Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Friday, February 20, 2009

Conservative Depression

I lament the demise of Conservatism in American politics. The place that should be occupied by genuine, thoughtful Conservatives has instead been co-opted by Right-Wingers. Here is the difference. As Russell Kirk describes it, the Conservative is never motivated by ideology, but rather by a responsible, cautious, conservative mindset. On the other hand, my observation is that Right-Wingers are strongly motivated by ideology, often to the exclusion of honesty, principle, and even patriotism.

As a corollary to Kirk, I'll add that the Conservative should have a deep respect, if not a reverence for American history, both as a store house for our national heritage, and as catalogue of valuable lessons learned in our past. But the Right-Winger is a historical revisionist, who is willing to cherry-pick data and skew the record of our past to promote a Right-Wing ideological agenda into the future.

A case in point is the recent Right-Wing meme that FDR's New Deal policies deepened and prolonged the Great Depression. This is further compounded by promoting the lie that the consensus view of economists and historians supports their meme. The statement about the New Deal, on its face, is highly questionable. There is not, and cannot be, any data to support the meme.

We can take a hard look at the New Deal and critically evaluate what worked, and what didn't. This, in fact, is what we should do. In 1933, there was no blueprint for dealing with the economic melt-down of 1929-32. FDR's administration tried a lot of things, in a more or less scattershot manner. They were pragmatic enough to keep the ideas that worked, and abandon the ones that didn't.

Some Right-Wingers point to the National Industrial Recovery Act (NIRA) of June, 1933 as proof that the New Deal failed. This is cherry-picking the available information. NIRA was probably the worst of all the New Deal Programs. It was abandoned (and even found to be Unconstitutional) in May, 1935. In crafting future policy, it is important to understand which New Deal programs were or were not effective. To refute the Right Wing meme that the New Deal deepened and prolonged the Great Depression, we need only look at the results.

One ploy is to say that the New Deal was ineffective at eliminating unemployment. This essentially silly argument can only be made at all by counting employees of Federal New Deal programs among the unemployed. There are official data series that do that, and there are other series that count the Federally employed among the employed. Take your pick. Then again, to Right-Wingers, the make work projects of the New Deal were boondoggles. By any measure, though, unemployment fell from the high of 1932 or 1933 (depending on the data series used) for the rest of the decade, except for a one-year increase in 1938. More on this later.

Recessions are defined in terms of GDP contraction. The Great Depression contained two recessions, 1930-33, and 1938. From 1934 on, with the exception of 1938, GDP growth throughout the decade was outstanding, far exceeding any growth rate that has happened since.

Another ploy is to suggest that Federal spending crowded out private sector investment, and prolonged the recession in that way. If that were the case, private domestic investment spending, which almost totally evaporated between 1929 and 1932, would have stayed low. The reality is that this spending recovered to the 1929 level by 1937. It took a hit again, in 1938, along with everything else, but by 1940 was well above the 1937 level.

Maybe best of all is the idea that the the New Deal prolonged the great Depression because hours worked per employee per week declined. Never mind that this statistic was in a multi-generational decline, due to a variety of social forces. Hours worked were fewer in the 50's than the 30's, and fewer still in the 80's. Hmmm. (Understanding the Great Depression Blogging: Labor Input and Its Trend)

Now, what about 1938? Even conservative economists like Ben Bernanke, Milton Friedman and Bruce Bartlett recognize that the greatest mistake of the New Deal was that, as Bartlett put it, "in terms of fiscal policy, Roosevelt's error wasn't that he spent too much, but that he didn't spend nearly enough." This was illustrated in the worst way when Roosevelt raised taxes and cut spending in 1937 in order to balance the budget. He met his target, but the result was the recession of 1938.

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