The ‘FDR made Depression worse’ fantasy

Atlanta Journal-Constitution ^ | January 2, 2009 | Jay Bookman

[An Old Man]

One the more remarkable aspects of the modern conservative movement is its eagerness to believe whatever it prefers to believe, whatever gives conservatives ammunition against their opponents, regardless of the facts and data and expert opinion.

The latest example of such behavior is the claim that FDR’s New Deal extended and deepened the Great Depression, a newly formed myth that is without any basis in fact. Yet it is embraced by some on the right solely because it bolsters their argument against policies proposed by President-elect Barack Obama.

[tacticalogic]

To the MSM “newly formed” applies to something that has been known for 50 years.

They're not that consistent. It means whatever they need it to mean right now.

[Private_Sector_Does_It_Better]

“He was a master politician facing a defeated and demoralized opposition that had run out of ideas.”

That sounds familiar.

[supercat]

Of course, a little deeper common sense suggests that beyond such work, the wages that business could afford would be in competition the government program.

On the other hand (isn't it great that economists have so many hands?) if businesses are already having to compete with the welfare office which pays people for doing nothing, isn't it better that people actually do some work for their government check?

[count-your-change]

Thomas J. DiLorenzo, “The New Deal Debunked Again”, 9/27/2004, Mises.org:

“U.S. Census Bureau statistics show that the official unemployment rate was still 17.2 percent in 1939 despite seven years of “economic salvation” at the hands of the Roosevelt administration (the normal, pre-Depression unemployment rate was about 3 percent). Per capita GDP was lower in 1939 than in 1929 ($847 vs. $857), as were personal consumption expenditures ($67.6 billion vs. $78.9 billion), according to Census Bureau data. Net private investment was minus $3.1 billion from 1930–40.”

But it was happy daze according to fantasy AJC article,

“Excepting 1937-1938, unemployment fell each year of Roosevelt’s first two terms [while] the U.S. economy grew at average annual growth rates of 9 percent to 10 percent,” writes University of California historian Eric Rauchway…”

How about a taste of reality?

In “The Concise Encyclopedia of Economics”, Gene Smiley, an emeritus professor of economics at Marquette University,
wrote, in part,

“The AAA (Agricultural Adjustments Administration)immediately set out to slaughter six million baby pigs and reduce breeding sows to reduce pork production and raise prices. Since cotton plantings were thought to be excessive, cotton farmers were paid to plow under one-quarter of the forty million acres of cotton to reduce marketed production to boost prices. Most of the payments went to the landowners, not the tenants, making conditions desperate for tenant farmers. Though landowners were supposed to share the payments with their tenant farmers, they were not legally obligated to do so and most did not. As a result, tenant farmers, and especially black tenants, who were more easily discriminated against, received none of the payments and less or no income from cotton production after large portions of the crop were plowed under. Where persuasion was ineffective in inducing the many independent farmers to reduce production, the federal government intended to mandate production cutbacks and purchase the product to take it off the market and raise prices.”

This during a time when Americans were starving. But wait! There’s more!

“The NRA was a vast experiment in cartelizing American industry. Code authorities in each industry were set up to determine production and investment, as well as to standardize firm practices and costs. The entire apparatus was aimed at raising prices and reducing, not increasing, production and investment. As the NRA codes began to take effect in the fall of 1933, they had precisely that effect. The recovery that had seemed so promising in the summer largely stopped, and there was little increase in economic activity from the fall of 1933 through midsummer 1935. Enforcement of the codes was sporadic, disagreement over the codes increased, and, in smaller, more competitive industries, fewer firms adhered to the codes. The Supreme Court ruled the NRA unconstitutional on May 27, 1935, and the AAA unconstitutional on January 6, 1936. Released from the shackles of the NRA, American industry began to expand production. By the fall of 1935 a vigorous recovery was under way.”

High unemployment and policy was to reduce production and raise prices! Notice the last two sentences. The economy improved despite Roosevelt and his policies.

Your picture and caption is PERFECT, Old Man! Just perfect!

[Lonesome in Massachussets]

Milton Friedman argued the “newly discovered theory” that FDR made the depression worse in his 1980 book “Free to Choose” and he, and others had been making the same argument for decades. Amity Shlaes simply does a fantastic job of illustrating the politics and economics of the time.

The activist politician will always hold an advantage over the free market advocate, unfortunately.

[Rockingham]

The traditional view among economists was that FDR's spending was too small in net economic effect to matter, and that foreign and domestic military spending beginning in the late 1930’s was responsible for finally bringing the Depression to an end. The conservative case is that the uncertainty and negative regulatory impacts of FDR's program made things worse and delayed recovery.

Oddly, the essence of the argument in the article is that there was a recession in 1938 during the Depression, but no real Depression because the economy was growing rapidly while FDR was in office. The article does not even engage the evidence for the conservative case, which rests on many detailed academic economic studies.

Personally, I would like to avoid another sharp downturn in the economy during Obama's term. The article seems to regard that as almost to be expected due to his intended New Deal style program.

[iacovatx]

I once thought that would be a good “stepping stone” to self-sufficiency and non-welfare life. However, a govt job that pays could become a very unproductive and lazy place that doesn’t lead to a better or non govt job.

Here’s why. First, a private sector business tries to make money, even profit, by using labor and other inputs to create value and sell at a higher price than it cost to produce. Simple ECON101.

However, a government agency exists to get the votes to keep the sponsoring official elected. It also exists to help strengthen a political party or group within the govt. It also exists to perpetuate itself and its budget. None of these goals much benefits the large number of taxpayers who fund the agency. Any benefits to the participants are of little interest. For example, Head Start has been studied and shown to have no measurable benefit. Despite that, recently I heard a radio report touting its wonderfulness. It is certainly a success for the employees and politician sponsors of Head Start—it has lasted many years and gets votes for the sponsor. Such a program wouldn’t survive in a private environment. Is it better than simply giving welfare to people? Such programs offer work instead of a mere paycheck but the work is not as valuable as private sector work—it also puts power in the hands of politicians who can unionize the workers or make the workers vote for them “else you will lose your jobs”. It puts more power in the hands of govt. This weakens the argument for gov’t work programs although I am not sure if straight welfare isn’t worse.

[An Old Man]

Personally, I would like to avoid another sharp downturn in the economy during Obama's term. The article seems to regard that as almost to be expected due to his intended New Deal style program.

I suspect that none here would want a depression. However, given the propensity of the "Magic Negro" for socialist policies, what evidence do you have that would indicate anything other than a forthcoming Depression/

[norwaypinesavage]

FDR passed the majority of his programs in his “first 100 days” in 1933. The Depression went on for nearly another decade. Case closed.

[supercat]

However, a govt job that pays could become a very unproductive and lazy place that doesn’t lead to a better or non govt job.

Government programs inherently create perverse incentives for all participants, granted. And it's entirely possible that in many cases the harm caused by those perverse incentives will outweigh the good done by the programs. Nonetheless, I don't believe that it is fundamentally impossible for some government works projects to have an overall positive effect; with the proper political leadership I think they could have an enormous public benefit. I'll admit that doesn't mean such programs would be a good idea given the current leadership, but I think it's important to recognize the possibility of benefit.

As I see it, if the government is going to have a genuine need for a road sometime within the next twenty years, it would be better for the government to build the road at a time when the supply of labor is plentiful relative to demand, than at a time when the demand for labor is high relative to supply. The government shouldn't build useless roads merely to offer people something to do, but to the extent that such things need to be built anyway it would seem logical to undertake them at a time of low labor demand.

In a sense, government pays less for labor than does private business, since every otherwise-idle worker the government employs represents one less welfare check it needs to write. The effective discount for government labor is highest when demand for labor is low; should not someone who wants to preserve the public treasure take advantage of this?

I know that few of today's leaders care about preserving the public treasure, but that doesn't mean there's anything fundamentally wrong with the concept of the government hiring people to do work. Merely the implementation.

[Rockingham]

Unlike the 1930’s, the US economy has the advantages of the dollar's strength as the primary reserve currency, the US status as a superpower, the relative strengths against competing economies, and the near certainty of low energy prices for the next few years.

Of course, policy errors by Bush and Obama will hurt. The best hope for correction is major GOP gains in 2010 based on poor economic performance, forcing Obama and the Democrats into a Clintonian U-turn on many of his preferred policies.

[GreenLanternCorps]

See the last line of my post...

[iacovatx]

Very well stated and worthy of empirical examination. If we can identify the incentives, I believe we can construct the program in a way that favors the public good.

Two elements might also help such a program. The first is performance-based rewards. Although hard to specify and administer fairly, the concept creates a culture and image for the program that is helpful. I also think a termination rule must be in the program charter. That is, the program must die eventually and not become a perpetual money sink.

But, no one is asking me to contribute ideas so it doesn’t matter if I suggest we require everyone wear a fruit basket hat. Queue up Carmen Miranda.

[coppercladd_99]

I think you had better go check the actual GDP numbers. We achieved a recovery to levels better than pre-crash before the war started.