The recent speech by American President-elect B. Obama on the planned response by his incoming administration to the ongoing economic disorder has been quickly labeled a "New New Deal", or "FDR II", by a wide number of political commentators. The more Socialist / Interventionist see this as an admirable comparison; the more Small Government / Non-interventionists see this as a damning indictment. *Here is an opinion of the second kind*, from our friends over at michellemalkin.com.
One item that has resurfaced in the debate is the UCLA Study of 2004 described *here*, and the original monograph by Cole and Ohanian, as published, which is an often cited example of how Government Intervention made the Great Depression worse. Some similar ideas, set in a historical context, are in some of the major points of Amity Shlaes' "The Forgotten Man: A New History of The Great Depression". All run contrary to Keynesian (and Neo-Keynsian) views of the New Deal.
Being that I am much more attuned to socio-political history than to the pure economics of that period, my judgement of F.D. Roosevelt's administration policies comes closer to approaches like Thomas Fleming's "The New Dealer's War", and its observations on how the philosophy of governance in the New Deal period resulted in all manner of things internationally before, during, and in the aftermath of WW II.
Fortunately for me, and for readers of this weblog, I happened to have had the pleasure of reading an associate of mine's commentary on the UCLA study. All Blockquote items are by "K", reprinted here by permission. His first words were:
"I thought the (UCLA Study) link was interesting, and certainly original; I'd not seen that before. But it does seem misguided. The Great Depression was a liquidity trap, and deflation was unzipping the economy. To fight deflation, "sticky" prices and wages are an advantage. Keeping wages up keeps purchasing power up, and allows for continuing debt maintenance, and mortgages are not indexed or adjusted for deflation. Keeping prices artificially higher than they'd otherwise be, allows the higher payroll to be met... Demand side is the issue in a depression, supply side is irrelevant if there are no buyers. I'd like to see a comment on that work by an economist or two who were Keynesians before the recent mass conversion."He went on to say, regarding the U.S. economic stimulus package (as proposed in B. Obama's speech):
"I'm old enough to have read John Kenneth Galbraith's book on the Depression when it came out... I always gave JKG extra credit for being one of the very few economists able to conduct his own experiments. As such(the head of the OPA), he was a key factor in the success of the US wartime economy, which was far more efficient than, say, Germany's. He was a Keynesian, but with modifications based on his own observations, and considered himself post-Keynesian. So I'm pre-disposed towards thinking that (Mr. Obama's) stimulus package is fairly good. I'd like to see less tax cut, and more direct spending on unemployment, emergency medical, food stamps, shelter, and similar safety net items as well as infrastructure construction. The former for humanitarian reasons, the latter as the best substitute for housing construction; it pays living wages, benefits basic industries like steel, and has a payback. And we're going to have to fix those roads, and bridges, and expand those airports, and overhaul the decrepit RR tracks, and build those mass transit systems that will be needed as oil depletes, eventually anyway, so do it now. GWB took office with about $5.7 trillion national debt, and added about $5.3 trillion in eight years, primarily for tax cuts and war. Conservatives were silent. Now, with the proposed debt expansion for food and roads, the evils of government borrowing are suddenly rediscovered. (By some, to be fair.)This is just a huge, and complex matter. Moreover, it is one that will likely be the defining U.S. government expenditure of the decade: Between the G.W. Bush administration TARP (include other bailout plans) and the B. Obama administration's planned expenditure, the total runs to over US$ 2 trillion in functionally new-printed money, roughly half of the entire non-bailout deficit spending of the two G.W. Bush governments *even in time of war*.
"I've not seen a lot of emphasis in the proposals as to which stimulus expenditures have the most effect, and I'd like to see much more discussion along those lines. If (negative, long duration) economic expectations hold up, the Republicans will probably attack Obama for failure; be a tough defense as we'll never know what the alternative would have been, though I believe it would be much worse."
With that in mind, here are two more relevant resources, and then let's open this up as a Discussion Item.
John Stossel at ABC back in December, 2008, on Keynes vs. FDR.
Paul Krugman on this very topic, January 9th.
13.Jan Addenda: "K" notes that the Keynes letter to FDR predates the full formulation of Keynes' theories. At the time, there were *no* theories on what to do and the FDR simply promised to try several different solutions, even conflicting solutions experimentally to see what worked.
Is the UCLA Study of 2004 defensible, or misguided, or somewhere in between? Where does the issue of productivity come into play when attempting to measure recovery from a Recession or Depression period? How wise is such a massive financial intervention, even if the excess dollars can be soaked out of the system to some degree over time? And my personal favorite: Is it possible to gain much of anything by doing what is in practical terms funding the New Deal *after* having deficit spent through years of warfighting (the opposite of the 1930~40's situation)?
Your thoughts are welcome, friends.
My thanks to "K" for permission to reprint his part of the discussion, and my hopes that he will consider joining in the discussion here as I *know* he has further insights into some of the matters dealing with cartel policy in particular.
minor edit and one addition, 13.January, at "K's" request.