Renewed interest in the New Deal

Economics editor Chris Farrell

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.

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