The New Deal and the Great Depression II

Aha. Interesting blowback at Mark Thoma's site against Daniel Gross and me:

Economist's View: The New Deal and the Great Depression: When Brad DeLong said:

A normal person would not argue that the New Deal prolonged the Great Depression.

It got quite a reaction.

Arnold Kling says:

...In case you have not been following it, Daniel Gross and Brad DeLong have been hurling insults at people who fail to genuflect to the proposition that the New Deal helped to cure the Great Depression. A reasonable view is that some New Deal policies helped, and some hurt....

Knowing what I know now, if I could go back to 1933 and tell President Roosevelt what to do, I would say "yes" to deposit insurance, "yes" to going off the gold standard, and "no" to pretty much every other New Deal policy, including Social Security. I would also encourage two things that were not tried--a monetary expansion and a fiscal expansion (which in those days, with taxes relatively low, would have meant more government spending).... Whether Roosevelt's actual policies were, on balance, helpful or harmful, is something that I think reasonable people can debate. Hurling insults at one side or the other is not appropriate...

But relative to Hoover, Roosevelt's administration did pursue both fiscal and monetary expansion. Fiscal policy shifted from Hoover's balance-the-budget-at-all-costs to Roosevelt's we-won't-worry-about-the-deficit-for-a-while--a big difference. It would have been much better if the New Deal had involved much bigger deficits, but the deficits it did involve were quite a help.

Similarly for monetary policy: Hoover's Fed was desperate to avoid gold losses, which meant raising interest rates whenever gold flowed out. Roosevelt's Fed wasn't. Again, a bigger monetary expansion would have been a greater help, but the change from Hoover to Roosevelt was a great help.

So you have four big macroeconomically-significant pluses working to alleviate the Great Depression: deposit insurance, abandoning the gold standard, fiscal expansion, and monetary expansion. What do you have on the negative side? The short-term damage done in 1993-4 by the NIRA, and the work-relief programs that probably created several percentage points' worth of structural unemployment.

Jim Hamilton also weighs in, citing Cole and Ohanian as critics of the NIRA:

What is supposed to help the economy recover [in a pure laissez-faire economy] is that a substantial pool of unemployed workers should result in a fall in wages and prices that would restore equilibrium in the labor market.... And yet, in the midst of quite significant unemployment, between 1933 and 1934, average hourly earnings increased by over 25% in sectors such as iron and steel, furniture, and cement, and over 50% at lumber mills. How could that be?... Cole and Ohanian noted... the NIRA and NLRA... limit[ing] the extent of competition between firms and competition between workers. Among the NIRA codes that Cole and Ohanian highlight include minimum prices below which firms were not allowed to sell their products, restrictions on productive capacity and the amount that could be produced, and limitations on the workweek. Cole and Ohanian concluded on the basis of model simulations that these kinds of New Deal policies might have accounted for 60% of the persistence in the output gap.... The notion that if we can just create more monopoly power for every single sector of the economy, encouraging every sector to produce less so they can raise their wages and prices, that we will then somehow make everybody richer, is so spectacularly wrong-headed that I would be just as dumbfounded to find that Brad De Long believes it as he seems to be by those of us who maintain that some aspects of New Deal policy surely did make the recovery from the Great Depression slower.

Let me agree with Jim that a durable, comprehensively-implemented NIRA would have been a disaster, but my understanding (from Ellis Hawley's The New Deal and the Problem of Monopoly) was that it was neither comprehensively implemented nor durable. It was always spotty, and was a dead letter by the middle of 1934, a year before it was overturned in Schechter Poultry.

I would love to be able to argue that there were steep increases in wage and price rigidity in the 1930s as a result of government policies that made the economy much more vulnerable to contractionary shocks--that would be a hell of a paper to write--but I have never been able to make the case work quantitatively. And IIRC Cole and Ohanian purposely focus on only the bad sides of the New Deal: their counterfactual is one with deposit insurance, with going off gold, and with abandoning the Hoover era's balance-the-budget fiscal and keep-gold-from-leaving-the-country monetary policies.

So no, reasonable people could not argue that the New Deal prolonged the Great Depression.

The furthest I will go is to agree that reasonable people can argue over whether reasonable people could argue that the New Deal prolonged the Great Depression.

UPDATE: A comment I left at Mark Thoma's Economist's View: http://economistsview.typepad.com/economistsview/2007/01/the_new_deal_an.html#comment-27521387

I would ask everyone to closely parse what's being said here. Neither Arnold Kling nor Jim Hamilton is saying, "Well I'm normal, and I think the New Deal made things worse." Jim is saying that "some aspects of New Deal policy surely did make the recovery from the Great Depression slower." And I agree with that 100%.

By not recognizing that most of the New Deal was a shift of fiscal policy from contractionary to neutral on a cyclically adjusted basis, Arnold is underestimating the positive effects of the New Deal--and even so he does not say that it made things worse. He doesn't take a view.

To get to somebody willing to argue that the entire New Deal taken as a whole made things worse, you have to go to somebody like Arnold's intelligent and energetic co-blogger Bryan Caplan, who writes:

>[Robert] Mugabe has made people afraid to invest in Zimbabwe. Why should [Brad] doubt that - on a smaller scale, of course - Roosevelt made people afraid to invest in the U.S.?

And I think that I am safe in classifying somebody who sees Robert Mugabe as Franklin Roosevelt writ large as not entirely normal.

Comments

[anne]

"A normal person would not argue that the New Deal prolonged the Great Depression."

Precisely, and precisely correct. Economics may be theoretically trouble free in telling us how Franklin Roosevelt might have fashioned policy to bring us from the terrifying Depression from 1932 on, but political economics is another matter and Roosevelt was working through a political system and working experimentally and working in a way that inspired enough trust and understanding to allow for New Deal failures and wonderful successes as we gradually recovered.

"A normal person would not argue that the New Deal prolonged the Great Depression."

Precisely! Here was economic experimentation and discovery under the best of intentions and with wonderful lasting success, success that would bring a modern American middle class.

[wcw]

Well, there is that nice paper forthcoming in Econometrica. Viz http://minneapolisfed.org/research/SR/SR328_print.pdf which claims to find that productivity and labor inputs account for the depression and its weak recovery.

While I am not certain how this means, "the New Deal prolonged the Depression," it is the least incoherent paper I have seen cited.

[pgl]

Bryan Caplan has weighed in that FDR scared investors. But Bryan offers no facts. This Angrybear offerred only one - the rise in investment demand following 1932.

[Bryan does more than offer no facts: Bryan says that Robert Mugabe is Franklin Roosevelt writ large.]

[anne]

Yes; I missed that, investors in 1932 were all smiling confidence only to notice the even more dearkening shadow of Franklin Roosevelt and screaming running for, well, for where? Where were stocks in 1929, by the way? Where in 1932? Where was Herbert Hoover through the years? Gone fishin'....

[anne]

What is really delicious is to find a certain governor, a certain governor of
California, shudder, a Republican, doing all he can do to be Franklin Roosevelt and being wildly popular in the doing while I can only laughingly imagine what conservatives who have spent assorted life times haunted by the New Deal are thinking.

But, after all, he is the Terminator.

[howard]

let's try phrasing the argument another way, shall we?

FDR doesn't have a New Deal. Indeed, he pursues whatever it was (as anne rightly reminds us) that hoover was pursuing as a "solution" (i put it in quotes because i'm not sure that the word "solution" is a proper description for hoover's reaction to the Depression).

The argument is that the depression ends "sooner" than it did. Is this a reasonable argument?

[I think not: it's more attempts to balance the budget, more pledges never to abandon the gold standard, more interest rate increases to stem gold outflows... and then in 1935 Huey Long stages a coup... and today right-wingers say that if not for the political chaos of 1933-1935 the economy would have recovered rapidly...]

[anon]

Anne:
It's even more delicious to hear the interviews with the shell shocked and awed CA GOP dead-enders right now. Let's see if CA implodes into an ultra-Cuba from Szhwarzenegger's plans (which are going in the right direction, but always have to be examined closely for tricks).

I remember when I was a little kid and I heard my conservative relatives from the mountain states and rather poor southastern states would say California was socialist, and that the whole thing would collapse very soon from our addiction to New Deal big government. That was just as Ronnie became governator, and who had not become a true blue conservative, but continued watered down big government spending. Well, didn't happen, and I think CA has done better because of it.

If Schwarzeneger continues along this line, and is sincere rather than tricky, he might revive the great tradition progressive California Republicanism (if it weren't for the dead-enders which make up the rest of the state party).

[howard]

btw, anne, your 5:09, even by your standards, is outstanding! i love the notion of those super-confident business people who suddenly, as of march, 1933, grew frightened....

[anon]

I also agree with Anne and Howard. It is anachronistic to regard actual evolution of New Deal policies as if they were a coherent expression of modern Keynesian policy that stands in opposition to the purity of some hypothetical neoclassical Hoover (not the real Hoover policies, which started to drift in some New Deal direactions late in his term). It was trial and error and political compromise. But that seems to be the attitude of many who discuss, and some who do the research.

The General Theory was published in 1936, And so what did the NIRA have to do with that?

[anne]

http://www.calvorn.com/gallery/photo.php?photo=7064&exhibition=7&ee_lang=eng&u=104413,1

Barrow's Goldeneye
Bayard Cutting Arboretum, Long Island.

Interesting comments; Anon, "The General Theory" was published in 1936, and so what did the NIRA have to do with that? While Howard promises to be watchful.

[anne]

http://movies2.nytimes.com/mem/movies/review.html?title1=Grapes%20of%20Wrath%2C%20The&title2=&reviewer=FRANK%20S.%20NUGENT

January 25, 1940

Flawless Film Edition of John Steinbeck's 'The Grapes of Wrath,' With Henry Fonda and Jane Darwell
By FRANK S. NUGENT

In the vast library where the celluloid literature of the screen is stored there is one small, uncrowded shelf devoted to the cinema's masterworks, to those films which by dignity of theme and excellence of treatment seem to be of enduring artistry, seem destined to be recalled not merely at the end of their particular year but whenever great motion pictures are mentioned. To that shelf of screen classics Twentieth Century-Fox yesterday added its version of John Steinbeck's "The Grapes of Wrath," adapted by Nunnally Johnson, directed by John Ford and performed at the Rivoli by a cast of such uniform excellence and suitability that we should be doing its other members an injustice by saying it was "headed" by Henry Fonda, Jane Darwell, John Carradine and Russell Simpson.

We know the question you are asking, have been asking since the book was acquired for filming: Does the picture follow the novel, how closely and how well? The answer is that it has followed the book; has followed it closely, but not with blind, undiscriminating literalness; has followed it so well that no one who has read and admired it should complain of the manner of its screen telling....

[ken melvin]

In these battles refought; How is the winner determined? How many iterations permitted? Under what rules be they fought?

I propose the scenario: If FDR had done naught, what would have been the result?

[anne]

http://movies2.nytimes.com/mem/movies/review.html?title1=Grapes%20of%20Wrath%2C%20The&title2=&reviewer=FRANK%20S.%20NUGENT

'The Grapes of Wrath'

Its greatness as a picture lies in many things, not all of them readily reducible to words. It is difficult, for example, to discuss John Ford's direction, except in pictorial terms. His employment of camera is reportage and editorial and dramatization by turns or all in one. Steinbeck described the Dust Bowl and its farmers, used page on page to do it. Ford's cameras turn off a white-striped highway, follow Tom Joad scuffling through the dust to the empty farmhouse, see through Muley's eyes the pain of surrendering the land and the hopelessness of trying to resist the tractors. A swift sequence or two, and all that Steinbeck said has been said and burned indelibly into memory by a director, a camera and a cast.

Or follow the Joads in their piled-up, rattling, wheezing truck along Highway 66, and let the Russian realists match if they can that Ford shot through the windshield, with three tired faces reflected in it and the desert through it....

[Julian Elson]

Then, of course, there are the (Austrian? Psychotic? Both?) types who say "both Hoover and Roosevelt were bad, and prolonged the depression, because they were both too left-wing."

[David]

Brad, PGL, and others:

Bryan Caplan may not offer facts about scaring off investors, but Robert Higgs does offer some in his "Regime Uncertainty: Why the Great Depression Lasted so Long and Resumed after the War"(http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf).

One reason I have always viewed the New Deal as potentially prolonging the Great Depression is because real wages remained stubbornly high through the decade. Why didn't they adjust more quickly? I suspect it had much to do with institutional changes taking place under the New Deal. Taylor & Selgin (1999)argue as much in their Journal of Labor Research paper titled,"By Our Own Bootstraps:Origins and Effects of the High Wage Doctrine..."

Not doubt there were expanionary impulses from some of FDR's policy, but can one unequivocally conclude that on net the New Deal did not prolong the Great Depression? That requires an almost religioius-like faith in the New Deal policies. Given the existing debate in the literatute, it seems reasonable that reasonable people can take differing views on the New Deal question.

[Eric Crampton]

Note Tabarrok's agreement with Caplan on Marginal Revolution (2003) http://www.marginalrevolution.com/marginalrevolution/2003/11/fdr_revisionism.html Tabarrok cites work by Higgs and by Best, noting "Business investment failed to recover because business people legitimately feared a regime change like that which had occured in Germany and Italy" and citing FDR's inaugural address:

"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."

Mightn't a reasonable investor be more than a little worried about a President's threat to increase the number of Supreme Court justices until the desired result obtained?

[tom s.]

"And I think that I am safe in classifying somebody who sees Robert Mugabe as Franklin Roosevelt writ large as not entirely normal."

- probably just repeating what others have said in other words here, but this is the trouble with slippery slope arguments, of which the Road to Serfdom is one. According to some people, they're both standing on the road to serfdom, one's just a little further along than the other.

[garhaneg]

The New Deal gave employment when that was needed, big projects when confidence in the system was needed, and hope when that was very badly needed.
Reading this thread has reminded me of how I used to wonder why students of economics in college failed so badly in tests based on the prisoner game. The teaching of economics, which at the starting levels can be described as indidualist ideology, is the reason I guess,as anyone can see in this thread. They are being trained to be people who will always behave selfishly and never think of co operating. So they lose. Here they have lost any understanding of a fine piece of your history before they open the book.
Maybe it would be a good idea to keep such people away from decisions about carbon sinks and sources, lest they draw us all into total absurdity.

[howard]

Eric, in a word, no, no reasonable investor would have been worried in the way you characterize. resonable investors in march, 1933, would have been - and were - worried that the american experiment would fail and that either fascism or communism would result.

ken, you've posed the same thought experiment i did, and i can only assume that it's our host who responded (quite, uh, reasonably, in my mind) in brackets at 5:44.

David, the purpose of the thought experiment is to answer your question: we have no new deal policies whatsoever. none. does the depression end sooner? i feel quite confident that one can say unequivocally that it does not, and perhaps it ends up exactly as the prof imagines this parallel history in the aforementioned bracketed 5:44 comments.

[bakho]

I don't understand how a large fall in wages was supposed to help?? Wasn't there a real fall in wages for many people? I have these visions of bread lines and people working odd jobs for a dollar a day. Didn't those people make so little that they could not afford to purchase items that would dent overcapacity?

Doesn't unemployment insurance do more to sustain an economy through a depression than a collapse in wages?

[Rob]

You know why investors may have been afraid? The entire financial system almost completely collapsed. To pretend that investors were more worried about some inaugural speech then the fact that the entire banking system was about to go belly up is foolish.

[pgl]

Brad - like your edit to my comment as well as your update. Caplan really went off the reservation with that cheap shot.

[anon]

Regarding Higgs: weird stuff. At first it seemd he was saying that regime change uncertainty during the New Deal was a transition cost of moving from a very free makert capitalism to the nascent and serially incoherent mixed economy experiments of the New Deal. OK, then it was not any policy itself, but unavoidable uncertainty costs of transition.

Then he starts saying that it became very certain the the New Deal regime was entrenched, and was attacking private property and confiscating wealth and income of the business investors, and they didn't like it. That is regime uncertainty? Sounds he's talking about government rent seeking.

Then he presents a chart that seems to show the new uncertainty, and new government confiscation efforts were *slowing down* but they triggered the second mini-depression of 1937. Except for one law he discusses that he thinks was really really bad. The effect of the partial abandonment of Keynesian fiscal policy in order to go all Hoover and head towards good and pure balanced budget government is ignored. Anyone remember a famous quip from that time: "They profess to fear that for which they dare not hope."

The he says the Truman administration was less threatening to business and investors than Roosevelt. Truman's rather lefty ideas on continuing the New Deal are ignored(national health insurance anyone?) But you see, he says, Truman appointed cronies and career polls instead of academic eggheads, so it was comforting to the investors. Nothing about Truman's proposals was discussed at all.

Maybe I am simple and slow, but I cannot figure it out. Someone will have to explain it to me. Right now I think it is crank stuff. There were facts in that paper, but anybody can spout facts. I can't follow the story that strings them together.

You wanna do economic history, then let's do some economic history. That is interesting and worthwhile.

You wanna to torture the Hoover and Roosevelt administrations to play stupid ideological games, well, that is stupid.

[Keith]

Brad, you mention the NIRA, which was, thank God, a dead letter. But the NLRB was also cited as a cause of wage stickiness. Since a persistent feature of the post-1932 Great Depression was unemployment even while economic growth recovered, this seems to support the lengthening argument, at least as far as NLRB is concerned. It mainly looks like the main positive features of the New Deal were in macroeconomic and monetary policy, not so much in microeconomic and labor policies. That seems to call for a more critical assessment of FDR's New Deal than the usual hagiography we get 'round these parts. I mean, if the NLRB lengthened the Depression, shouldn't that effect our policy evaluation of the NLRB?

At the very least, we can all be very thankful that Roosevelt didn't get everything he wanted, like the NIRA. I personally believe that the NIRA could easily have led us to an authoritarian/totalitarian dictatorship 15-30 years down the road.

[anne]

Nutty as fruitcakes. Imagine 25% of the workforce unemployed, and these are generally husbands and fathers, and there is already tremendous inequality in wealth and income and unions are beset everywhere, but the problem is wage stickiness. Why if only wages had fallen enough, fallen fallen fallen below heart of the Depression levels, if only wages had fallen suddenly workers would have been snapped up by employers and poof the Depression is turned to boom time.

Nutty as fruitcakes. Here is Franklin Roosevelt who is saving democracy and capitalism and the worry is "dictatorship." Nutty as fruitcakes.

[kharris]

Howard just keeps getting better as the comments continue. Yes, there was a real sense that the capitalist system was being proven wrong. Even before Keynes recommended fixes to make capitalism more resilient, the New Deal was put in place to re-establish confidence in the system we had, not to overthrow it. Freud's notion about small differences is pretty clearly at work when either Roosevelt or Keynes is attacked for undermining capitalism.

It is a lesson to live by. Whenever somebody comes up with a view that you sorta knew they'd come up with, they are not telling you much of value. Look at their sources. Look at their data. Feel free to snipe at their argument. Take for instance, that Social Security is identified as a bad part of the New Deal. The issue at hand is whether the New Deal prolonged the Great Depression. It's pretty hard to see how Social Security prolonged the Great Depression. Tossing it in was gratuitous. The tosser-inner just wanted to get it out there. Social Security bad, so New Deal bad. Not proven, in either case. This argument started with the conclusion, not the facts.

[anne]

Because of Franklin Roosevelt we are about to have 70 years of astounding investment opportunity, and fruitcakes are worried that Roosevelt frightened investors who of course were never frightened while Herbert Hoover fished. (When you fly fish, what kind of flies are you fishing for, she asked?)

[anne]

Arnold Kling is balanced as David Brooks is balanced, Nastier than a snail, but the swirly shells distract from the nastiness. What was it we were told they have all been arguing over at the Kling haven?

http://maxspeak.org/mt/archives/002769.html

" . . . the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica."

Say what? In the spirit of the anti-New Dealers dealing anti-New Deals. Were Monty Python still alive....

[Mike]

Anne,

Can you tell us how supporting minimum wage laws for women only helped women get jobs during the Depression? Can you tell us how the restrictions on branch banking made the banking sector less risky? Can you tell us what would have happened if make-work programs did not assemble massive amounts of hole diggers nation-wide?

Yes times were tough, but I find it hard to take this discussion seriously when you are deifying FDR. He was a man, and only a man.

[spencer]

If Bryan Caplan is correct that Roosevelt scared the investro class so bad why did the stock market more then double in the first three years of the Roosevelt term?

[anne]

Duh. The point is Franklin Roosevelt had no idea how to end the Depression other than to let Americans know how much he cared and how much he would try and how willing he was to experiment in trying. So, Roosevelt listened and learned and experimented and adapted as he continued to learn. Paul Krugman was not president, and not even there to advise. Brad DeLong was not there, nor was I.

Franklin Roosevelt cared and gave people hope in showing that he cared and the hope allowed the time needed to experiment and gradually to shape and implement policies that are our heritage to this day.

Herbert Hoover fished and 25% of America was out of work and another 25% of America was desperately holding on and looking for a president who could think beyond what flies to catch (I know these things, because I too fish).

Franklin Roosevelt told Americans not to fear, for there was a President who cared and would try to help and a new Congress in support, and the experiments began.

[anne]

http://globetrotter.berkeley.edu/conversations/Galbraith/galbraith1.html

1996

Interview of John Kenneth Galbraith - UC Berkeley:

Of your generation, who do you think was the greatest political leader that liberalism had?

Oh Roosevelt, no question about it.

And what distinguishes him? What stands out in your mind?

What stands out in my mind is that those of us who were young in the Roosevelt administration, and most everybody in that administration was young, had a sense of fealty, a sense of loyalty which was beyond sense, and maybe too great. I, in those days, along with everybody else, had ideas until Roosevelt had spoken. And then I automatically accepted his. Through the whole structure of New Deal Washington, including the war years, the greatest mark of pride was to be a Roosevelt man. But this was, in turn, related to the fact that the president had great flexibility of accommodation to the disaster and despair of the Depression years.

This was a terrible time, a perilous time in the history of the republic, and a singular feature of Franklin D. Roosevelt was his pragmatic accommodation to whatever needed to be done. If you ever hear a politician say, "I'm going to adhere strictly to principle," then you should take shelter because you know that you are going to suffer. In contrast, Roosevelt was, in his time, the supreme pragmatist....

[Keith]

Anne, FDR's experiment included destryoing crops while millions were starving, thus increasing the starvation. Steinbeck does a great job illustrating the misery caused by price supports in a passage in the Grapes of Wrath about the destruction of oranges as starving people watched.

Even if we like the New Deal overall, wouldn't any ethical person agree that the destroying of food while millions starve is just plain evil? Or do the commenters here only have sympathy for the victims of "right-wing" policies?

[Jon Fernquest]

"What was it we were told they have all been arguing over at the Kling haven?

' . . . the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica.'"
http://maxspeak.org/mt/archives/002769.html

Eee gads, I'm glad I've wandered into such reactionary neighborhoods. They probably abuse animals too. Life is too short for them.

Thanks for the Galbraith quotes, Anne.

[Sebastian Holsclaw]

"I would ask everyone to closely parse what's being said here. Neither Arnold Kling nor Jim Hamilton is saying, "Well I'm normal, and I think the New Deal made things worse." Jim is saying that "some aspects of New Deal policy surely did make the recovery from the Great Depression slower." And I agree with that 100%."

I think the subtext of the disagreement is important. The things you all agree helped, have become part of the economic consensus about how to do things and aren't at issue. (Gold standard and deposit insurance being the two major items). The question is to what extent should we embrace the things that did not work, or that there is not much agreement about whether or not they worked or whether or not they worked as effectively as they should. The NLRB being a classic case of the problem.

[James]

In "The History of the U.S. Economy in the 20th Century," Brad DeLong's friend, Prof. Timothy Taylor, puts a lot of the blame on Roosevelt.

"The History of the U.S. Economy in the 20th Century" is a lecture series, in audiobook format, which can be purchased here: http://www.teach12.com/ttcx/coursedesclong2.aspx?cid=529&id=529&d=History+of+the+U%2ES%2E+Economy+in+the+20th+Century

Here's a description of Timothy Taylor's Great Depression lecture:

"The fourth lecture highlights the Great Depression, which you learn was most likely caused by a mismanaged monetary policy. You also examine the merits of the New Deal and its role in U.S. economic recovery."

[Bernard Yomtov]

"The question is to what extent should we embrace the things that did not work, or that there is not much agreement about whether or not they worked or whether or not they worked as effectively as they should. "

No Sebastian. FDR's critics are not saying, "Well, his programs weren't perfect." They are saying his programs were, on balnce, destructive. That is insupportable.

It is insupportable first on economic grounds, as Brad has pointed out. But it is also insupportable on broader social and political grounds. What, as Ken Melvin and others ask, would have happened had FDR done nothing. Does anyone imagine we would have peacefully found a quick path back to prosperity? I doubt it. The Huey Long coup is one possibility. There are worse ones.

Of course the critics simply ignore these issues, perhaps because they do not understand that all human behavior is not described by their ideology.

[anne]

When Arnold Kling takes offense, I know that all is well with the world. May scary Arnold continue to be offended and the more often the better these coming years. This is a person who would smash and trash all the New Deal legacy in some nutty libertarian mash. Take offense Arnold, lots and lots of offense.

[anne]

Bernard Yomtov:

"FDR's critics are not saying, 'Well, his programs weren't perfect.' They are saying his programs were, on balance, destructive. That is insupportable."

Precisely.

[typekey pseudonym]

David | January 10, 2007 at 07:05 PM writes: One reason I have always viewed the New Deal as potentially prolonging the Great Depression is because real wages remained stubbornly high through the decade. Why didn't they adjust more quickly? I suspect it had much to do with institutional changes taking place under the New Deal.

It has been many years since grad school, so I expect that I no longer have the numbers exactly right, but I recall hearing (from Tobin no less) that average manufacturing wages fell by about 25% from 1929-1933, but average manufacturing prices fell by more than 30% during the same period.

So real wages rose. In The General Theory, Keynes discusses the disconnect between money wages and real wages, arguing that there is a roughly 1-1 connection between wages and prices: when wages fall, prices will fall roughly proportionately, leaving real wages pretty much unchanged. This led to the dispute that gave rise to the concept of the Pigou effect, where I think Kalecki had the last word.

[failingeconomist]

I think that dig at Brian Caplan is a little unfair. It's entirely legitimate to compare fractions of the total without then stating that the total is equivalent.
Hitler was anti-smoking as was Everett Koop. We can compare their anti-smoking policies without then making the assertion that Koop is Hitler writ small.
Stalin was all for a United Europe as is Giscard D'Estaing. That doesn't mean the former is the latter writ large.
Mugabe definitely has put people off investing in Zimbabwe (or even living there). It's legitimate to ask whether Roosevelt's actions put people off investing in the US without then accusing the questioner of stating that Roosevelt is Mugabe writ small.
Or at least it should be, as long as we're not merely throwing about political rhetoric.
I'm also reasonably certain that if NIRA was still causing damage in 1993-4 then Brad wouldn't be describing it as short term.

[Barry]

David: "One reason I have always viewed the New Deal as potentially prolonging the Great Depression is because real wages remained stubbornly high through the decade."

I think that this is the core of the right-wing argument. The working class wasn't crushed.

One frequent description of the situation in the early 30's was that it looked like communism and fascism were the waves of the future; the only question was which various people preferred. Many in the USA never forgave FDR for preventing a fascist revolution.

[Mike]

"When Anne makes no sense, I know that all is well with the world. May scary Anne continue to make no sense and the more often the better these coming years. This is a person who would smash and trash all the New Deal contradictions in some nutty liberal mash. Take offense Anne, lots and lots of offense."

Sounds ridiculous, no? Where is the reasonable dialogue? Several posters have pointed out the destructiveness of branch banking restirctions, crop programs, etc. and all you can talk about is fishing and posting sycophantic paeans to people whom you admire. That is fine, but don't try and pass yourself off as anything more than a kool-aid guzzling groupie.

I don't know squat about what caused, prolonged or ended the Great Depression. I have my PhD and that does not make me any more qualified to know. Yes, FDR tried. He often failed. He had some successes. But to sit here and talk about him as if you understood his motives, and that you just know he was a good guy because he tried hard ... well, that does not do anything to help us understand which policies were in retrodspect helpful and which hurtful. That the outgrowth of the New Deal has been the expansion of your ideal welfare state says nothing about the effectiveness of New Deal policies in alleviating poverty and suffering.

It's too bad the signal to noise ratio is so low here - because the quality of the signal is outstanding.

[Maynard]

Hamilton's view is that the cure to depression is deflation, and policies like NIRA and NLRA that prevented deflation slowed down the recovery. Another view, held by Keynes and more recently Krugman in the context of Japan, is that deflation exacerbates depression by raising real interest rates and encouraging households to delay purchases (and let's add Fisher's debt deflation theory for good measure). Could it be that FDR's labor and industry policies, by slowing the pace of deflation, actually helped stimulate the economy from the demand side? Could the positive demand-side effects have offset the negative supply-side effects?

[dale]

It's hard for a non specialist to contribute to a disscussion about alternative economic history (better left to science fiction writers)- but I can't help but wonder if this discussion is really about the past.

Arnold Kling's stupid comment about Social Security gives me the feeling we are talking about today, not the 1930s.

[Sarah]

"Can you tell us how supporting minimum wage laws for women only helped women get jobs during the Depression?"

Considering that the few jobs available to women during the Depression were usually restricted by law to single women and widows, I'm damn glad there was some kind of minimum wage protection! My grandmother having been one of the widows in question my mother's family might have starved otherwise. Oh yes, and before he died, my grandfather, being the only person in his extended family with a job, was paying the taxes on his brothers' and sister's farms so they could provide for THEIR families.

How thoughtlessly uneconomic of Roosevelt not to have allowed companies to pay starvation wages. Luckily we have wiser political leadership now, that understands how much worse off we would all be now had Walmart not been allowed to send the bulk of our manufacturing capacity overseas.

[Keith]

A lot of commenters on the left here are looking very foolish.

First, it certainly appears that Brad is agreeing with Jim Hamilton's assessment of NIRA and the NLRB, as well he should. These programs kept unemployment high because they kept wages from falling to the market clearing rate. Some of the left-wingers here somehow think that's horrible, but Keynes's own business cycle theory says that business cycles occur because wages are sticky, which generates persistent unemployment. Even according to Keynes, making wages even stickier, like NRLB did, makes things worse.

One can argue the New Deal made things better on net. But it's certainly worth thinking about what individual New Deal policies made things worse. These would include agricultural price supports, NIRA, and NLRB.

Conservatives did this country a valuable service by helping kill NIRA, and thus made the New Deal more effective on net, by destroying one of its most potentially destructive aspects.

Those of us that understand that can develop a more sophisticated political insight, that shows how liberals and conservatives can both make contributions that improve national well-being.

But many commenters here prefer the tired old "yay liberals boo conservatives" routine, so they probably don't like that very much.

And starving poor people is still evil, and that's what FDR's agricultural policy did. Is anybody actually willing to acknoedge that, or would you rather just keep up your faith-based hagiogrpahy?

[anne]

http://maxspeak.org/mt/archives/002769.html

" . . . the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica."

This is what the Kling Haven have been peddling.

[Keith]

Anne, wow those Kling people sound almost as evil as a President who deliberately destroys crops when people are starving.....

[anne]

http://economistsview.typepad.com/economistsview/2007/01/the_new_deal_an.html

"[Robert] Mugabe has made people afraid to invest in Zimbabwe. Why should [Brad] doubt that - on a smaller scale, of course - Roosevelt made people afraid to invest in the U.S.?"

More of what the Kling Haven are peddling.

Brad Delong:

And I think that I am safe in classifying somebody who sees Robert Mugabe as Franklin Roosevelt writ large as not entirely normal.

[anne]

http://www.nytimes.com/2005/02/14/books/14bull.html?ex=1266123600&en=32440f7c34fc8b0e&ei=5090&partner=rssuserland

February 14, 2005

Between Truth and Lies, An Unprintable Ubiquity
By PETER EDIDIN

Harry G. Frankfurt, 76, is a moral philosopher of international reputation and a professor emeritus at Princeton. He is also the author of a book recently published by the Princeton University Press that is the first in the publishing house's distinguished history to carry a title most newspapers, including this one, would find unfit to print. The work is called "On Bull - - - - ."

The opening paragraph of the 67-page essay is a model of reason and composition, repeatedly disrupted by that single obscenity:

"One of the most salient features of our culture is that there is so much [bull]. Everyone knows this. Each of us contributes his share. But we tend to take the situation for granted. Most people are rather confident of their ability to recognize [bull] and to avoid being taken in by it. So the phenomenon has not aroused much deliberate concern, nor attracted much sustained inquiry."

The essay goes on to lament that lack of inquiry, despite the universality of the phenomenon. "Even the most basic and preliminary questions about [bull] remain, after all," Mr. Frankfurt writes, "not only unanswered but unasked."

The balance of the work tries, with the help of Wittgenstein, Pound, St. Augustine and the spy novelist Eric Ambler, among others, to ask some of the preliminary questions - to define the nature of a thing recognized by all but understood by none.

What is [bull], after all? Mr. Frankfurt points out it is neither fish nor fowl. Those who produce it certainly aren't honest, but neither are they liars, given that the liar and the honest man are linked in their common, if not identical, regard for the truth.

"It is impossible for someone to lie unless he thinks he knows the truth," Mr. Frankfurt writes. "A person who lies is thereby responding to the truth, and he is to that extent respectful of it."

The bull artist, on the other hand, cares nothing for truth or falsehood. The only thing that matters to him is "getting away with what he says," Mr. Frankfurt writes. An advertiser or a politician or talk show host given to [bull] "does not reject the authority of the truth, as the liar does, and oppose himself to it," he writes. "He pays no attention to it at all."

And this makes him, Mr. Frankfurt says, potentially more harmful than any liar, because any culture and he means this culture rife with [bull] is one in danger of rejecting "the possibility of knowing how things truly are." It follows that any form of political argument or intellectual analysis or commercial appeal is only as legitimate, and true, as it is persuasive. There is no other court of appeal.

The reader is left to imagine a culture in which institutions, leaders, events, ethics feel improvised and lacking in substance....

[anne]

http://www.gwinnettdailyonline.com/articleB5BD6D4417AF444DBD8F9770AA729B26.asp?printerFriendly=true

1986 - 2005

On Bull....
By Harry Frankfurt - Princeton University

One of the most salient features of our culture is that there is so much bull..... Everyone knows this. Each of us contributes his share. But we tend to take the situation for granted. Most people are rather confident of their ability to recognize bull.... and to avoid being taken in by it. So the phenomenon has not aroused much deliberate concern, nor attracted much sustained inquiry. In consequence, we have no clear understanding of what bull.... is, why there is so much of it, or what functions it serves. And we lack a conscientiously developed appreciation of what it means to us. In other words, we have no theory. I propose to begin the development of a theoretical understanding of bull...., mainly by providing some tentative and exploratory philosophical analysis. I shall not consider the rhetorical uses and misuses of bull..... My aim is simply to give a rough account of what bull.... is and how it differs from what it is not, or (putting it somewhat differently) to articulate, more or less sketchily, the structure of its concept. Any suggestion about what conditions are logically both necessary and sufficient for the constitution of bull.... is bound to be somewhat arbitrary....

[a different chris]

>That the outgrowth of the New Deal has been the expansion of your ideal welfare state says nothing about the effectiveness of New Deal policies in alleviating poverty and suffering.

Errr, maybe the fact that people kept voting for FDR and his party might say something about that? A little more convincing than AN's little survey taken in a time where telephones weren't exactly a given.

It always amazes me that conservative thought is so sure that people "know better than government how to spend their own money" but somehow is equally certain that they don't know how to "spend" their vote.

[Keith]

"It always amazes me that conservative thought is so sure that people "know better than government how to spend their own money" but somehow is equally certain that they don't know how to "spend" their vote."

Actually, economists and political scientists have ample reason to believe that people do a better job spending their dollars than spending their vote.

When you spend your dollars, you have ample reason to inform yourself, because you bear the entire benefit of your information gathering efforts.

But when you vote, you have very little incentive to be informed, because your vote is one of many. That's what the political scientists call "rational ignorance."

[The argument proves too much. People who are rationally ignorant of who they should vote for should also refuse to vote at all, and instead go have a beer.]

[Antoni Jaume]

How come I do not feel that neither Keith nor Mike care really of the people that are at the bottom of the economical pyramid?

DSW

[dale]

Maybe its more the belief that the pyramid must be defended.

[anne]

"Can you tell us what would have happened if make-work programs did not assemble massive amounts of hole diggers nation-wide?"

There would have been no Tennessee Valley Authority, no Hoover Dam, no Bonneville Power Dam, no Mississippi River Navigation Improvement, no Grand Coulee Dam, on and on and on we have the glorious things that hole diggers nation-wide were able to do. My oh my.

[anne]

"Can you tell us what would have happened if make-work programs did not assemble massive amounts of hole diggers nation-wide?"

Imagine Franklin Roosevelt making all those make-work programs through the New Deal, so that hole diggers might dig the holes that might give us the sort of America we have today. Imagine the infrastructure from dams to schools to libraries to conserving our national parks, all from hole diggers digging makework holes that needed to be dug to build America. Imagine.

[dale]

what would have happened if make-work programs did not...

We might have lost the war without the surplus electricity provided by those make work projects.

My father fought forest fires and planted trees in the Black Hills- all unecessary make-work projects.

Here in Oregon, the WPA built Timberline Lodge, employing not only construction tradesmen but artists and craftsmen and women- building something of beauty and lasting value for generations of Americans.

In my small working class town, the WPA built a swimming pool that is still used today.

I have a picture somewhere, of my father's family- piled into old jalopies, loaded high with belongings- ready to leave South Dakato and head towards Oregon. Not unlike the Joads.

[anne]

Dale

"I have a picture somewhere, of my father's family- piled into old jalopies, loaded high with belongings- ready to leave South Dakato and head towards Oregon. Not unlike the Joads."

Find and preserve and annotate the picture.

[dale]

thinking about "make work" jobs programs gets me to wondering why so much useful work goes undone and why so much wasteful work is done.

there may have been some stupid projects done by the WPA- I don't know. but the more interesting thing for me is how much useful work was waiting to be done. and how much is still waiting to be done.

I need to go to my mother's home and find those pictures anne.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6293&u=213|12|...

Downy Woodpecker and House Sparrow Having a Dispute
New York City--Central Park, The Ramble.

Then, you must interview your mother.

[anne]

http://www.nytimes.com/2005/12/25/books/review/25royte.html?ex=1293166800&en=f7f49a2c7514d046&ei=5090&partner=rssuserland&emc=rss

December 25, 2005

The Anti-Joads
By ELIZABETH ROYTE

TIMOTHY EGAN'S new book, "The Worst Hard Time," takes the shape of a classic disaster tale. We meet the central characters (the "nesters" who farmed around the Oklahoma and Texas panhandles); dire warnings (against plowing) are voiced but ignored; and then all hell breaks loose. Ten-thousand-foot-high dust storms whip across the landscape, choking people and animals, and eventually laying waste to one of the richest ecosystems on earth.

Racing at 50 miles an hour, the Dust Bowl storms of the 1930's blasted paint off buildings; soil crushed trees, dented cars and drifted into 50-foot dunes. Tsunamis of grasshoppers devoured anything that drought, hail and tornadoes had spared. To the settlers, "it seemed on many days as if a curtain were being drawn across a vast stage at world's end." Families couldn't huddle together for warmth or love: the static electricity would knock them down. Children died of dust pneumonia, and livestock suffocated on dirt, their insides packed with soil. Women hung wet sheets in windows, taped doors and stuffed cracks with rags. None of this really worked. Housecleaning, in this era, was performed with a shovel.

As banks, churches and businesses closed, food became scarce and the nesters fought back. They paid rain merchants to shoot explosives into the sky. They clubbed to death tens of thousands of wheat-fattened rabbits and poured boiling water on the tarantulas and centipedes that covered their plank walls. Starving, they pickled tumbleweed, and ate yucca roots and roadkill.

The book's High Noon, written in cinematic stop-time, is April 14, 1935, which dawned with unusual promise: the sky blue and the sun warm. Grateful for the respite from dust, families shoveled out their houses and filled washtubs for their sheets and clothes. Then, with only a few minutes' warning, "the mother of all dusters" swooped out of the north, "the air snapping like gunfire." The dirt was so thick that a man could get lost half a block from his own home. There wasn't enough oxygen in a shelter to keep a lantern lighted. Anyone caught outside dropped to the ground and faced the prospect of being buried alive.

Black Sunday's dust - double the amount of dirt excavated to create the Panama Canal - reached the halls, and consciousness, of Washington. At first, Egan says, Franklin Roosevelt had viewed the wreckage of the plains as "a natural disaster requiring relief." He created jobs, sent food and paid farmers to reduce supply. But as the dusters continued, debate swirled: did the storms signal an irrevocable shift in nature or a shorter cycle of drought? And then, the $10 million question: did human behavior have something to do with it?

Roosevelt was lucky to be advised by Hugh Bennett, a soil scientist who talked about conservation at a time when this value was linked exclusively to the big and the scenic: snowcapped mountains, rushing rivers, trophy elk. Through Bennett, the president came to understand that it wasn't weather or bad luck that created the Dust Bowl: it was man's hubris and ignorance....

[typekey pseudonym]

Keith (January 11, 2007 at 11:49 AM) wrote:

... Keynes's own business cycle theory says that business cycles occur because wages are sticky, which generates persistent unemployment. Even according to Keynes, making wages even stickier, like NRLB did, makes things worse.

This is not what you get from reading the General Theory. He argued that real wages are inherently sticky, almost by definition since wages make up such a large component of prices, and that nominal wages may well be sticky. He did not argue that they cause or exacerbate business cycles. It's important to distinguish between the model in the General Theory, and Keynesian or New Keynesian models.

In the model of GT, business cycles are due to shifts in the investment demand curve. Based on this and other writings, I think it safe to say that Keynes believed that government policy should be aimed, first, at stabilizing actual investment (through monetary policy), and if that failed, then it should attempt to stabilize total economic activity through fiscal policy.

[Ari]

"FDR's experiment included destryoing crops while millions were starving, thus increasing the starvation."

This is a troll's comment, of course, but such a lie still needs to be pointed to for the future. Trolls are just crazy about having lost any chance to end New Deal traditions with the last election.

[Ari]

Mike, is only trolling and was removed by Brad as has been the case in the past. Trolls go crazy when Franklin Roosevelt is mentioned because the Roosevelt legacy threatens all they wish for as has been made clear.

[Jane Galt]

For goodness sake, will someone please go and read the actual post that wildly-out-of-context quotation was taken from. It was offered as an unconvincing explanation of persistent homelessness in liberal urban areas, which is then dismissed, not a fact:

Now I understand why homelessness hasn't been solved at a federal level. The median U.S. voter isn't a Santa Monica liberal, and doesn't run a business where beggers keep scaring off the customers. But it's far less clear why places like Santa Monica haven't raised taxes on immobile real estate to get the homeless off the street.

Admittedly, such a program would probably have to be more paternalistic than regular welfare. The homeless would blow a monthly check on a weekend binge, and swap food stamps for drugs. You'd have to feed them in well-stocked cafeterias, and give them their cash on a daily basis. (High-end retail would be particularly pleased if the cafeterias and cash centers were ten miles away from them).

Why hasn't this happened? The simplest answer is that the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica. Maybe, but it's important to distinguish between the plausible view that the homelessness prefer their lifestyle to conforming to normality, and the implausible view that they would sleep on the streets and beg even if they had comfortable apartments and pockets full of cash.

Bryan Caplan's theories about mental illness and social dysfunction as an extreme set of preferences about things like planning and drug taking, on a spectrum with our own, is definitely radical. But Bryan certainly wasn't claiming that the homeless are homeless because they would rather be on the street than be given a free apartment and a ton of cash; he was specifically saying that this is implausible. What he was asking is why Santa Monica hasn't given them a free apartment and a ton of cash, given that this would almost certainly get them off the streets?

[ryan]

one thing i'm still unsure of -- i'm reading Brad to say that NIRA did not have the effects that the letter of the law would suggest it had. but if government policies are not the culprit, why did hourly earnings rise so much in 1933-34 given that unemployment was so high? i'm guessing that simulations of a conventional phillips curve wouldn't give you the numbers that Hamilton is citing. moreover, if i remember, Chris Hanes and John James have argued that NIRA did in fact contribute importantly to sharp wage increases in mid 1933. what was going on?

[Jason Briggeman]

Brad, something to consider as you vigilantly monitor your personal echo chamber: Every "not normal" comment you delete only increases the percentage of comments observed to come from Mr. Anne, "user@harvard.edu", your resident shrill barking moonbat yes-man.

[Ari]

Jason, trying to bully Brad DeLong is mean and incredibly stupid. Bully elsewhere, where you'll be appreciated.

[Jason Briggeman]

That seems to be the idea, doesn't it?

[Jim]

Brad -

You say that Hoover had a balance-the-budget-at-all-costs fiscal policy, but he actually tried to spend his way out of the depression. It was Roosevelt who campaigned in 1932 on a balance the budget program. Under Hoover, the fiscal balance went from +0.7b in 1929 to -2.7b in 1932; under Roosevelt, it went from -2.6b in 1933 to -2.8b in 1935 (although it did tip -4.4b in 1936 before shrinking again).

But the point is that fiscal policy had virtually nothing to do with the recovery. On this see

Brown, E. Cary. “Fiscal Policy in the Thirties: A Reappraisal.” American Economic Review 46, no. 5 (1956): 857-79.

Peppers, Larry. “Full Employment Surplus Analysis and Structural Change: The 1930s.” Explorations in Economic History 10 (1973): 197-210..

Raynold, Prosper, W. Douglas McMillin and Thomas R. Beard. “The Impact of Federal Government Expenditures in the 1930s.” Southern Economic Journal 58, no. 1 (1991): 15-28.

Christina Romer, “What Ended the Great Depression?” Journal of Economic History (1992).

[Mark]

I haven't read all the posts, but none I read mention that Roosevelt formed up the CCC and the WPA as a conscious effort to prepare for a war that he saw as inevitable and coming to our shores. So much infrastructure, including countless military bases, were built due to The New Deal. The dams provided electricity and the new infrastructure and military facilities insured that in WW2, the United States and the Allies won. But mostly, the U.S. won out economically and became the economic giant. That momentum is still propelling us today - if in a somewhat less robust fashion. That ecnomists miss this implies that their education was too narrowly applied.