Comment & Debate
James Glassman. “Stimulus: A History of Folly”. Commentary Magazine. March 2009 – “Despite Franklin Roosevelt’s aggressive spending, unemployment reached 25 percent in 1933, fell only to 14 percent by 1937, and was back up to 19 percent in 1939.1 In the end, the New Deal did little or nothing to resuscitate the economy. Certainly, inept monetary policies helped prolong the Great Depression, as did tax increases, constant interventions in the conduct of business, and the erection of global trade barriers, beginning with the Smoot-Hawley Tariff in 1930, more than two years before Roosevelt took office. There was a stretch of twelve years from the stock-market crash to Pearl Harbor, and, during that time, fiscal stimulus simply did not jump-start the economy (or, in Keynes’s own metaphor, “awaken Sleeping Beauty”).”
FDR’s first year in office was 1933!!! The New Deal hadn’t been in existence very long and therefore “aggressive spending” had not yet occurred. The phrasing also makes it sound as though 25 percent was a huge increase that occurred in FDR’s term. In fact, unemployment had hit 24 percent in 1932 under the administration of Republican Herbert Hoover. So this was just a 1 percent increase under FDR. In the next year, after the New Deal was enacted, unemployment dropped to 22 percent.
As for unemployment going back up in 1938 and 1939, that happened because FDR, bowing to conservative arguments, decided to kill much of the New Deal while the economy was still fragile. When he saw things were going badly, he restored the spending. By 1940 — before the US had entered WWII — civilian unemployment was back down to 14 percent. So another way you could look at his term is that unemployment went from 25 percent in 1933 to 14 percent in 1940. But the authors choose to stop at 1939 because it makes FDR look bad.
http://www2.census.gov/prod2/statcomp/documents/CT1970p1-05.pdf
Harold Cole and Lee Ohanian. “How Government Prolonged the Depression”. Wall Street Journal. February 2, 2009 – The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a “new” New Deal to address the current crisis. But the facts do not support the perception that FDR’s policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.
The goal of the New Deal was to get Americans back to work. But the New Deal didn’t restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
(AGAIN PLAYING GAMES WITH NUMBERS. Comparing the average hours between 1930-1932 with the period 1933-1939 includes another mini-depression that occurred in 1938 in the second average and excludes the recovery from the depression that’s seen in the 1940 numbers. That’s why the New Deal average hours worked comes up lower. This comparison isn’t even comparing the same number of years. It’s comparing a 2 year period with a 6 year period. )
Even comparing hours worked at the end of 1930s to those at the beginning of FDR’s presidency doesn’t paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. BUT WHAT’S THE COMPARISON TO FDR’s LAST YEAR OF HIS SECOND TERM — 1940 — WHEN THE ECONOMY STARTED RECOVERING FROM A SECOND MINI DEPRESSION? THE CHOICE OF 1939 IS A TRICK TO MAKE FDR LOOK BAD) And it wasn’t just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.
(AN AVERAGE THAT INCLUDES A DEPRESSION IS OF COURSE GOING TO COMPARE UNFAVORABLY WITH A PERIOD PRIOR TO IT THAT DIDN’T INCLUDE A DEPRESION. THIS IS NOT A FAIR COMPARISON)
Why wasn’t the Depression followed by a vigorous recovery, like every other cycle?
EVERY OTHER CYCLE????!!!!
IN THE 19TH CENTURY UNDER AN UNFETTERED FREE MARKET WITH NO GOVERNMENT INTERVENTION, THERE WERE MANY DEPRESSIONS THAT LASTED YEARS WITH SIGNIFICANT RECESSIONS IN BETWEEN. http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
WHY DIDN”T THE LAZAISSE FAIRE FREE MARKET END THE LONG DEPRESSION THAT STARTED IN 1873 MORE QUICKLY? WHY DID THE ECONOMY REMAIN UNSTABLE UNTIL 1901 WITH FREQUENT RECESSIONS AFTER THE END OF THE LONG DEPRESSION IN 1879?) http://en.wikipedia.org/wiki/Long_Depression
It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.
So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission.
(THIS IS THE HEART OF THE NEW DEAL AND THESE GUYS JUST ADMITTED IT WORKED)
But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s. [...]
MOST OF THE PRICE CONTROL MEASURES WERE DONE AWAY WITH FAIRLY EARLY IN THE NEW DEAL BECAUSE IT WAS RECOGNIZED THEY DIDN’T WORK. HOW DO THEY QUANTIFY THAT THESE MEASURES CHOKED OFF THE OTHERS?
AND ANYWAY THESE MEASURES HAVE NOTHING TO DO WITH FISCAL STIMULUS. YOU CAN’T USE OPPOSITION TO PRICE CONTROLS AS AN ARGUMENT AGAINST STIMULUS BECAUSE THEY ARE TOTALLY DIFFERENT THINGS.