Even if you think FDR’s New Deal worked (whatever that means), it certainly didn’t work fast. The Great Depression was great because it was severe and long. As Obama gets set to embark on a big recovery plan for the economy, expect more than a few advisors to tell him that the problem with FDR’s New Deal was that it wasn’t big or ambitious enough, and that the New New Deal neads to be much larger. Nobel Larueate Paul Krugman (ed note: we like to call him ‘Nobel Laureate’ cause it must enrage his detractors, and that’s just our style) recently spoke of the need to boldly spend $600 billion on stimulus in order to prevent Depression2.0.
Then later he went on ABC’s This Week and argued that FDR’s New Deal was working, but then nasty Congressional Republicans forced him to balance the budget, thus reversing the gains.
Even if you accept Nobel Laureate Paul Krugman’s argument, it’s depressing that the New Deal wasn’t showing signs of helping until 1937.
Or perhaps the problem was that FDR wasn’t actually trying to provide much stimulus. Economist Price Fishback wrote a guest post on Freakonomics arguing that the New Deal wasn’t a stimulus in the way Keynes imagined it, and that in fact Keynes himself sent a letter arguing that FDR wasn’t spending enough (that’s interesting — we hadn’t heard that before). He offers the following chart to show that government spending was actually pretty tiny, at least compared to the decline in GNP
Fishback argues that the New Deal wasn’t a stimulus plan, but a “”See a problem and try to fix it.” plan, which included various tax schemes, loans, new regulations, etc.
Unfortunately, that sounds extremely like recent history, with the new scheme-a-minute approach to dealing with the housing crisis or the money market or the auto slump, etc. Rather than make new rules that increase the unpredictability of the market, it might be better if we just printed dollar bills and sent trucks of them to the hardest hit regions of the economy until household debts were paid off. That would create its own problems, sure, but it least it’d be clear and measurable.
So watch for calls on Obama to make FDR look like Ronald Reagan, and secure a spot in the spending record books.
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