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Hard to make this stuff up department
Daniel Gross's best argument for FDR is that FDR was better than Hitler.
Roosevelt scared investors and businessmen? Did he scare them as much as, oh, Stalin, who controlled one of the world's largest economies and was expanding his influence? or as much as Mussolini? Or as much as the fascist government of Japan? Or as much as Hitler, who was confiscating property of Jewish investors and businessmen?
So there you have it. FDR not as bad as Hitler, therefore, FDR a good president. Compare with Bryan Caplan's actual argument.
Posted by Alex Tabarrok on January 13, 2007 at 06:53 PM in Economics | Permalink
Comments
I gather that FDR appointed lots of Jews to office but liked to tell nasty anti-semitic jokes in private. One explanation might be that his appointments were dictated by politics but his jokes were sincere. A nasty suggestion, perhaps, but he does seem to have been a pretty nasty piece of work.
Posted by: dearieme at Jan 13, 2007 7:17:25 PM
This is an out of context quote. Read the whole thing to get Gross' whole argument, which might be wrong but it's not crazy.
Posted by: ed at Jan 13, 2007 7:17:43 PM
Unfair and very badly out of context. What Gross wrote:
Roosevelt scared investors and businessmen? Did he scare them as much as, oh, Stalin, who controlled one of the world's largest economies and was expanding his influence? or as much as Mussolini? Or as much as the fascist government of Japan? Or as much as Hitler, who was buys confiscating property of Jewish investors and businessmen? On a comparative basis, the U.S. was certainly the country in the 1930s that was the most hospitable to private investment and capital formation. Economic history unfolds in real history, not in some imagined world. The New Deal was a success if only because it kept the U.S. from sliding into the type of horrific fascism that infected half of Europe and the pathetic weakness that affected the other half.
And leaving quotes aside, what is the evidence that investors were scared out of their wits by FDR?
Posted by: Bernard Yomtov at Jan 13, 2007 7:47:06 PM
Not sure what you find out of context. The second half of the quote is just a variant on the same argument: FDR good because the New deal was better than Fascism.
Posted by: Alex Tabarrok at Jan 13, 2007 7:54:37 PM
It is pretty crazy (not to mention A-historical) to suggest
that the alternative to the New Deal was fascism or communism in the United
States. The realistic alternative to the New Deal was more free market
policies suggested by Republicans.
At the election closest to the bottom of the Depression 40% of Americans still voted for Hoover, compared with 2.5% for Communists/Socialists and 57% for liberal but anti-socialist Roosevelt.
What kind of idiot believes 80-85% of the people who voted for Roosevelt were closer to Communists than Republicans? Only those who have replaces history with mythology take seriously the notion that the US would have become Authoritarian without the New Deal. The American people simply had a much healthier ideological tradition than Germans, Italians, the Spanish (or for that matter the Japanese).
Of course people like Gross and Delong refuse to acknowledge this. This is partially because that would require acknowledging that the American public are not somehow less enlightened than Europeans. Another more important reason is that they would almost certainly have become communist in 1932, so they can’t imagine how some unemployed factory worker in Ohio without an Ivy Leauge Phd:s would remain committed to the constitution.
Yet they did, as the opposition to Roosevelt’s policies shows.
Posted by: Tino at Jan 13, 2007 7:56:50 PM
First of all, whenever I read something asinine or churlish on this blog I have a moment of shock, and then I realize that it is a rare contribution from Tabarrok. I don't say this to be mean, but to ask what the Coasean explanation for the fact that Tyler hasn't bought out Alex is. Surely not negotiating costs?
Secondly, Gross's point is not that FDR was "better than Hitler." Gross's point is that Caplan's contribution to the debate on the effects of the New Deal is childish. Whereas everyone else is discussing the various policies that FDR enacted and their probable effects, Caplan (and by the way, this is the relevant post, not Caplan's ex post self-justification) is noting that FDR at one point chided a prominent businessman for advising him thus: "The other man wrote me frankly that in his judgment the way to restore confidence was for me to tell the people of the United States that all supervision by all forms of Government, Federal and State, over all forms of human activity called business should be forthwith abolished."
Caplan thinks that FDR's disagreement with this dude shows a lack of interest in business confidence. No specific policy initiative of the New Deal: just FDR'schoice of that "other man" as a rhetorical foil. What fantasy land are we in, where that is a relevant part of plumbing how much (or little) the New Deal helped America? There are two prongs here. The first prong is that the rest of the world was in pretty bad shape at the time, and winning business confidence is a relative affair. When Bolshevism is a serious political movement and corporatism is the right-wing answer, you don't need to kow-tow to Wall Street to win the confidence of business leaders. The second prong is invariances: it was no accident that many Fascist states popped up in the '30s, and few at any other point in history. If, as his friend advised, FDR had gone on the radio and told people "All supervision by all forms of Government, Federal and State, over all forms of human activity called business should be forthwith abolished," American democracy would have suffered some pretty heavy blows.
Posted by: qpowir at Jan 13, 2007 8:01:17 PM
The second half of the quote says,
the U.S. was certainly the country in the 1930s that was the most hospitable to private investment and capital formation.
That's a far cry from just, "better than Hitler."
How did the market do in 1933, by the way? Did investors all rush to convert assets to gold, as Caplan says he would have?
Posted by: Bernard Yomtov at Jan 13, 2007 8:01:54 PM
Speaking of “asinine” gpowir:
1. Bolshevism as a “serious political movement” and “corporatism” as “the right-wing answer” is true about
(continental) E U R O P E, while being completely ignorant descriptions of political reality in A M E R I C A.
Do you know the difference? Do you know where FDR was President? Communism and Fascism were never more than fringe movements in the United States.
2. You write “winning business confidence is a relative affair” and compare with other countries. But obviously businessmen don’t only have the choice to move their capital (even less likely in the closed economy of 1930s). Their main choice is refrain from investing and wait for better times.
So the bad business climate in Japan and Germany have almost nothing to do with the effects of Roosevelt policies.
Read a little history before you make a public fool out of yourself, while arrogantly insulting Tabarrok.
Posted by: Tino at Jan 13, 2007 8:14:18 PM
The stock market is a discounting mechanism and stock prices (to use that
as a proxy for investment expectations) are determined by interest rates
and expected free cash flows. U.S. real interest rates were at historically
high levels just before FDR took office, and cash flows were weakly positive
to negative. Ken Fisher has a good graphic of real rates in his book The Wall
Street Waltz.
FDR's demagoguery was more an effect of economic conditions than a cause;
stock prices discounted his speeches and reflected the above economic
factors.
Gross's assertion that the New Deal succeeded because it prevented
a European-style fascism is wrong on two counts.
Much of the U.S. economy under FDR exhibited fascist characteristics.
Cartellization of industries and price controls were part of Il Duce's
program were they not? This was also true of some U.S. manufacturing
industries; agricultural production was also heavily regulated.
Then too, the view that the New Deal was successful is true only if you
define an economy with 25% unemployment as a success.
Going back to an earlier post, maybe by Bryan Caplan at his blog, Brad
DeLong's definition of the New Deal wouldn't get a passing grade on a 6th
grade history test.
Posted by: Bill Stepp at Jan 13, 2007 8:15:59 PM
The Depression, continued until the U.S. entered the Second World War. Under the special circumstances of war mobilization, massive war spending doubled the GNP. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output as an expression of patriotism. Patriotism drove most people to voluntarily work overtime and give up leisure activities to make money after so many hard years. Patriotism meant that people accepted rationing and price controls for the first time. Spending on the New Deal was far smaller than on the war effort.
Was it right for the U.S. to enter WWII on the European front? Would the markets and/or the New Deal have been sufficient to turn the economy around as quickly?
Posted by: Chairman Mao at Jan 13, 2007 8:57:48 PM
The second half of the quote is just a variant on the same argument: FDR good because the New deal was better than Fascism.
It says more than that: it says that FDR was good because the New Deal prevented the US from becoming fascist. That may be wrong, but it's not insane.
Posted by: Wowbagger at Jan 13, 2007 9:15:08 PM
Alex,
The subtle point of Gross's argument is that the Hitler and Stalin
economies did better than did the US one, at least in terms of
employment, in the late 1930s, even though they were far scarier
to investors and also more cartelized, less free market competitive,
than the US's. Hence, it is far from obvious, and certainly far
from proven, that a more free market economy would have done better,
although it might have.
Posted by: Barkley Rosser at Jan 14, 2007 12:15:32 AM
Tino:
First, it's a "q," not a "g." Jesus, when I tap my fingers randomly across the keyboard I expect you to get it right!
Second, has it occurred to you that there are reasons why Fascism, Bolshevism, Nazism, and various other extremist ideologies flourished in some countries during the Great Depression, but not in others? Reasons why Huey Long only came to power in LA? Reasons why Father Coughlin never backed a winning candidate? When I say "Bolshevism is a serious political movement and corporatism is the right-wing answer," of course I mean internationally; I wasn't aware of an organized U.S. Fascist party, although perhaps I am just ignorant. If FDR (or Hoover) had made laissez-faire the centerpiece of his reaction to the Great Depression, the populist positions of Longs and Coughlins would not have been marginal. To think otherwise is to completely ignore the experience of non-American states enduring roughly similar conditions. (And, by the way, the communists in America did gain a great deal of strength in the thirties, although not as much as in the European countries. McCarthy wasn't entirely crazy when he said State was crawling with Reds...)
Third, you misunderstood what I meant when I said "confidence is a relative affair." I was unclear. The point is not international capital flows... certainly in less troubled times those play a role, but that wasn't my point. When I say "confidence is a relative affair," I mean that an entrepreneur in a given sector has a broad set of concerns. If you invest in a cruise ship you'll worry about hurricanes, if you invest in agriculture you worry about freak weather patterns, and so on. Given the gross uncertainty involved in most ventures, when certain concerns are on a different order of magnitude than other concerns, the less significant concerns do not come into calculations, much as one drops insignificant figures.
Today, entrepreneurs and traders might reasonably become less optimistic if a president delivered a speech expressing not only substantive disagreement with laissez-faire idea, but condescension to them. In the 1930s, there were far more horrible things FDR could have suggested in a speech.
And by the way, public fool yourself: I would expect a student (or what, lecturer?) at UChi to know that Japan did not have a "bad business climate" during the Great Depression (relative to every other industrial nation, that is). My understanding is that Japan didn't experience a "great" depression at all, just a normal one. Can you point me to a different interpretation?
Posted by: qpowir at Jan 14, 2007 2:46:03 AM
Even if simply saying FDR is better than Hitler isn't a perfect characterization of the arguement, the Gross's whole arguement seems frought with false dichotomies. It's either FDR, Hitler, or Stalin; the New Deal, Fascism or Communism; and even an assuption that inverstors have a fixed amount of capital that will be investid in America, Europe or Asia.
Posted by: Nathaniel Luders at Jan 14, 2007 3:17:25 AM
But look: it's certainly not crazy to think that, *if FDR hadn't gone the New Deal route*, support for the extremist movements that were 'fringe' by European standards would have become a lot less fringe. Long and Coughlin were both lurking out there, and if neither was a partisan Communist or Fascist, they were plenty bad enough. And Wallace, after all, really was a Communist.
From the perspective of the 1930s, as best as I can enter into it, liberalism propser looked doomed, and the question of the hour was whether it would be replaced by totalitarian ideologies or by something else. FDR made 'something else' work. Compared to the liberal constitutionalist ideal, FDR was genuinely a frightening president. But the 30s were a frightening time. The US came through the crisis of the 20s-40s with its economic and constitutional systems damaged, but 'damaged' was a lot better than a lot of European countries (not only German, Italy, and Spain, but also France, Portugal, and all of Eastern Europe) managed. Both the counterfactual history and the from-the-perspective-of-the-30s forecasting are hard. But in both there's something to be said on behalf of the thesis that 'better than Mussolini' was both real success and maybe the best to be hoped for.
This is one of the cases that always makes me as a libertarian political scientist-theorist feel divided from libertarian economists and libertarian con-lawyers. I'm interested in questions of political sustainability, not just questions of best policies or legally best outcomes. Sometimes the best policies and the legally best laws can't be sustained, and lesser evils are necessary to stave off greater ones.
Posted by: Jacob T. Levy at Jan 14, 2007 1:41:58 PM
It seems like the Anglosphere was relatively free of fascist/communist movements at the time. There was Mosley in Britain, but I doubt he would have been second in line (or third, or fourth, or...) had the government lost popularity. Ireland had the Blueshirts, but the degree to which they were fascist in politics rather than style is uncertain (it does seem that fascism was more popular in Catholic countries though). I haven't heard of any fascist movements in Canada, Australia or New Zealand either. There were South Americans like Peron or the Brazilian Integralists that strongly resembled fascism, but I don't think the political situations in those countries have much relevance on the United States. To say that FDR saved us from fascism or communism certainly sounds ridiculous to me.
Posted by: TGGP at Jan 14, 2007 2:54:58 PM
The worst thing about Caplan's argument is that he advances it untroubled by any actual facts beyond a quote or two.
Leave Hitler and Stalin and Mugabe and everyone out of it. Were investors frightened by Roosevelt? If they were maybe Caplan can show some evidence, like capital flight, or markets crashing, or something. Surely he understands the kinds of things that happen when investors panic. Did those things happen? My impression is that they did not.
Posted by: Bernard Yomtov at Jan 14, 2007 3:55:03 PM
JTL: Yes, this is exactly the idea I had in mind. For example, the policies imposed on Indonesia during the last financial crisis were probably the correct financial policies to impose in vacuo, but the fact that they were imposed led to civil unrest which, among other things, decimated the Indonesian business class.
Posted by: qpowir at Jan 14, 2007 4:35:30 PM
I'm with Kief: this whole Mugabe thing is a three-card monty. Sure, you can say that investors were perhaps scared (although business investment went from $11.5 billion in 1932 to $91.1 billion in 1937, and one could reasonably argue that bad monetary policy had more to do with the problems in the recovery during the 1937 recession).
Caplan's comparison to Mugabe is intended to have a broader reach than just talking about investor confidence. It is transparently an attempt to smear FDR by associating him with a miserable dictator who ran his relatively prosperous country into the ground. Big deal if you can move the goalposts to help you put forth the case that FDR scared some investors. Congratulations. This is a cheap imitation of the old compare-your-opponent-to-Hitler game that plagues the blogosphere.
If he wants to hate liberal/progressive involvement in economic affairs, then good on him. But this is silly.
Posted by: Dean Moriarty at Jan 14, 2007 4:48:55 PM
The quote, as some commentators have noted, is definitely taken out of context.
The point is not that FDR is a good president because he is not as bad as Hitler. To say that is what Gross is saying is intellectually dishonest and cheap.
What he is saying is that the idea that investors were going to disinvest in the United States is less plausible when the markets competing for investment dollars are run by maniacs like, Hitler, Stalin, etc. Seems pretty straight forward.
Caplan, as usual, is nuts.
Posted by: Ragerz at Jan 14, 2007 6:50:55 PM
TGGP is right to say that the idea that FDR saved us from US fascism is absurd - there were no fascist parties in the United States. Look instead to actual presidential candidates or important political figures. Wendell Wilkie or even better Robert Taft would have been far superior to Roosevelt.
Bernard - evidence of uncertainty is in the works I linked to in my post by Higgs and Best. See also the recent work of Cole and Ohanian.
Posted by: Alex Tabarrok at Jan 14, 2007 7:56:40 PM
Alex,
I just looked at the Higgs paper. I don't find it particularly worthwhile. A public opinion poll (taken how? over the phone?) found that businessmen didn't like FDR. Well, there's a shock. The yield curve for corporates was steep. So what? What was the yield curve for treasuries? What were inflation expectations? Higgs doesn't say. His conclusions really are not justified. What would be the reaction, Alex, if someone presented a paper of this quality at a departmental seminar?
In any case, Higgs talks about events from the mid-30's on. Caplan bases his claim on FDR's first inaugural, in 1933. So even the Higgs paper doesn't support the idea that this speech spooked investors.
Posted by: Bernard Yomtov at Jan 14, 2007 9:21:18 PM
One more point about Higgs. He assures us, on the basis of the polls he cites, that in 1939 a majority of the public thought Roosevelt's policies were delaying recovery. Odd, then, that FDR was reelected with 55% of the vote in 1940.
Posted by: Bernard Yomtov at Jan 14, 2007 9:29:18 PM
Alex, you really don't think that Huey Long was close enough to being a fascist for purposes of this argument-- that is, close enough that electing him president would have been a constitutional catastrophe of the sort that it's worth enduring some constitutional damage to prevent?
What about Coughlin?
Or that Wallace was close enough to being a Communist?
The likeliest counterfactual alternative to FDR may well *not* be that one of the Republicans would have won-- parties get discredited for more than one election when they preside over an economic collapse, regardless of whether they bear blame or not. The likeliest alternative is some populist third party or some other Democrat at least as far to the left as FDR. I find it very, very hard to imagine the counterfactual in which Taft is president sometime in the 1930s. Didn't Taft come in 4th or 5th at the GOP convention of 1940? And that's in a GOP that would go on to lose the election by 10+ points. And even Alf Landon himself seemed to have a hard time imagining the scenario in which he was elected president in 1936-- whereas Long, before his death, suffered no such limitations.
I don't think it's ever a safe bet, prospectively, that a society with 25% unemployment will maintain even a working approximation of a democratic constitution or will avoid a turn to some form of populist-statist-authoritarianism. You don't need a capital-F fascist party-- Peron didn't have such a thing to work with.
Posted by: Jacob T. Levy at Jan 14, 2007 10:12:38 PM
Wallace! I am supposed to thank FDR because FDR's vice President was bad?
Posted by: Alex Tabarrok at Jan 14, 2007 10:21:19 PM
To those of you who think that the USSR was somehow not effected by the Depression, what planet are you from?
Read "Gulag", by Anne Applebaum.
In 1938, there were over a million people in the Gulag. They were quite literally slaves. Their forced labor was used in such areas as logging and mining. The products they produced were sold on international markets for hard currency. One of the reasons given for the expansion of the Gulags in the late 30s was because the Soviets weren't getting as much for their commodities as they used to. Substituting slaves for free labor was one way to address the shortfall.
Posted by: Buzzcut at Jan 14, 2007 10:21:34 PM
Wallace! I am supposed to thank FDR because FDR's vice President was bad?
Yep-- if it might plausibly have been the case that, in FDR's absence, he would have been a terrible president instead of an evil but impotent vice-president. But the point wasn't about thanking him-- it was about the claim that there were no serious political figures running around the US who posed the kind of threat that brought down European democracies.
Posted by: Jacob T. Levy at Jan 15, 2007 12:41:31 AM
Buzzcut,
The claim about the gulags in the late 30s does not cut it.
The Soviets just were not selling all that much abroad then.
Stalin was hot on his "socialism in one country" kick. The
gulags were all about his own paranoia and power hunger.
Note, Germany also was doing just fine economically, and did
not have slave labor camps in the late 30s. Later, yes, but
not in the late 30s.
BTW, the whole business of comparing FDR to Mugabe is ludicrous
on various grounds. While businessmen may have been afraid that
FDR was going to engage in uncompensated seizures of assets, he
did not do so, in contrast with Mugabe's extremely destabilizing
land grabs in recent years. Also, Zimbabwe is currently running
by far the world's highest inflation rate. Not only is it the
only country at over 100% per year right now, it is also the
only one over 1,000%. Good heavens, nothing like that went on
during FDR's presidency.
The case can be made that some of his policies may have slowed
down recovery, especially some of the cartelizations and so
forth (although these guaranteed returns to companies involved
in them, hence should have offset the terrifying-to-investors
claim made by various folks). But all this comparing to
Mugabe and other such folks is just silly beyond belief.
Posted by: Barkley Rosser at Jan 15, 2007 4:01:25 PM
Statist big spending policies consistently worked to pull Western countries out of the worst of the Great Depression -- war production in the U.S. in WWII, which triggered the greatest economic boom in the country's history, Hitler's military Keynesianism in Germany in the 30s. One could say FDR was not statist enough.
And the great depression didn't affect the Soviet Union, since it was not linked to the Western economy. Russias troubles were of its own manufacture.
It's absurd and a slander to compare Roosevelt to Mugabe or Hitler. Roosevelt may not have been as successful a President as the fantasy Presidents living in Alex Tabaroks or Bryan Caplan's head. But by real-world standards he was a very good, perhaps great President. In the end he left his country much stronger and more prosperous than he found it.
Posted by: MQ at Jan 15, 2007 4:03:06 PM
Not original to me but maybe the point is that with all the world going statist, the best thing that could happen is that he wasn't awful. So maybe Goldwater would be better from a policy stand point but for the time, he was the best choice. Lets just list Hitler, Stalin, Mussolini, Franco, Hirohito/Tojo, and Mao.
Reading the libertarian thought from the time gives you a sense that they were very very lonely times for non statist. An Eleanor Roosevelt essay from that time for popular consumption talked about eliminating ruinous competition - why should two factories produce the same goods? Better that the government combine the factories to give them even greater economies of scale. Even very government oriented folks today would read that and think "bad idea".
Huey Long or Charles Lindbergh for example could have been worse in an overthrowing democracy sense. The inaugural you quoted was very frightening, but the actual governing only bad. Or at least he allowed himself to be held up by Congress and the Court a little bit.
So how about - bad president but best we could hope for. I'm thankful he was there.
Posted by: Josh at Jan 15, 2007 6:34:25 PM
I hate to be the umpteeth person dumping on Alex, but not enough to forgo dumping on Alex. Daniel Gross made a reasonable point. Given the nature of world leadership at the time, FDR doesn't look so scary to investors, and the scaring of investors story just doesn't have legs. I'm pretty certain investment deamdn had collapsed before FDR.
I think it's wrong to misrepresent Daniel Gross's fair point here, partly because Daniel Gross usually makes such bad and untrue arguments, that we need to give him as much support as possible when he makes a true and good one.
Posted by: Keith at Jan 15, 2007 6:39:25 PM
"I think it's wrong to misrepresent Daniel Gross's fair point here, partly because Daniel Gross usually makes such bad and untrue arguments, that we need to give him as much support as possible when he makes a true and good one."
What "bad and untrue" claims does he usually make?
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