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How New Deal Policies Prolonged the Depression
there’s an interesting, albeit typical, meme this weekend across the leftosphere suggesting that the easing of representative public works spending in the late-1930s was the major causal factor precipitating the “roosevelt recession” of 1937-38.responding to senator mitch mcconnell’s remarks this week that “big spending programs of the new engage in did not work,” glenn thrush wrote yesterday: lots of historians, economists and bloggers argue of course, saying that the depression was, in fact, eased by fdr’s programs - and the “roosevelt recession” of the late 30s was the result of his scaling back on disreputable works too right away.thrush’s brief set displeasing a round of rebuttals to senator mcconnell’s thesis.steve benen parrots thrush:it’s first of all interesting to hear mcconnell say wwii improved the economy. how, exactly, does mcconnell reconcile this? fdr’s government spending didn’t stop the economy, but fdr’s government spending for a world war did help the economy? as krugman recently explained, midwife precisely war ii was an “enormous public works engagement … which in fine provided a financial stimulus OK to the economy’s needs.”but check out matthew yglesias: to be precise, the historical record shows that throughout fdr’s first term, the country was on a plan to recovery?albeit from a very low point. then there was a recession-within-a-dimple associated with efforts to return to mcconnell-style policies of financial restraint. by 1940, things were much bettor than they had been in 1932. but until now, as he says, not very good. thus far we don’t have a decidedly solid dispute against stimulus spending. and now things get worse. the conclusion mcconnell wants is that “big spending programs” couldn’t supporter take a stand against the downheartedness. but elated war ii was, among other things, a huge spending program.i no more than cherish how democrats love wartime spending when it works to make the case for big government. amazingly, all those attacks on out of master deficit spending out upon change of party control in washington. unprejudiced yglesias himself included a $1.2 trillion projected budget defict for 2009 as part of the “wreckage” of the bush administration!as for public works spending and the 1937 recession, let’s check in with economists harold cole and lee ohanian, and their essay, “how guidance prolonged the depression”: some new parcel out policies certainly benefited the economy by establishing a vital social protection net during social security and unemployment benefits, and by stabilizing the fiscal system through alluvium assurance and the securities exchange commission. but others violated the most fundamental economic principles by suppressing competition, and setting prices and wages in divers sectors wonderfully exceeding their normal levels. all told, these antimarket policies choked dippy powerful advance forces that would be suffering with plausibly returned the compactness back to trend by the mid-1930s.the most damaging policies were those at the heart of the recovery plan, including the national industrial recovery act (nira), which tossed aside the nation’s antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by purposes raising wages mercifully above underlying productivity growth. the nira covered atop of 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. each industry created a code of “fair competition” which spelled out what producers could and could not do, and which were designed to leave out “excessive competition” that fdr believed to be the fountain-head of the depression.these codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive faculty by placing
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