A New Look At The New Deal

by Pejman Yousefzadeh on April 4, 2009

The New York Times notices that there has been a shift in sociocultural attitudes when it comes to examining the New Deal of Franklin Roosevelt–a shift that yours truly believes has not come a moment too soon in light of the current economic downturn. Much of this shift has been due to the pioneering work of Amity Shlaes–who, I am proud to note, is a fellow Lab Schooler–but it is also due to the excellent scholarship of people like Harold Cole and Lee Ohanian, who take apart the claim that Roosevelt’s New Deal made a positive contribution to economic policy while the Depression raged. Read the whole thing, but some of the statements made by those who are trying to pierce the hagiography surrounding Roosevelt deserve special mention:

This week competing theories about the Depression and the New Deal were once again on display at a conference at the Council on Foreign Relations’ New York headquarters, co-hosted by the Leonard N. Stern School of Business at New York University, and partly organized by Ms. Shlaes.

She and other critics of the New Deal credit Roosevelt with some important innovations, like restoring confidence in banks and establishing social insurance. Nonetheless, they argue that most of his mucking about in the economy crowded out private investment and antagonized the business world, and thus delayed recovery.

Unemployment remained high throughout the decade until World War II, Ms. Shlaes told conference attendees, because the uncertainty created by Roosevelt’s continual tinkering paralyzed private investors.

When the federal government keeps changing the rules, it’s like having Darth Vader in control, John H. Cochrane, a professor of finance at the University of Chicago Booth School of Business, said during a panel. “I have changed the deal,” he intoned like Vader, the “Star Wars” villain. “Pray I don’t change it any further.”

It’s “I have altered [emphasis mine] the deal. Pray I don’t alter it further,” but point taken. And then, there is this:

[Ohio University economist] Vedder playfully offered another analogy: the recession of 1920. Why was that slump, over and done with by 1922, so much shorter than the following decade’s? Well, for starters, he said, President Woodrow Wilson suffered an incapacitating stroke at the end of 1919, while his successor, Warren G. Harding, universally considered one of the worst presidents in American history, preferred drinking, playing poker and golf, and womanizing, to governing. “So nothing happened,” Mr. Vedder said.

Of course Mr. Vedder does not wish ill health — or obliviousness — on any chief executive. Still, in his view, when you’re talking about government intervention in the economy, doing nothing is about the best you can hope for from any president.

Indeed. And thank Heavens that someone understand this.

Of course, if you check out blogs and publications on the port side, you will find that Amity Shlaes is Satan reincarnate. This demonization comes as no surprise whatsoever; those who cannot argue with people like Shlaes, Cochrane or Vedder end up calling them names instead and pretend that this name-calling passes for a substantive critique. Since piercing the hagiography surrounding Roosevelt and the myth surrounding the New Deal would go a long way towards fundamentally altering the nature of the Democratic party–if not completely destroying it and the movement towards Big Government altogether–those who are heavily invested in defending the hagiography and the myth will throw the kitchen sink and everything else they can get their hands at those who point out that the New Deal was not all that and a bag of chips.

But those who have engaged in a serious examination of the New Deal ought to feel flattered by these attacks, in a strange way. If their arguments were not so intellectually rigorous, if they had not assembled so many facts to bolster their collective case, if their books, their articles, their speeches, their talks and their papers were not so poised to puncture the hagiography and the myth surrounding Roosevelt and the New Deal, people like Shlaes, Cochrane, Vedder, and those from the University of Chicago school of economics in general would not find themselves so viciously under attack from the likes of Brad DeLong and Paul Krugman–among others.

So these mythbusters have made an impact. Now, all they have to do is to continue to make their case and to ensure that the defenders of the pseudo-sacred New Deal fire will not intimidate them from speaking out. The more second-looks we get at the New Deal and at the policies that Franklin Delano Roosevelt sought to implement–policies that made the economy significantly worse and delayed recovery–the better off all of us will be as we seek to craft and implement intelligent policies in response to our current economic downturn. In that vein, per the Times reference to a Council on Foreign Relations conference on the New Deal, I give you the great and good Robert Lucas, who furthers the new look at the New Deal with a very good talk of his own. Check it out.

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