowd out private investment.

songar April 4, 2009 at 6:34 pm

Willian Newman: “I also dimly remember a dramatic hike in top income tax rates under Hoover (followed by another dramatic hike under FDR) but don’t know where to look it up quickly.”

Do it using wikipedia, just as you did in your paragraph 2. Just google “top income tax rates”, and go to “wikipedia”. Under “contents” click on “History of top rates.” From 1925 to 1931, the top rate was around 24-25%.Hoover raised it to 63% in 1932. Roosevelt raised it to 79% in 1936, then the war raised it to 94%.

It’s clear that during depression years and war years top tax rates have usually been higher. (Yet we’ve been carrying on an extremely costly war over the last 5 years,while our top tax rate has remained relatively low–the gap between top and bottom rates is almost the same as that during pre-Depression years.)It’s also quite obvious that top tax rates in years leading up to the great economic upheavals in our history have been low, as with the 1925-1931 period and the 1987-2009 period. In non-economist language, would someone at least spend a few words here explaining why we should speculate about how top tax rates may extend depressions while ignoring the fact that low top tax rates have preceded the two great depressions of our time?
(Note:I’m not interested in a debate over whether this is a depression yet. Last year in mid-summer we were assured we weren’t in a recession, and we’re now supposedly 18 months or more into one–unless of course it’s a depression. Just google “is this a depression” and you’ll get plenty of conflicting answers from plenty of qualified economists.)

And this may be another naive question, but I’m here to learn. Where’s the evidence of an economy this large with economic problems this massive that turned around faster without government intervention than with government intervention?

Jeremy H. April 4, 2009 at 8:06 pm

@songar

In non-economist language, would someone at least spend a few words here explaining why we should speculate about how top tax rates may extend depressions while ignoring the fact that low top tax rates have preceded the two great depressions of our time?

As one counterexample to your observation, high marginal tax rates preceded the severe downturns of the early 1980s. Depending on how the current downturn plays out, the twin recessions of the early 1980s might actually have been more severe. And just looking at the top tax rate can sometimes lead to confusion by ignoring the income level the rate affects. A 95% marginal rate on incomes above $1 Billion would have different effects from a 95% (or even 50%) marginal rate on incomes above $1,000.

Where’s the evidence of an economy this large with economic problems this massive that turned around faster without government intervention than with government intervention?

There is no evidence because the U.S. economy at present is the largest in our history, as well as the largest in the world (in absolute terms). Having such a “large economy” really means nothing more than we are, on average, wealthier than in the past.

Or perhaps you are referring to an economy that is more complex, in some sense. Again, the counterexample does not really exist, since the U.S. economy is (by whatever imperfect measures we can come up with) more complex than at any point in the past. But it is a leap to assert that this is necessitates more government management. The humble, Hayekian position might be that there is less a government can do to help a large, complex economy, and potentially more it can do to hurt it.

John Pertz April 4, 2009 at 11:34 pm

The left would be better off simply explaining real world interventions that Barney Frank and Obama are likely to create and explaining why said interventions will be socially optimal.

That is the juicy stuff that I want the left to acknowledge. If they do that then Ill be real happy. So far from Obama we have a bizarre foray with a dead man walking car company. So in the real world of real electoral output, why is the DO NOTHING position really that foul?

Remember left wing people, the government is real, political agents are real, the incentives they face are REAL, so tell me why I as a libertarian should relax and let these agents do the good work and get our economy back on track. LOL

Yancey Ward April 5, 2009 at 12:48 pm

Mick,

I didn’t notice Bush running a surplus the last few years.

liberalarts April 5, 2009 at 8:15 pm

No one seems to mention this, but a huge difference between the 1930s and now is that the labor force participation rate is much higher for women than then. So, for couples, a loss of job now should be less painful than in the 1930s, because there is high probability of having at least one paid income per household.

Jeremy H. April 5, 2009 at 9:39 pm

Professor Rosser,
Okay, thanks for clarifying. I initially took your comment to mean that recessions were just as bad prior to the New Deal interventions. On re-reading it, it seems you were emphasizing the speed of recovery. Fair enough, and the fuzziness of the historical data does present problems in this respect for looking at YOY changes in any measure.

Thanks for mentioning the agriculture sector, I was going to bring that up. Certainly agriculture has its own unique cycles, so the lower rates in the late nineteenth century may be an artifact of this (with less workers being exposed to industrial cycles — although today *more* workers are exposed to these cycles, and unemployment rates never hit 1930s levels). By the way, what is your source on the urban unemployment rates?

But even so, we can look at unemployment rates with a different denominator, such as the civilian private nonfarm labor force (the alternative Weir series Ba476 that I mentioned). I won’t bore everyone with the data again, but even excluding Ag from our analysis, the 1890s still looks a lot better than the 1930s (in terms of both depth and speed of recovery).

Chris April 6, 2009 at 10:12 am

At first I was shocked at the “views differ on shape of earth” tone of the article, but then I saw the comment thread. Good grief. The lazy-fairy lives on, who would have thought?

Jordan April 8, 2009 at 5:16 pm

Sadly, I think we are now running the experiment that will prove once and for all that Keynesianism is a fraud, and that you can’t borrow and spend your way to prosperity.

Japan already demonstrated that, but nobody noticed. You can’t reason somebody out of a position they didn’t reason themselves into.

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