Bartlett: New Deal Failed Because It Wasn’t Big Enough
Bruce Bartlett has a very nice column on the real lessons of the New Deal:
One reason why Republicans strenuously oppose the Obama administration’s fiscal stimulus plan is because it repeats the errors of Franklin D. Roosevelt. To them, the New Deal was mainly about vastly expanding government spending and deficits, which Republicans believe made the Great Depression worse rather than better. Therefore, doing so again in the present downturn will also lead to failure.
The true New Deal legacy, however, is more complicated. Serious mistakes were indeed made. In particular, the National Industrial Recovery Act was fundamentally ill-conceived and retarded economic recovery. But in terms of fiscal policy, Roosevelt’s error wasn’t that he spent too much, but that he didn’t spend nearly enough.
Right. I think the right-wing’s view that the New Deal was, on net, a bad thing is mistaken. But it’s certainly true that the New Deal featured some bad ideas. And the day Barack Obama proposes organizing the economy into cartels that will be able to exercise enough market power to force retail prices up, I hope John Boehner will go on Fox News and ring the alarm bells. But in fiscal policy terms, the best evidence from the 1930s and 40s suggests that fiscal expansion can work—but that when faced with really big problems it needs to be really big in order to work.
42 Responses to “Bartlett: New Deal Failed Because It Wasn’t Big Enough”
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February 13th, 2009 at 6:12 pm
Krugman’s not the only Ph.D economist who claims to have “learned the lessons of the Great Depression”. Bernanke belongs to that club as well and never hesitates to piss on the Depression era Fed. Of course it was Bernanke who, fearing deflation, urged Greenspan back in 2002 to lower interest rates to rock bottom levels and keep them there, thereby ushering in the ensuing credit boom and bust which now poses a far greater deflation threat.
Just a cautionary tale.
February 13th, 2009 at 6:20 pm
Matt, you really need to push back on conservative slagging of the NIRA: it worked spectacularly well, as Bartlett’s own data demonstrate. During the years when the NIRA was in effect (from March 1933 to about May 1935), the US economy grew at an average annual rate of about 8%. And the purpose of the NIRA was to, among other things, reverse deflation, which it did immediately (thus sharply reducing real interest rates). I’m always amazed by economists who trust some simple-minded theoretical argument rather than their lying eyes. If anyone is interested, Gauti Eggertsson at the NY Fed has the full blown argument in an ungated paper here.
February 13th, 2009 at 6:25 pm
Fortunately for everyone, President Obama was elected before THIS Republican-caused economic meltdown resulted in 25 percent unemployment.
February 13th, 2009 at 6:40 pm
Am I the only one who finds it utterly surreal that such a large portion of the debate over the fiscal policy of 2009 revolves around arguing over the fiscal policy of the 1930s?
February 13th, 2009 at 6:41 pm
Wow. A smart post, Matt.
“Fortunately for everyone, President Obama was elected before THIS Republican-caused economic meltdown resulted in 25 percent unemployment.”
Did the Republicans cause the economic meltdown in Spain and Britain too, dipshit? Sometimes rabid partisanship just makes you sound stupid.
February 13th, 2009 at 7:00 pm
Did the Republicans cause the economic meltdown in Spain and Britain too, dipshit?
Yes, they did. The ideology of Friedman, Reagan, and Thatcher tragically wafted like a bad fart over much of the globe. Only now are the true horrors of neo-liberalism becoming obvious to all.
They caused the Great Depression, and we let them do it again. This must be the last time.
February 13th, 2009 at 7:04 pm
Oh I forgot. By financing and supporting the Whites and other opposition to the Russian Revolution, Republicans are responsible for Stalin’s crimes.
And by inflating and withdrawing from Weimar…well, you know the rest of that story.
And then there was the support to Chiang Kai-Shek. Twice.
Republicans:History’s Greatest Monsters. I’m serious.
February 13th, 2009 at 7:17 pm
FDR 2nd Inaugural:
“Forces” look familar?
February 13th, 2009 at 7:19 pm
2nd Acceptance, rather.
Too many posts, sorry.
February 13th, 2009 at 7:23 pm
It’s really quite amazing how many basic conservative beliefs are just plain wrong: the idea that the New Deal made the Great Depression worse; the rejection of basic geology, natural selection, and climate science; the idea that homosexuality is a choice; cockeyed beliefs about the religious views of the Founding Fathers or the inerrancy of biblical text; the insistence that the U.S. really has a much better health care system than any other major developed country, even though we spend twice as much per capita as anybody else and get about the same health outcomes; the belief that some huge portion of government spending goes to foreign aid; the notion that there is some sort of “free market” independent of such basic government interventions as corporate law; the insistence that by definition, life begins at conception. We’re all wrong about a lot of things, and it’s easy for any of us to come to faulty conclusions on the basis of poor reasoning. But the sheer mass of factual inaccuracy among conservatives goes way beyond occasional ignorance or muddleheadedness. It really seems like a different thing altogether.
February 13th, 2009 at 7:41 pm
From the Monthly Review essay by John Bellamy Foster and Robert McChesney. (Warning: Do not read if you have an allergic reaction to socialist publications.)
February 13th, 2009 at 9:40 pm
They caused the Great Depression, and we let them do it again. This must be the last time.
Ronald Reagan was old, but he wasn’t old enough to cause the Great Depression.
February 13th, 2009 at 9:43 pm
If Republicans really believe that government spending hurts the economy, why didn’t they ask that no federal money be distributed to Republican states? I’m sure the Democrats would have gladly accommodated that request, and the Republicans would rid themselves of the spending they believe would hurt them. They are either want to hurt their constituents, or they don’t believe what they’re saying. Either way, it’s hard to argue that any of them should be in office.
February 13th, 2009 at 10:04 pm
Rich C:
You make a good point about the NRA; everyone of pretty much every political opinion who writes on the New Deal, from socialists to liberals to moderates to conservatives, says it sucked, but the data isn’t there. Yes, there have been some economists (Harold L. Cole and Lee E. Ohanian, for example) who’ve made the case, but you really have to wonder: 8% growth, prices increasing from -5% in 1933 to +3.51% in ‘34 and +2.51% in ‘35, and unemployment dropping from 20.6% in ‘33 to 14.2% in 1935, so where’s the negative effect?
Seems to me the worst you can say is that the NRA was not connected to this, and was rather ineffective if harmless. But the idea that an argument that “if the NRA hadn’t been there, the economy would have turned into a puppy-and-rainbow production miracle,” isn’t credible.
February 13th, 2009 at 10:10 pm
Ronald Reagan was old, but he wasn’t old enough to cause the Great Depression.
Or someone like him.
From Titus at Jerusalem thru Tilly at Magdeburg to Milosevic, there have always been people like Nixon and Reagan and Bush.
I suggest thst for the sake of convenience, and as a strategy, we call these types “Republicans” or “like Republicans” and certain categories of behavior “Republicanism”
We should make it the filthiest insult ever. I don’t want another aggressive war in 25 years, or another depression in fifty years.
February 13th, 2009 at 11:19 pm
Did Cole and Ohanian count people directly employed through New Deal programs when calculating hours worked?
Ohanian seems to think the answer to the current economic meltdown is tax cuts and more skilled immigration so I am a bit doubtful
February 13th, 2009 at 11:24 pm
“there have always been people like Nixon and Reagan and Bush.”
Yeah, but that’s kind of strange. Nixon would have a hard time winning the Democratic primary because he’d be too liberal. He was actually a real environmentalist. Such people can never win the Democratic Primary. And Reagan believed in the Laffer Curve, which has been strongly rejected by the Republican Party. If they were alive today, neither Nixon nor Reagan could possibly be accepted in today’s Republican Party. They are simply Hippie Freaks in the minds of today’s Republicans. If you want to look to someone who might be considered a moderate example of the modern Republican, Mussolini is a good example.
February 14th, 2009 at 12:15 am
McManus,
You are a Crank.
Fostert,
“Yeah, but that’s kind of strange. Nixon would have a hard time winning the Democratic primary because he’d be too liberal. He was actually a real environmentalist.”
Nixon definitely wasn’t conservative — debasing the currency and enacting wage & price controls were more lefty ideas — but there’s a long tradition of environmentalism in conservatism, going back to T.R. The difference is that conservative environmentalism was about protecting the environment, while liberal environmentalism is about using that as a pretext to hamstring industry. Now the red tape of liberal environmentalism makes stimulating the economy with infrastructure spending almost impossible.
February 14th, 2009 at 12:20 am
Also worth remembering re The Great Depression and The New Deal: Roosevelt had timing going for him. The economy had contracted by so much since 1929 that when he took over in 1933 the worst was essentially over.
February 14th, 2009 at 11:27 am
It’s a wonder America ever got anywhere with those damn Republicans stopping socialism at every turn and creating every social and natural disaster known to man.
February 14th, 2009 at 3:49 pm
It’s a little weird to read a supply-sider argue in favor of the stimulus. Not because he’s averse to deficits, but I’d expect him to support tax cuts instead.
So, apparently Mr. Bartlett believes that tax cuts have a finite utility? THAT seems very much at odds with the rest of his party.
February 14th, 2009 at 4:19 pm
FDR’s best move was negating contract gold clauses and devaluing the currency in 1933. After four years of contracting money supply during a recession, these two actions finally allowed the money supply to expand and the economy benefitted almost immediately.
I think it is one thing to say that FDR didn’t spend enough money in the 1930’s when the Federal government was spending ~10% of GDP, compared to today when it is spending ~20% of GDP. Keep in mind in 1925, when things were “fine”, the Federal government was spending ~4% of GDP.
I should also note that government spending from 1955-today has been close to 20% of GDP the whole time, with the note that defense spending has fallen from 11% GDP in 1955 to 5% GDP today, with pensions and health care rising from below 1% GDP each in 1955 to over 4% GDP each today.
So if “the good old days” were really that good, on would think we should cut Social Security and Medicare and spend more on the military to get back to where we were
I suspect much of the trouble reviving the economy to full recovery after 1933 was a pervasive fear of socialism, which FDR stoked in almost every speech. Before WWII, many businesspeople surveyed in the US by Forbes thought that after the war the US would be socialist or fascist, not a free-market economy.
February 14th, 2009 at 5:44 pm
I think that taxes are very important in determining the long-run trend rate of growth in the economy because they alter the return to productive economic activity. For the same reason, I think they are very ineffective as a countercyclical tool. In a downturn such as we are experiencing today, the pre-tax rate of return on all productive economic activity is very low. Thus cutting taxes will not have much of an impact. To put it another way, if you aren’t making any money what good is a tax cut? The only way it could help is if it is some sort of refundable credit. But that’s just spending under the guise of a tax cut. Thus we are back to spending being the only thing that will help under these circumstances.
February 14th, 2009 at 6:00 pm
conservative environmentalism was about protecting the environment, while liberal environmentalism is about using that as a pretext to hamstring industry.
No, no. Kneecap. Liberal environmentalism is about using whatever blah blah blah to kneecap industry and then hang it out to dry in a dull dry August wind until it returns to unlife in zombie form. Because what do liberals want most? To eat your brains!!
February 15th, 2009 at 12:33 am
Mr. Bartlett -
Thanks for the reply. I’ve said what you said to Republicans in defense of the stimulus, but they’re having none of it. It’s always tax cuts.
I hope you gain some leverage with them.
February 17th, 2009 at 9:48 am
The Republican Party is brain-dead. Its collective IQ has been reduced the average level of the median caller to rightwing talk radio shows. But Republicans don’t seem to realize that screeners to such shows only allow the stupidest and most obsequious callers to be heard so that the host will look good. Over time, talk show hosts forget this and think that their callers are not only a representative sample of all their listeners, not just a representative sample of all conservatives and Republicans, but of the American people. By this logic, talk radio is America.
February 21st, 2009 at 1:59 pm
To Rich C – Commenter #2:
Good article. Will plow through some of the math later but looks theoretically sound. However, Gauti Eggertsson is basically arguing that NIRA policies will not work unless certain “emergency” conditions apply such as deflation and where a “sticky” price model will work. We are no where near that state yet and there is no indication that strengthening monopoly conditions or union power will work here. Furthermore, reducing the ‘real interest rate’ does not apply here either. The real interest rate (- inflation) is already low enough.
February 21st, 2009 at 2:04 pm
Correct that second to last word. Just proof read.
“high enough”.
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