Saturday, April 4, 2009

New Deal Revisionism: Theories Collide

A March 1933 cartoon from The New York Times expressed confidence in the new president, Franklin Delano Roosevelt

For more than half a century, America’s political leaders — Republican and Democrat — have sought to wrap themselves in the legacy of Franklin Delano Roosevelt, the man credited with replacing fear with hope and ending the Great Depression. But in recent years some writers and economists have been telling a version of this story that is quite different from the one generally taught in school or seen on the History Channel.

In this interpretation Roosevelt is a well-meaning but misguided dupe who not only prolonged the Depression but also exacerbated it. For many people, it’s like hearing that Little Red Riding Hood’s grandmother and not the wolf is the rapacious killer.

Since the financial crash this fall, the revisionist look at the Great Depression has attracted new attention; it even recently made its way onto Stephen Colbert’s television show. But more than that, it has become an intellectual banner for Republican opponents of the Obama administration’s ambitious bailout and stimulus proposals.

Amity Shlaes, a syndicated columnist who works at the Council on Foreign Relations, helped ignite this latest revisionist spurt with her 2007 book, “The Forgotten Man: A New History of the Great Depression.”

“The deepest problem was the intervention, the lack of faith in the marketplace,” she wrote, lumping Herbert Hoover and Roosevelt together as overzealous government meddlers.

I thought that Herbert Hoover had too much faith in the marketplace. And, lack of faith? The free market crashed because of excesses by business and the lack of action by Hoover's administration.

President Franklin Delano Roosevelt’s role in ending the Great Depression has come under new scrutiny in recent years

She and other critics of the New Deal credit Roosevelt with some important innovations, like restoring confidence in banks and establishing social insurance. Nonetheless, they argue that most of his mucking about in the economy crowded out private investment and antagonized the business world, and thus delayed recovery.

Sounds like the Fox News historical interpretation. And this next one?

Anna Schwartz, who collaborated with Milton Friedman on a classic study of the Depression, and the Nobel Prize winner Robert E. Lucas Jr. argued that the idea of stimulating the economy with federal spending is a fairy tale. Government spending just crowds out private investment, they asserted; the money supply is the only thing that matters.

Pure bullshit, really. They must think Ronald Reagan is still President.

Men lining up for free dinner in New York in the early days of the Great Depression

“I’m wound up here,” said Jeff Madrick, as he tried to cram in a wide-ranging defense of the New Deal during his brief remarks. Mr. Madrick, who directs policy research at the Schwartz Center for Economic Policy Analysis at the New School, pointed out that considering the deep pit the economy had fallen into during the Depression (when production fell by nearly one-third), the government’s deficit spending (just 5 percent of the gross domestic product) was actually quite modest. Even so, he said, it managed to reduce the official unemployment rate from a high of 25 percent in 1933 to just under 10 percent by 1936.

Nick Taylor, the author of “American-Made,” a history of the Works Progress Administration, said Roosevelt’s flurry of activity restored confidence. Not only did his administration rapidly create jobs for legions of jobless Americans, Mr. Taylor said, it also simultaneously built bridges, roads and dams, and brought light, electrical power and water to large swaths of the country. That 20th-century infrastructure laid the groundwork for the country’s phenomenal growth in the 1950s and ’60s.

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.

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