Bryan Caplan  

New Deal Panel

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I enthusiastically recommend this panel discussion on the New Deal, featuring Russ Roberts, Lee Ohanian, David Kennedy, Eric Lascelles, and Joe Martin.  Random observations:

1. Kennedy and Lascelles, the most pro-Roosevelt guys on the panel, strangely torpedo their own cases by affirming that the New Deal provided fiscal stimulus.  Why don't they make the Krugman/Tabarrok point that the New Deal sharply raised spending and taxes?

2. Ohanian emphasizes that the New Deal failed in its primary goal: restoring employment.  Kennedy's response to Ohanian is amazing: Restoring employment during this "transient" episode (10 years!) was only the "ostensibly" primary goal.  The real goal was radical policy change - Social Security, FDIC, SEC, etc.  In essence, Kennedy says that Roosevelt was applying a left-wing version of Naomi Klein's Shock Doctrine! (HT to Tyler for that analogy).

3. Joe Martin says that (a) The U.S. had two activist Presidents during the Depression (I agree, of course), (b) Canada had two non-activist PMs during the Depression, and (c) Canada recovered more quickly than the U.S.  I never heard the latter two claims, but I'm intrigued.


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COMMENTS (10 to date)
Gary Rogers writes:

Russ Roberts makes the comment that "Hoover presided over a very contractionary monetary policy" yet the United States was still on the gold standard at the time. Is that correct?

spencer writes:

Yes, it is correct and one of the reasons it is correct is the way the gold standard worked in the 1930s. There were major imbalances between those who had too much gold and those countries that needed the gold.

Hannes Edinger writes:

"The behavior of real output in the two countries was
very similar. By 1933 both countries were roughly 40 percent below trend. The recovery
was very protracted in both countries, with the United States recovering slightly faster
than Canada. By the end of the decade, U.S. output was still 25 percent below trend while
Canada’s was almost 30 percent below trend.
Relative to trend, consumption fell more in Canada, and remained below that of
the United States throughout the 1930s. Investment in Canada fell to 15 percent of its
trend value by 1933, and recovered very slowly in both countries (remaining roughly 50
percent below trend in 1939). Government purchases in the two countries followed a
similar pattern during the downturn, before diverging in the late 1930s when U.S.
government spending remained above trend, while in Canada it fluctuated about trend. "

from http://faculty.smu.edu/pamaral/research/depression.pdf

Steve Roth writes:

They all agree that net, policy actions prior to the war were somewhat expansionary but generally rather tepid. (Or--'36/'37--downright contractionary.)

The Fed missed their chance for monetary stimulus '29-31, so it took real, full-throated Keynesian fiscal stimulus--to the tune of 70% of GDP--to finally break the cycle of depression.

Steve writes:

I hate nitpicking typos, but should that last sentence read, "They never heard..." or "I never heard"?

Bryan Caplan writes:
Steve writes:

I hate nitpicking typos, but should that last sentence read, "They never heard..." or "I never heard"?

Your nitpicking is appreciated, Steve. :-)
Bryan Caplan writes:
Steve Roth writes:

The Fed missed their chance for monetary stimulus '29-31, so it took real, full-throated Keynesian fiscal stimulus--to the tune of 70% of GDP--to finally break the cycle of depression.

I'm more inclined to believe the Ohanian story that wartime wage ceilings helped get wages back to realistic levels.

Plus, as I've argued before, WWII also had a massive monetary stimulus, so it hardly settles the fiscal/monetary issue.

Steve Roth writes:

Bryan: "WWII also had a massive monetary stimulus, so it hardly settles the fiscal/monetary issue."

The classic woulda-coulda situation. If government had not goosed spending--buying and investing in stuff to the tune of 70% of GDP in the course of the war--would the great prosperity have arrived?

I tend to think no. Deflation had rendered monetary policy much less effective, so it couldn't have done it on its own.

An aside regarding the previous post you link to, which leads to a question I cannot seem to find the answer to:

What does "printing money" actually mean? Nobody's talking about actual currency or printing presses when they use that phrase (which people do, constantly). I think most who use the term also don't know what it means. Is it just issuing treasuries? I've researched this a lot with no clear answer. Help. Arnold?

Barkley Rosser writes:

Regarding Canada, one factor was that there were no bank failures at all in Canada during the GD. This has been attributed to a number of things, including the fact that they had nationwide branch banking, although clearly they avoided the sort of overly contractionary monetary policy that the Fed engaged in during 1929-31.

Marcus writes:

"HT to Tyler for that analogy"

This might be petty but I have to take exception to that. I've been using that analogy since I first read about Klein's book when it came out.

When you read her argument how can you not think of the New Deal and how utterly ironic it is?

Anyway, I don't want credit nor do I think I'm the first one to think of it, but come on, ideas can come from more than your little circle of buddies.

OK, I'll shut up now.

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