Discussing the debate over whether the New Deal, “as many economic historians” say, deepened the Depression or “save[d] capitalism,” Will Wilkinson did not note that many prominent economists believe, in Paul Krugman's words, that the “New Deal brought real relief to most Americans.”
During the April 8 broadcast of American Public Media's Marketplace Morning Report, bi-weekly Marketplace commentator Will Wilkinson, a research fellow at the Cato Institute, stated that “maybe American opinion-makers should spend less time fighting over FDR's enduring legacy and more time learning from the rest of the world.” However, addressing the debate over the New Deal, Wilkinson stated earlier in his commentary: “Did it deepen the Depression, as many economic historians now say? Or did it save capitalism from itself, like I learned in 6th grade social studies?” In setting up a purported contrast between “many economic historians” and the lessons of “6th grade social studies,” Wilkinson did not note that many prominent economists believe, in the words of Nobel laureate Paul Krugman, that the “New Deal brought real relief to most Americans,” as Media Matters for America has noted.
In his November 10, 2008, New York Times column, Krugman wrote that President Franklin D. Roosevelt's policies included “long-run achievements” that “remain the bedrock of our nation's economic stability” and that Roosevelt's short-term successes were constrained because “his economic policies were too cautious.”
Krugman further wrote:
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.
F.D.R. wasn't just reluctant to pursue an all-out fiscal expansion -- he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
Similarly, in a January 6 column, economist Dean Baker wrote: “In reality, any careful reading showed that the New Deal policies substantially ameliorated the effects of the Great Depression for tens of millions of people. The major economic failing of the New Deal was that President Roosevelt was not prepared to push the policies as far as necessary to fully lift the economy out of the Great Depression.” Baker continued:
Roosevelt was too worried about the whining of the anti-stimulus crowd that he confronted. He remained concerned about balancing the budget when the proper goal of fiscal policy should have been large deficits to stimulate the economy. Roosevelt's policies substantially reduced the unemployment rate from the 25 percent peak when he first took office, but they did not get the unemployment rate back into single digits.
Further, in a November 17, 2008, post on his personal blog, University of California-Berkeley economics professor Brad DeLong wrote, “Private investment recovered in a very healthy fashion as Roosevelt's New Deal policies took effect. The interruption of the Roosevelt Recovery in 1937-1938 is, I think, wel [sic] understood: Roosevelt's decision to adopt more 'orthodox' economic policies and try to move the budget toward balance and the Federal Reserve's decision to contract the money supply by raising bank reserve requirements provide ample explanation of that downturn.”
Progressive economists are not alone in crediting Roosevelt's policies for easing the economic crisis. As Newsweek senior editor Daniel Gross noted on his blog on January 4, 2007, Federal Reserve chairman Ben Bernanke -- appointed by President Bush -- wrote in his Essays on the Great Depression, “Only with the New Deal's rehabilitation of the financial system in 1933-35 did the economy begin its slow emergence from the Great Depression.”
From the April 8 broadcast of American Public Media's Marketplace Morning Report:
STEVE CHIOTAKIS (host): We've heard it time and time again: This recession is unlike any other. Yet the temptation to compare it to past downturns, especially that one in the '30s, has proved difficult for pundits and policymakers to resist. Commentator Will Wilkinson thinks if we want to look for precedents, it's time to look beyond our borders.
WILKINSON: Our current economic downturn has brought to life old debates about the Great Depression: What got us into it and what got us out of it? The role of the New Deal looms large. Did it deepen the Depression, as many economic historians now say? Or did it save capitalism from itself, like I learned in 6th grade social studies?
Let me tell you, people get really heated about this question. But hold on: Is this debate really relevant to our current crisis?
The U.S. of 80 years ago is a strange and faraway land. When the Great Depression hit, there was no Social Security, there was no unemployment insurance, and Jim Crow was in full effect. There was no such thing as a mortgage-backed security, a collateralized debt obligation, or a credit default swap. U.S. currency was backed by gold.
Financial systems all over the world have undergone a series of deep changes since the 1930s. Trying to draw current policy lessons from the Great Depression is sort of like coming up with a new strategy for the war in Afghanistan by studying the Normandy invasion.
Our pundits' obsession with the Depression and the New Deal represents an all-too typical American exceptionalism, as if only our history really matters. But an apt comparison requires similar institutions, not the same flag.
If we're going to fight over history, let's fight over the recent history of the 1990s Japanese and Swedish banking crises. Let's talk about the financial collapse of Argentina, from which it has only recently emerged. All those economies were more like America's is now than America's was way back when my grandpa was playing football in a sweater and a leather helmet.
So what lessons should we draw from the rather more germane recent experiences of countries with similar economies? Truth is, I don't know. Maybe I should work harder to find out. And maybe American opinion-makers should spend less time fighting over FDR's enduring legacy and more time learning from the rest of the world.
CHIOTAKIS: Will Wilkinson is a fellow at the Cato Institute.