I wish I was making it up. Really, it sounds like a parody, doesn’t it?
The whoppers get pretty big, but I’ll try to dilute it with some reason.
Here’s the Thesis: The New Deal wasn’t big enough.
And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.
This is quite flabbergasting, to be honest. The New Deal was a massive, massive undertaking. Keep in mind Roosevelt had already raised taxes to 90% on the top bracket and doubled the national debt to unprecedented levels. This is the first time I’ve read a serious economist say with a straight face that the New Deal wasn’t Keynesian enough, which is equivalent to saying the Nazi’s would have won the war if they only defeated France faster, or were more fascist.
Doubling the National Debt isn’t sufficient for economic recovery, for true progress you need to increase debt six-fold. This is Krugman’s argument. This is not a joke.
Krugman doesn’t elaborate because to do so would reveal how untenable his proposal is. Krugman touts FDIC, and that is one positive aspect of the New Deal, but the package as a whole was a loser for the American economy during the 30s.
Of course I say that because I am part of a massive right wing think tank that is called Logipundit. And, according to Krugman, that is enough to discount the argument.
Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.
Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt’s policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole, also a UCLA professor of economics. “So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.”
But let’s get back to Krugman…
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.
Whew, so the conclusion is WWII solved the depression. This is pretty much what I’ve heard growing up in history class and talking to the old folks. The thing is a war economy is not the same as a peace time economy. Building a new school or hospital, or roads, will not incite the passions of the citizens to allocate their wealth and energy accordingly as readily as 353 kamikaze pilots. FDR was as shrewd as he was totalitarian, if he could have had the political capital to expand the debt further without a war, he would have. Also, in a war economy, bullets, bombs, and bodies are expendable until one side wins. It is a real existential crisis that no one in Western Civilization in the last three generations can even fathom. You see, Ben Bernanke, Henry Paulson, and Paul Krugman don’t know what a real crisis looks like, and since this is the worst things look to them, so it must be a crisis.
Unemployment dropped in the forties because every man of age (and some a bit younger) was in uniform fighting for our very survival. They fought because we were attacked on our soil and we didn’t want German U-boats patrolling our coast and threatening our families. Nearly a half million died for that purpose, not to enhance Roosevelt’s legacy. The conceit of this man to cast WWII as a public works program, a mere extension of the WPA is intellectually bankrupt and morally repugnant.