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Renewed interest in the New Deal
Economics editor Chris Farrell
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TEXT OF INTERVIEW
Renita Jablonski: With all this talk about a stimulus package, there are a lot of economists, historians, and bloggers taking this as an opportunity to step inside a time machine. The dial inside that time machine is set to 1933. There's a new fascination with the New Deal as we consider our fate in this recession.
Our economics correspondent, Chris Farrell, is among those time travelers. Hi, Chris. Some recent op-eds say the new Deal made the Great Depression worse. What's your take?
Chris Farrell: Well, my take on it is the New Deal was a success. And you have to be a little bit careful about defining that and not setting up a straw man. The New Deal was not perfect, it didn't, you know, solve everything. But remember, we had 25 percent unemployment, and actually really higher than that if include the underemployed. And the New Deal basically did bring people back to work.
Jablonski: Now, a big part of the New Deal was stimulating wages. And you have those that say, great, wages were high -- that was supposed to increase purchasing power. But really what happened was they were so high that industry ended up being choked.
Farrell: Yeah, and there . . . you know, in defending the New Deal, I mean remember some of the things that were done. We had Social Security, we got the FDIC, we got the Securities and Exchange Commission, we went for some higher wages to try and help out the factory worker. Not everything worked, not everything was perfect. And real awages were going up anyway -- I mean, if you had a job, I mean think about it if you had a job, and you were getting a regular paycheck, just think how much farther your dollar went during the Great Depression because of falling prices, right? I mean, that's one aspect of looking at a deflation that goes along with the depression.
Jablonski: When it comes to Wall Street, I guess a difference in the 1930's was that you didnt' see images of green and red arrows for the Dow and the S&P everywhere you turned. And the Dow didn't actually hit the level that it was at in 1929 until I think the mid-50's.
Farrell: Right, 1954.
Jablonski: What kind of parallel can you draw there as people really are still so nervous about what the market's doing right now?
Farrell: Well, you know, one of the things that happened during the Great Depression is you get decline in 1929, then you get the decline in 1930 . . . and you get a decline in 1931, and people are going, "Well, it can't go any lower." Six months later, you were completely wiped out, because the Dow went down 89 percent and didn't hit as low until July of 1932. The parallel we draw is that the history of financial crisises is that they are longer, and they are deeper, and they're harder to get out of than we're thinking about right now.
Jablonski: Well, New Deal, stimulus package, whatever you want to call things right now -- how about leaving us with some new hope?
Farrell: Well, I think that, you konw, it's very clear that the package that gets passed, the new New Deal, whatever you want to call it, let's just call it a fiscal stimulus package -- it's the right thing to do, it's an insurance policy. And monetary policy's doing what it can, it now needs some help on the fiscal side.
Jablonski: And that is our economics correspondent, Chris Farrell. Thanks a lot, Chris.
Farrell: Thank you.
I expected a more balanced analysis from NPR. There was no-one to rebuff Farrell's Keynesian platitudes, that he obviously holds as self-evident, such as "the new New Deal -- it's the right thing to do" and that "in defending the New Deal, ... remember some of the things that were done" all of which are obviously dear to him. True, if you had a job -- you were OK, but approximately 15% unemployment persisted throughout the decade. FDR would have been voted out of office if it weren't for the start of the WWII. And as far as SEC's goodness goes -- just how effective was it in Madoff's case and in handling the recent so called "financial crises?" I'd like to see someone from Cato, for instance, present to balance out the obvious liberal big government bias of Chris.
Keynesian economics is precisely what got us into this mess. We don't have a free market here. We have a centrally planned ecomomy through the Federal Reserve. They manipulate interest rates to spur or stifle economic growth. Greenspan lowered rates to record lows in the early 2000's which led to this housing bubble. Just because one supports economic freedom does not mean that he supports corporatism and freedom for corporations to act illegally. it's horrible what Madoff did but we have laws to prosecute those frauds. You can't put a policeman outside everyone's home to keep everyone safe just like you can't have the SEC monitor every business and financial transaction. More regulation is not the answer. It hurts all those who operate lawfully. Although more regulation and oversight of the Federal Reserve wouldn't be such a bad thing. More Americans need to read about what Jefferson, Madison, Jackson, thought about banking institutions.
More information about the Great Depression Keynes, and F.D.R. Please.
In Econ 101 (25 years ago) I learned that Keynes thought the government should be responsible for or could effect the economy seven things.
I remember some
1.) Tax
2.) Interest Rate
3.) Stable Currency
4.) Unemployment
5.)
6.)
7.)
I forget some, but I'd like a refresher.
Also you mention SS, FDIC, SEC, (Keynsian policies implemented by FDR)
All have been under attack by the right. From day one, but especially from Ronald Reagan.
The right has attacked those by "Defunding" government, and today we find Lead paint in toys, salmonella in peanut butter , and the SEC can not detect Bernie Madoff when the "Case is handed to them on a silver platter".
Talk about those things. Please.
The difference between the relative success of the New Deal and the relative failure of the current stimulus packages lies in what came before them. In the former situation, market failures and consolidations were allowed to happen. Risk taking share holders took many lumps, but the government did not shoulder losses for those risk takers. The New Deal commenced after must of the correction had occurred.
In contrast, the current government efforts are aimed at preventing the inevitable market correction. I think that because so many law makers are so invested in the stock markets, their short-term self interest weighs more heavily than any concerns for the future of America's global success. This will surely temper the rate of job losses and market correction, but it will not change the gravity and effect of long-term over-reliance on consumer debt to fuel GDP. Leveraging government instead of consumers is a shift in debt acquisition, not a change in behavior. It is a change in behavior that is needed to get America working again in the long term. Few of the current stimulus package's many strategies aim for long-term growth with appropriate incentives. In fact, the 15k tax credit is simply wrong-headed: It aims to support inflated house prices when they are correcting. This would help mitigate the effects of a price undershoot, but in the current free-fall, they will provide only short-term relief. All these measures are merely going to prolong the length of the market correction when what I think government should :
a) let the businesses consolidate in the marketplace and allow risk-taking shareholders to shoulder the losses.
b) Provide incentives to businesses to engage in the pursuit of long-term revenue sources like wind-power generation, coal-scrubber technology, zero-emissions vehicles, lightweight transportation batteries, high efficiency electric motors and generators, and other new clean-energy technologies.
c) Provide retraining and unemployment benefits to idled workers that will help them contribute to the renewal of tangible American productivity and away from convoluted debt instruments that simply do not add value.
d) Provide a tax credit to people who move because they cannot afford the home they live in regardless of whether it is mortgaged, owned or rented. Such a credit should incentivize people to downsize their accommodations rather than holding out on an upsidedown sale. Again, the real-estate holding risk-takers need to take their lumps in and the government should step aside. Some complain that his will mean more people will lose "their" homes. I argue that if these people hold mortgages, they do not own these homes, but merely lease them. That is a form of leveraged risk-taking that informed real estate investors understand. Yes, the government and industry conspired to dupe consumers into investing in real estate during a massive bubble, but that doesn't alter the fact that house purchasers took on the risk.
As an informed tax-payer I have become so exceedingly annoyed with US government's meddling with markets that I am desperately attempting to leave America to its future debt addled misery. The Germans are right to decry American "business as usual" debt-driven approach to "recovery." How did Obama find so many economists to tell him this is a good idea that will help America when I, and may others, are saying this path will parallel Japan's lost decade, and perhaps longer.
One stimulus package failed to provide the predicted results already. Sure, things would have been worse without it, and they should have been! It wouldn't have cost tax payers nearly a trillion dollars, and the banking sector would be stronger today after the consolidations and risk-taking shareholders shouldered the losses rather than the uninvested tax-payers who stand only to foot the losses.
The market system broke under a lack of government regulation to defend the consumers. What is needed from government is legislation that resets the playing field to protect consumers from making detrimental decisions, not to protect shareholders from losses. The systemic market failure cannot be helped by a government who's participants are all actively invested in the failing market and who stand to lose less by acting in their self interests (and those of the wealthy electorate) rather than those of all of the citizenry.
As painful as it might feel to sit back and allow businesses to fail, I think that is the approach government needs to take today so that a new New Deal can be made effectively after the correction. It's going to be a bumpy ride, but that's the price to be payed for the last eight years of completely reckless economic stewardship under the previous government regime.
And the worst part is that the Americans election process and culture is so oriented toward the simplicity of a two-party system that there is no room in their minds for the introduction of another alternative: One that adopts some libertarian mantras about reducing the "role" and expenditures of central government while simultaneously taking on more socialist ideals like providing universal health care and increasing the deliberately intrusive nature of regulation to level the playing field for businesses and protect consumers from making poor decisions.
Hi,
This is my first time writing in. I hope you read my comment and give it serious consideration. Thank you.
I just listened to your broadcast this morning and i must say that i was pretty upset with what i heard. I'm not even going to go into the total unconstitutionality of the New Deal, the confiscation of Gold by executive order 6102, or the praise given to FDR from Stalin and Hitler. I'm going to make a simple request that you be objective in your programming. In one survey I read, 49% of the 90 surveyed Phd economists said the New Deal lengthened and deepened the depression. I'd say that's a pretty substantial minority. I think it's only fair that you bring on an Austrian economist to share his thoughts on the Great Depression and the current economic crisis. I really don't understand how Chris Farwell can say that the new deal worked because unemployment was reduced. Any respectable economist knows that you must focus on maximizing PRODUCTION and not on maximizing employment. Full employment is a by-product of full production. You can pay people to dig holes and fill them back up but what good is that going to do when the money being paid out for that must be paid back or stolen through inflation? Basically, Keynesian economics says that you can stimulate the economy through interest rate cuts and excessive borrowing and spending. The problem is that eventually payment on all this debt comes due and if your economy is debt driven and not production oriented you will have no way of paying that money back. You must borrow more. If you then have no funding for your debt, your dollar must suffer. These Keynesians never talk about the consequences of all this borrowing, about the inflationary threats nor how they think we will ever be able to pay back all of this money. Please bring on an Austrian economist to share his thoughts so that your listeners can hear the other side of the story. Thank you.
FYI Mises.org is the address to the Von Mises Institute Some well known supporters of Austrian theory are Ron Paul, Jim Rogers and Peter Schiff.
The Q&A between Renita Jablonski and Chris Farrell raised far more questions than it answered. First, it did not discuss what measures were taken between 1929 and 1933. Second, it did not accurately identify which post-1933 measures were Great Deal and which were not, and did not rate any program according to usefulness or harmfulness.
Finally, why should we care about your correspondent Chris Farrell's opinion? Does he have some special knowledge, or some unique reasoning abilities, or a near-perfect track record, that makes his appraisal of the 2009 stimulus package the one we ought to value?
