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How good was the New Deal?
Econoblog, Arnold Kling vs. Brad DeLong, excerpt:
The New Deal is a mythical event in history. Just as we revere the constitution as the basis for our government and we revere Abraham Lincoln for ending slavery and preserving the union, we are supposed to revere the New Deal as somehow providing the basis for our modern prosperity. Yet the policies of the New Deal are quite a mixed bag, to say the least. Most were discarded by 1950. The survivors include agricultural policies that were almost certainly wrong then and are almost certainly wrong now. Most of the financial regulations, such as interest rate ceilings on bank deposits, proved unworkable by the 1970s. Social Security, and its offspring Medicare, are going to be the next great financial crisis in this country.
Can you guess which of the two wrote that?
Posted by Tyler Cowen on February 7, 2007 at 08:04 AM in History | Permalink
Comments
The Kling-on?
Posted by: save_the_rustbelt at Feb 7, 2007 9:19:44 AM
If it had been Brad, I would have fallen out of my chair.
Posted by: Rich Berger at Feb 7, 2007 9:20:32 AM
Conflating the problems of Medicare with Social Security... I didn't see that coming.
Posted by: eriks at Feb 7, 2007 9:42:21 AM
Whoever wrote it, I think he missed the main point about
the New Deal: it was a political success that stopped
American society from disintegrating. And, in that sense,
it must be viewed as a huge economic success as well,
because if the political system stops functioning, the
economic system is not going to hold up for much longer
either. Thus, a purely technical economic analysis of
the specific initiatives in the New Deal misses the big
picture.
Posted by: Jeff Goldman at Feb 7, 2007 10:41:36 AM
RE: Jeff Goldman
There was a deflation of 40% when Martin Van Buren was president. Van Buren resisted intervention letting wages and prices free fall in response. Production actual grew and unemployment was low. American society did not disintegrating. Many of the New deal policies contributed to the problem in that they attempted to stop the free fall in wages and prices. The fall in wages and prices was needed because there was less money.
Posted by: Floccina at Feb 7, 2007 11:01:20 AM
It is wiser than we expect from Brad, and more foolish than we expect from Arnold. I guess Brad.
Posted by: Daniel Klein at Feb 7, 2007 11:23:20 AM
The government tried to do something to mitigate/end the depression. So the government was obviously wrong, evil and stupid.
Posted by: Rob at Feb 7, 2007 11:53:48 AM
Rob: The point of what (I believe Kling) is saying here is not that the government tried to end the depression and is therefore wrong and stupid, but rather that The New Deal was the wrong and stupid thing to do to mitigate/end the depression, and its surviving policies continue to be wrong and stuid. Nowhere (at least in the excerpt) does he criticize the intentions of The New Deal, or call anybody evil.
Posted by: d.cous. at Feb 7, 2007 12:21:15 PM
Floccina: The difference is that during Van Buren's term, the country didn't have a (relatively) large communist-leaning faction and a (relatively) large fascist-leaning faction. Though I think many of FDR's policies were bad ideas individually on their own terms, the whole package combined with FDR's rhetoric made people feel like they were being taken care of within the system, and so didn't need to overturn it. Which doesn't mean that the New Deal was the best program that could have accomplished that, or that its legacy programs make a ton of sense. But "It kept us out of fascism" is a non-trivial endorsement.
Posted by: Jadagul at Feb 7, 2007 1:19:28 PM
Brad wants to give all of the credit for improvements in the economy to the New Deal, but that's unfair. First, he needs to calculate how much the economy would have improved without the New Deal. He seems to assume it would have worsened. But other countries experienced the same depression that we did, only their experiences were shorter lasting and not as deep. We should be comparing the US experience with those of European countries who also suffered from the depression. I think you'll find that FDR's New Deal caused the US to suffer more and longer than did Europeans.
Posted by: Fundamentalist at Feb 7, 2007 1:50:14 PM
Jadagul, there was a communist party in the United States that got a tiny percentage of the votes, but there was no large fascist movement that could have feasibly come to power. The U.S was no more at risk of fascism than Canada or Australia.
Posted by: TGGP at Feb 7, 2007 2:05:58 PM
>>The U.S was no more at risk of fascism than Canada or Australia.
Whatsmore, even in Russia, the number of Bolsheviks in 1917 was small. The Communists came to power there because society disintegrated around them, and they were the most ruthless in exploiting the power vaccuum.
Being that the US during the Depression was nothing like 1917 Russia, the likelihood of a Communist revolution was quite low.
Posted by: Buzzcut at Feb 7, 2007 2:41:03 PM
I think that the ironic part of this debate is that I had been under the impression that DeLong had had a surreptitious policy of ignoring Kling. I can't tell you how many Kling posts I have seen responding to a DeLong post and, as far as I could tell, I had never seen DeLong retort or even acknowledge Kling's existence.
I wonder if the WSJ people were being mischievous.
Posted by: voice at Feb 7, 2007 2:45:05 PM
I thought there's a book about FDR and his econ policy out there, Germany came out of the Depression about 1-1/2 years before we did, no?
Posted by: Sandy P at Feb 7, 2007 4:07:56 PM
Germany came out of the depression earlier than the us because Hitler was the first Keynesian.
I find it amazing that these two debated the depression without saying a word about Keynesian economics are comparing the modern mixed economy to the actual record of the US in a small government world.
Posted by: spencer at Feb 7, 2007 4:26:12 PM
And the role of Captain Obvious today will be played by: Tyler Cowen.
What's interesting about that exchange (which I read in its entirety yesterday) is that DeLong says a number of things that one might expect to hear from Kling, and Kling admits some things that I'm not used to seeing him admit. Both of them seemed to be stepping off their partisan horses and debating things from a purely professional economic perspective, and coming to remarkably similar conclusions, considering the big differences in their political persuasion.
Anyway, you could have pulled quotes from that exchange that a lot of people would guess wrong -- both sides, but this isn't one of them.
Posted by: Michael Sullivan at Feb 7, 2007 4:58:37 PM
Kling writes:
What would have happened in the U.S. without the New Deal? My father answers with one word: Fascism.
Given the climate of the time, which included intense despair alongside revolutionary fervor, a government that was seen as doing nothing could not have survived.
That's a position that
your co-blogger Alex was pretty scornful of a couple weeks ago.
Posted by: Jacob T. Levy at Feb 7, 2007 5:59:46 PM
"What would have happened in the U.S. without the New Deal? My father answers with one word: Fascism."
The economic side of fascism (Not the rabid nationalism) is what Hoover and FDR pushed for.
Further if prices and wages where allowed to fall the country would have recovered quickly. Additionally a non interventionist could have blamed the federal reserve and the creation of the federal reserve for the problems and rightfully so IMO.
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