Saturday, November 22, 2008

New Deal Policies Didn't End the Great Depression

Intro: Many people are looking back to the Great Depression and the New Deal for answers to our problems. But while we can learn important lessons from this period, they’re not always the ones taught in school.

The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention; the truth is that Roosevelt changed course from year to year, trying a mix of policies, some good and some bad.

Conclusion: In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

Tyler Cowen, professor of economics at George Mason University, in today's NY Times

10 Comments:

At 11/22/2008 12:01 PM, Anonymous Anonymous said...

No Stealing the peoples gold on April 5th 1933 by Rossevelts executive order did when the dollar was effectivly devalued 41%. That's coming agang soon to this tired old empire.

 
At 11/22/2008 1:07 PM, Anonymous Fred said...

What bothers me about Democrats is their nostalgia for the depression. For them it's a time when giant Democrats roamed the Earth and happy natives stood in soup lines. If they could, Democrats would reinvent America as a 1930s theme park. You didn't miss the Time cover that showed Obama as FDR, did you?

 
At 11/22/2008 2:12 PM, Blogger wcw said...

Absolutely right: the New Deal was far, far too timid. Only the massive deficit spending that accompanied WW2 got the US out of the Depression. Viz http://edgeofthewest.files.wordpress.com/2008/11/pic09961.jpg

The lesson here, naturally, is not that 'the recovery will probably come for reasons that have little to do with most policy initiatives;' the lesson here is to spend a motherfreaking boatload of money if you want your policy to have any effect.

 
At 11/22/2008 2:30 PM, Blogger Arman said...

Depression is an extended contraction of the economy. The contraction STOPPED in 33 quite soon after Roosevelt took office. What we are nostalgic about is the fact that at the end of the depression (1933) almost everyone was fully convinced that right wing tactics just do not work. It is sad that this insight seems to be completely lost to the majority on this forum.

 
At 11/22/2008 6:54 PM, Anonymous Anonymous said...

So, who am I supposed to believe: Tyler Cowen, professor of economics at George Mason University or wcw and arman?

Tough decision.

Not.

 
At 11/23/2008 3:23 AM, Blogger 1 said...

"The contraction STOPPED in 33 quite soon after Roosevelt took office"...

That 'soon' adjective only applies if you are talking in geology terms arman...

FDR's policies prolonged Depression by 7 years, UCLA economists calculate

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933...

 
At 11/23/2008 1:20 PM, Anonymous wcw said...

Oh, Anonymous, why won't you pick a name so I can mock you in person? You misquoted Lenin, and I got you. Now you're equating tenure at GMU (a school whose faculty at least one conservative econ nerd I know left for McKinsey) with skill -- and before you even post, in a simple graphic from JP-freaking-Morgan, I got you.

You, my friend, are a lackwit. Please go away.

1, we agree: FDR prolonged the Depression by refusing to do enough deficit spending. If only he'd ratcheted things up to 20% of GDP, he could have ended things in a hurry.

Are you agitating for 20%-of-GDP deficit spending?

If not -- why not?

 
At 11/24/2008 12:22 PM, Blogger Arman said...

If only he'd ratcheted things up to 20% of GDP, he could have ended things in a hurry.
Government direct spending has a very negligible effect on the economy. It only has OUR money to spend, and does NOT spend my money better than I do! When the government borrows, it pushes against the bank's willingness to lend, and so makes personal and commercial loans less available. Whatever the government does in its spending, it is spending my money that I can very well spend myself, thank you very much!

 
At 11/24/2008 12:38 PM, Blogger Arman said...

that Roosevelt promoted and signed into law June 16, 1933...
Wikipedia
Economic shrinkage STOPPED in 1933! The depression was OVER in 1933!
And for you who sneer at wikipedia, bring on your own research on the historical GDP!
Blaming the depression on Roosevelt is as much a denial of reality as holocaust denial. Economics as taught is just as mindlessly cultish as neo-nazi-ism

 
At 12/11/2008 6:01 PM, Anonymous Mika said...

Ha! This debate has been going on for decades! There have always been highly respected economic experts with the highest credentials on both ends of this argument. But because there are so many variables, neither side has been able to present a compelling case to prove its contention beyond a shadow of any doubt.

May I suggest it's a matter of extent? I suggest that components of the new deal were successful and helpful, while others, such as the tightening of credit, were counterproductive. Obviously, the advent of the war machine gave our economy the ultimate boost, when we spent even more government revenue on tanks and planes than we did to pay guys to plant trees.

It's like the trickle-down theory. Everyone has to agree some trickling does occur. Where we disagree is on the extent that it does.

 

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