Sunday, November 30, 2008

New Deal Economics: George Will Trumps Amity Shlaes for Stupidity

Paul Krugman has busy keeping up with the nonsense from Amity Shlaes and George Will so we should forgive him for not covering every point.

I was going to let the following Schlaes line go even if this graph shows that total government spending and revenues did not significantly rise as a share of GDP during FDR’s first two terms:

New Dealers raised taxes again and again to fund spending.

But then Will had to compound the nonsense with:

But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.

One graph in this post does show an increase in Federal spending as a share of GDP during Hoover’s Administration - but for the 1929 to 1937 period, the increase in Federal revenues offset the increase in Federal spending. But could someone tell Mr. Will that Hoover was not President during the New Deal era?


Anonymous said...

I'm not someone who'll typically leap to the defense of George Will, but surely the reference to Hoover here is just to explain why he is justified in making the claim for the entire decade prior to 1939, as opposed to just 1932 onwards.

TheTrucker said...

I don't think any normal, well adjusted people with an IQ over room temperature are listening to these rightarded views of history. The actual numbers contradict their positions. The spending cuts of 1936 caused the deflation of 37. (I say this from memory but it seems to me that the spending cuts led the recession).

Are we to believe that further spending cuts or no spending increases would have fixed the problems in the 30's? These people seem to thrive on "idiotology" alone and when the data contradicts them they claim interference from the Martians or Sun Spots, or some other unaligned happenstance. And nobody seems to want to admit the effects of the "Dust Bowl".

The catastrophe, which began as the economic effects of the Great
Depression were intensifying, caused an exodus from Texas, Oklahoma, and the surrounding Great Plains, with more than 500,000 Americans left homeless. One storm caused 356 houses to be torn down.[6] Many Americans migrated west looking for work, while many Canadians fled to urban areas such as Toronto. Two-thirds of farmers in "Palliser's Triangle", in the Canadian province of Saskatchewan, had to rely on government aid. This was due mainly to drought, hailstorms, and erratic weather rather than to dust storms such as those occurring on the U.S. Great Plains.[7] Some residents of the Plains, especially in Kansas and Oklahoma, fell ill and died from dust pneumonia and malnutrition.[citation needed]

Try dumping this large labor pool on the slumping industrial sector and watch the unemployment rate go up real fast and stay there.

CMike said...

With the push-back President Roosevelt encountered over his so-called "Court packing scheme" in mind, here's one of those what ifs. Had he been sold on the merits, after 1934 would President Roosevelt have had the political capital to sell a policy of running large budget deficits? Once adopted, unless the result was a quick and perceptible improvement of economic conditions, such an unprecedented and controversial fiscal policy might have risked Democratic control of the Congress and the White House and abandonment of the policy itself. What size deficits might Roosevelt have been able to get through Congress and in what time frame might such fiscal measures have yielded benefits which would have been generally recognized by the public?

Power, the Presidency, and the Preamble (2002) by Robert Saunders

(p. 98) FDR believed that he had a program to promote the general welfare, but he warned that because of "many lost years" it would take "many future years to fulfill." Other than government old age pensions for needy persons, however, FDR had very little public support for the more humane and egalitarian form of capitalism that he envisioned. Neither the public nor FDR supported the necessity of deficit spending as the foundation for reform. The public, in fact, based on the Gallup poll which began in 1935, had very little interest in reform and decisively opposed greater spending for "relief and recovery." For the nation as a whole only 9 percent in the fall of 1935 thought the federal government was spending too little. Almost 90 percent of Republicans and a little more than one-third of Democrats considered spending to be to be too great.

(p. 99) Nor did FDR have public support for such key New Deal measures as the AAA. One year before the Supreme Court declared the act invalid, the public opposed the measure by a resounding 59 to 41 percent. Once again, the pattern was the same--more than 90 percent of Republicans and 30 percent of Democrats expressed their opposition.

Given the level of opposition to a key New Deal measure, one has to wonder how FDR and the Democrats won such decisive political victories in 1934 and 1936 ... By 1938, when the economy had once again dipped substantially, FDR lost control of the Congress with the emergence of the conservative coalition that would limit the legislative agenda for reform, with the exception of the Great Society, from 1938 until the present.

jimbino said...

George Will knows how to write proper English. The dash '--' quite properly sets off an explanatory statement that does not fit the grammar of the clause.

What he said equates to, "In 1939, after a decade of frantic federal spending unemployment was 17.2 percent. (By the way, President Herbert Hoover increased [federal spending] more than 50 percent between 1929 and the inauguration of Franklin Roosevelt.)

Anonymous said...

If you read Shlaes' book, you can see that her main point isn't that federal spending helped or hindered recovery. She attempts to demonstrate that attacks on capital such as the "non-distributed profits" tax and the raise in wages promoted by the Wagner Act essentially caused a "strike by capital" that paralyzed investment and job creation in '36 and '37.
I don't think her book makes much of a case, pro or con, regarding the impact of federal spending by itself on the course of the Depression.