Stimulus

There’s been a bit of debate lately  in the economic blogosphere about the extent to which FDR and the New Deal managed to push the country out of the Great Depression. On one side is Paul Krugman, Brad DeLong, and Eric Rauchway who argue, essentially, that the New Deal did in fact buoy the economy, and that World War II pulled us out completely. On the other side is Andrew Wilson at the Wall Street Journal’s opinion page, penning an exculpation of Herbert Hoover that purports to show how FDR’s policies were economic anathema. Somewhere in the middle is libertarian Alex Tabarrok, who seems to be making no argument in particular, but does seem to enjoy making pedantic interjections. Now, I’m hardly qualified to go toe-to-toe with Ph. D’s in economics, but I do know that the Wall Street Journal is renowned for right wing sophistry, and that the belief that World War II ended the Great Depression is almost ludicrously uncontroversial, so I’m going to side with Krugman on this one. Anyway, I mention all of this, because as Krugman writes today, the facile parallels drawn between Obama and FDR are permeating public discourse. Krugman writes:

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?

Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federallevel was undercut by spending cuts and tax increases at the state and local level.

I’m not entirely sure why the right wing would be pushing this conclusion, as it seems to be congenial with what progressive economists have been advocating (and before conservatives scream bloody murder about Obama’s tax hike on the top 5 percent, keep in mind this bracket was taxed at a remarkable 79 percent between 1929-1940). That is, massive stimulus both in terms of infrastructure development which provides jobs and future productivity and also in terms of aid to state budgets and marginally increased taxes (but still way, way, way below Depression levels). Together, these policies should resemble the World War II stimulus that pushed America out of the Great Depression. Of course, that wouldn’t be particularly convenient for right wingers.

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One Response to “Stimulus”

  1. Results Matter « Yes, Let’s Talk About This Says:

    […] thing I wanted to address on my earlier post on FDR/Obama parallels was that Krugman’s argument — that the New Deal was in fact, not large enough — […]


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