The myth that the New Deal lead to recovery persists. Here is a debunking in layman's terms. by Darren Wolfe
Tuesday, January 20, 2009
With the government going into overdrive with all manner of so-called stimulus to revive the sick economy many statists are trying desperately to salvage the claim that President Franklin Roosevelt's (FDR) New Deal saved the economy from the Great Depression to justify similar policies today. Despite the obvious fact that the Depression was the longest in US history, people such as David Sirota persist with articles like "Fox News: "Historians Pretty Much Agree" That FDR Prolonged the Great Depression". Well, Mr. Sirota, it was pretty long.
The claim that FDR engineered a recovery is based on the fact that Gross Domestic Product (GDP) grew and unemployment dropped from 1933 to 1936. While these statements are correct they hide the fact that during that time GDP never reached 1929 levels and that unemployment stayed in the double digit range. The key question, though, is why did unemployment go up and GDP go down in 1937 and 1938?
The answer is that the economy never really recovered. The government's massive spending was not recovery, but as John Flynn put it "a palliative". By 1938,
The country had now really reached a greater crisis than in 1933. The public debt, which was 22 billion when Roosevelt took office almost all a heritage of World War I was now 37 billion. Taxes were more than doubled. The President had a war on against the conservatives in his party and his own cabinet was split and angry. Unemployment was several thousand more than it was in October, 1932. Roosevelt knew now he was in a crisis. And he had at his disposal nothing to fight it with save a weapon government spending which had failed and which he felt now was a palliative and not a cure.*
All of FDR's spending had failed to revive savings and business investment, without which there can be no economic growth. (See here.) To use an analogy, a patient in a coma is on life support. Machines are forcing the pumping of the heart, the inhaling and exhaling of the lungs. While this may even result in better vital signs than the patient previously had, it is far from being a recovery. Under these circumstances it should come as no surprise that the patient dies if life support is removed.
So it was for the economy during the Great Depression. When government spending slowed and taxes rose the still comatose economy took a turn for the worse. The obvious lesson for us today is that we don't want to repeat the mistakes of that era and try to spend our way to prosperity.
A better model to emulate is the recovery from the recession of 1921. President Harding cut government spending and taxes. The economy recovered quickly. Much nicer scenario, let's stick to that proven method of reviving the sick economy. We can't afford to have politicians playing pass the pork under the guise of stimulating the economy while we languish in a recession. Cut taxes and government spending now.
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Posted By: Andrew Hughes
Date: 2009-01-21 03:36:09
Good Article Darren,
I'm not an economist, I'm an IT guy and work with systems which makes me see how diverse components interact with each other. The path of creating more debt, when you should be trying to pay it down, spending money you don't have instead of¬† reducing spending, building bridges when you should be creating productive capital, pumping taxpayer money in to businesses that will fail anyway, denying capital to actual productive sectors of the economy seems to me completely delusional. Common sense thinking has been hijacked by Government paid "economists", whose job it is to justify the transfer of wealth from the taxpayer to the big players on Wall St.,a financial sector blinded to the real economy by "TED spreads", the level of the Dow and the quest for a quick buck and a legislative branch which values lobbyists more than the electorate.
We all know that the path the Fed and Treasury are heading down will only bring more chaos, more poverty, civil unrest. This, I believe, is beyond argument at this stage. What needs to be done is to get the message out repeatedly to as many who will listen. Imagine for a moment if 80% of the U.S. population actually realised that they were the victims of the biggest con game in history. The only reason that there has not been a revolution so far is that not enough people realise what the hell is going on. The reason we write on NolanChart is to spread the word, challenge people's assumptions and make them think for themselves. Keep up the good work.
In a rational world our arguments would go unchallenged. Unfortunately, in our world the ruling elites want to continue their pilaging. They have their highly paid mouthpieces in the media & academia making claims equivalent to the moon is made of green cheese. Sadly, the people can't see through it.
You guys pat yourselves on the back like a couple of¬†sisters, and think that the rest of the world is crazy.¬† Isn't it ironic that the ones who think everyone else is crazy, usually are crazy themselves!
I have read those "the people can't see", "the people don't understand", "I don't know why the people do what they do" phrases coming out of every nook and cranny of this website for so long that I wonder how ignorant the people who write them have to be before they realize that THE PEOPLE WANT THOSE THINGS!
You muttonheads who think that everyone else is stupid and you're the only sane ones need to have your head examined.¬† It's really the OTHER WAY AROUND!
You really told me! Boy, you just refuted everything I said point by point.¬†¬†¬†¬†¬†¬† Like hell!
I'll let Mises handle the rest of this:
"The enemy is not refuted: enough to unmask him as a bourgeois. Marxism criticizes the achievements of all those who think otherwise by representing them as the venal servants of the bourgeoisie. Marx and Engels never tried to refute their opponents with argument. They insulted, ridiculed, derided, slandered, and traduced them, and in the use of these methods their followers are not less expert. Their polemic is directed never against the argument of the opponent, but always against his person. Few have been able to withstand such tactics. Few indeed have been courageous enough to oppose Socialism with that remorseless criticism which it is the duty of the scientific thinker to apply to every subject of inquiry."
You think about that while I think about how all the govt that the people allegedly want got us into the mess we're in today.
This is a great and accurate article, as far as it goes. But, anyone trying to explain any of this to any of FDRs legions of fans, eventually is informed that "the war finally ended the depression". I would welcome a succinct debunking of this 2nd half of the myth.
Thanks for the comment, great question. While not exactly succinct, the subject is well covered in "The Great Escape from the Great Depression"¬†¬† http://www.thefreemanonline.org/columns/our-economic-past-the-great-escape-from-the-great-depression/
Let me quote a little:
"...the economy did not return to what we may properly describe as prosperity until after the war. Economists have misconstrued the specious ‚Äúwartime prosperity‚ÄĚ as the real thing, but diverting nearly 40 percent of the total labor force into military-related employment and producing mountains of guns and ammunition do not create genuine, sustainable prosperity, as people would discover if they tried to operate an economy on this basis for more than a brief period. The true Great Escape did not occur until 1946."
"The year 1946, when civilian output increased by about 30 percent, was the most glorious single year in the entire history of the U.S. economy. By 1948, real output was back on its long-run growth trend, and during the decades that followed, the economy was spared the sort of deep and long debacle that a congeries of wrongheaded government policies had caused during the 1930s."
Are you kidding? You mean they're wrong just because they didn't take a survey and make sure that they were on the majority side before they started thinking for themselves? ¬†Your evidence of their 'wrongness' is simple the fact that a smaller number of people confirm their ideas? ¬†Jesus, what a crazy world we live in.