Not Normal on the New Deal

Readers will not be surprised to know that I am not normal.  Indeed, I have not been normal for a long time as this post from 4 years ago attests:

Roosevelt and the Great Depression

I was amused to see Conrad Black writing with shock:

Jim Powell of the Cato Institute (cited approvingly in a recent column by Robert L. Bartley) argues in a new book that FDR actually prolonged the Depression!

Of course, Powell is correct. Imagine, increasing the power of
unions to strike and raise wages during a time of mass strikes and mass
unemployment. Imagine thinking that cartelizing whole industries
thereby raising prices and reducing output could improve the economy.
Not everything Roosevelt did was counterproductive – he did end
prohibition (although in order to raise taxes) – but plenty was and
worst of all was the uncertainty created by Roosevelt’s vicious attacks
on business. (See, for example, the work of Bob Higgs especially this important paper and historian Gary Dean Best’s overlooked classic Pride, Prejudice and Politics.)
Business investment failed to recover because business people
legitimately feared a regime change like that which had occured in
Germany and Italy. Sound extreme? Roosevelt himself threatened/promised
this in his first inaugural:

…if we are to go forward, we must move as a trained and
loyal army willing to sacrifice for the good of a common discipline,
because without such discipline no progress is made, no leadership
becomes effective. We are, I know, ready and willing to submit our
lives and property to such discipline, because it makes possible a
leadership which aims at a larger good… I assume unhesitatingly the
leadership of this great army of our people dedicated to a disciplined
attack upon our common problems….in the event that the Congress shall
fail to take one of these two courses, and in the event that the
national emergency is still critical, I shall not evade the clear
course of duty that will then confront me. I shall ask the Congress
for… the power that would be given to me if we were in fact invaded
by a foreign foe.

Comments

Alex,

I paraphrased this entry over at DeLong's cite and he deleted it. I too am not normal.

But business investment in the U.S. actually rose steadily between 1932 and 1937, so that before the 1937 recession it was something like 8 times what it had been in 1932? How does that fit with your theory about scaring off investors?

If FDR scared investors so bad how come the stock market was soaring during the new deal--
it more than doubled in the first three years of the New Deal.

I'll say it again,WPA = Wealth Pissed Away

'I paraphrased this entry over at DeLong's cite and he deleted it.'

Welcome to the club. I pointed out Cole and Ohanian's paper to him over two years ago, and he deleted that at the time (but not before a few people responded to it, and which comments remain to this day).

The question being what exactly is normal to a guy who is so intellectually insecure that he can't stand that someone knows something he doesn't?

Roosevelt was no the ONLY factor in prolonging the Depression, but I think it is safe to say he was ONE of many.

How arrogant to disagree with DeLong on HIS website! Have you forgetten what the word "fair" means on his blog banner? Get with it.

I agree with DeLong.

Are libertarians normal? I don't think so.

At least they are more normal than objectivists.

and can't name the Vice President

Where ignorance is bliss, 'tis folly to be wise.

The question is not if some New Deal policies did not work or if some policies did.

The question is was the recovery weak or long.

The only way that can be answered is to compare it to some norm of what happens in other business cycles, or in some other of the many Kondratieff waves of massive downturns that have plagued capitalism since its earliest days.

Until I see some of you actually making such a comparison the claim that the new deal prolonged the 1930s depression or made the recovery weak is just rank speculation that has no basis in reality.

Of course people are implicitly arguing that Hoover was better. The critique of the New Deal is that it interfered too much with the workings of the free market, preventing the emergence of market-clearing prices and therefore delaying the inevitable return to equilibrium. Hoover was far more laissez-faire than FDR -- that's why the New Deal was new -- so the implicit argument has to be that had Hoover won in 1932, the U.S. would have returned to prosperity sooner. Happy days would indeed have been here again.

"Of course people are implicitly arguing that Hoover was better."

No, no one is arguing that Hoover was better. They are arguing that FDR's rhetoric alone did major damage to the national economy as he openly threatened business, and that the New Deal overall prolonged the depression.

"Hoover was far more laissez-faire than FDR"

You are probably the first person to ever use the term 'laissez fair' in such a context to Hoover. His reactions to the economic downturn were text book protectionism, which hardly qualify him as laissez faire.

Perhaps you think all Republicans must be of a certain mold, and that they have always been as such. This is patently wrong of course.

The problem with arguing an implicit argument is that your own notions of right and wrong, history, economics, etc get entangled with facts. You think Hoover was laissez faire, therefore you have a weak grasp of history and economics. But this doesn't stop you from projecting your own implied argument on to what everyone else 'must' be thinking or trying to prove.

No, no one is arguing that Hoover was better.

Maybe not, but you have to be arguing that something was better. You can't just say "FDR prolonged the Depression" without saying what the alternative was. And of course the alternative has to be something that had a good chance of happening. As Brad suggests, some of the alternatives to FDR might not have worked out very well.

Now you could get around this by picking one bad New Deal policy and saying, "The Depression was longer than it would have been had FDR done everything he did except X." That would be a silly argument, obviously, but the point is you have to look at the entire New Deal, not just the things you don't like. And you have to look at not just the economic picture but the social and political one as well. Maybe some of the public works projects were not beneficial on net (though the grandparents and great-grandparents of lots of today's conservatives sure liked the TVA) but it was worth something just to have people working.

One final point on the alternative against which we measure the New Deal. It is hardly fair to look back seventy years and say what policies FDR should have followed. We have, I hope, learned something about macroeconomics since the 1930's. (If not, then let's close down the nation's economics departments, since they are a total waste). The alternative to be weighed is the set of non-New Deal policies that were considered sensible back then.

So perhaps you are comparing FDR to Hoover after all.

"Maybe not, but you have to be arguing that something was better. You can't just say "FDR prolonged the Depression"

Sure we can say FDR prolonged the depression. Even if it weren't true, our saying it in no way implies that we thought his immediate predecessor was somehow superior.

Stalin was a murderous thug, ergo, his immediate predecessor was a benevolent saint?

Extremely flawed logic.

All of the wrong statements that follow from Bernie and K.W. flow from the false premise of this implied notion of someone arguing for Hoover.

I've yet to read "If only Hoover would have won" or any such thing. We've been talking almost exclusively about FDR's flawed grasp of economics, regardless of what the protectionist Republicans around him would have done.

So if Brad says FDR was the best alternative, that may be true, but that's not the point.

Also, if this is Brad's view on it, then it is at least a partial admission of just how flawed the New Deal really was.

Sound economics had already been around, but FDR was very sympathetic to the Socialist cause, even going so far as to turn a knowing but blind eye to Uncle Joe's abuses of human rights. And so put in a position of power, he chose the collectivist, big govt as savior route, instead of a free market approach.

And so, FDR was wrong, regardless of whether or not Hoover or anyone else would have done the right thing in his stead.

I will say that Hoover or any other GOP pol would have probably been quicker to adapt to the obvious failures of the socialist measures adopted by FDR. Roosevelt was blinded by his ideological zeal, whereas any number of other politicians would have been quicker to change to a more practical economic policy. But that is highly subjective, much like the last few posts from KW & Co.

All of the wrong statements that follow from Bernie and K.W. flow from the false premise of this implied notion of someone arguing for Hoover.

What wrong statements?

I am saying that if you claim that the New Deal made it worse, you have to say what baseline you are measuring against. Worse than what? And further, for that to be a sensible criticism your baseline has to be something that reasonably might have happened. One (of several) such possible things was the election of Hoover.

if Brad says FDR was the best alternative, that may be true, but that's not the point.

That's precisely the point. I don't think anyone claims the New Deal was perfect. But if it was the best alternative then it manifestly did not make things worse.

If your standard of performance is perfection then everyone who has ever been in charge of anything "made it worse." Surely George Washington made some mistakes during the Revolution, thereby prolonging it. Same with Lincoln during the Civil War.

I thought Brad's bigger point was that there were social/political aspects to the New Deal that made sense, even if the economic effects of the programs weren't so good. There are times when it's beneficial for the government to be seen to be doing something, so that the government isn't handed over to people who will do something big and stupid. That's why the references to Huey Long and Father Coughlin made sense, right?

How did ending Prohibition help the economy? It would seem that having workers off liquor would make them more productive. Unless the increase in gangsterism and corruption would offset the productivity change.
As far as alternatives to the New Deal. In 1932 FDR campaigned for cuts in the size of government and against handouts and welfare. When he was inaugurated he changed his mind, but he could have followed through and probably ended the depression much more quickly.

Re: "Stalin was a murderous thug, ergo, his immediate predecessor was a benevolent saint?"

No, but his immediate predecessor--Lenin--was certainly better.

"Prolonged" implies a comparison: that an alternative president in the mid-1930s--Hoover--would have followed policies that would have made the Great Depression shorter.

Brad DeLong:

"Re: "Stalin was a murderous thug, ergo, his immediate predecessor was a benevolent saint?"
No, but his immediate predecessor--Lenin--was certainly better."

You are in a wrong field. Your brilliant knowledge of Soviet history deserves Nobel prize.

Still reading a non-Marxist text book for Soviet History 101 will geratly benefit you.

Fewer people died during Lenin than under Stalin, there was some slight freedom of speech and for a while there was even some elements of market economy.

Lenin was a brutal dictator and morally you would probaly classify him with Stalin but the Soviet people certainly had it better under him than under Stalin. And that is what I assume Brad meant.

But would doing nothing but taking us off the gold standard have been enough to maintain political stability?

Lenin and Trotsky get undeserved credit by virtue of the fact that Stalin was in charge when the worst occurred. Both of them were ruthless in their own right, but Lenin at least recognized the initial failure of his "war communism", which is why he retreated to the New Economic Plan.

Governments everywhere are well-practiced at implementing symbolic policies that pay lip-service to problems but don't actually do very much of anything. For example, Bush's energy policy (well, excluding Iraq, which falls more under foreign policy anyway).

liqingchao 07年8月21日

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