Ronald Reagan liked to see himself in the parable of an optimistic boy who, facing a room full of manure, happily set to digging: “With this much manure around, I know there’s a pony in here someplace.”
But today we need a different parable. In this one a boy discovers a well-kept stable with a pony in it, contentedly munching hay. It’s a fine pony, though maybe in need of some brushing. There’s probably also a horse-pat in the bottom of the stall, because hey, it’s a pony. The boy fixates on these aesthetic drawbacks, and begins to complain loudly about them. A friend comes along, gives the pony a brush, grabs a shovel and removes the horse-pat and says, “there you go, son, your pony’s in fine shape.” Incensed that his complaints have been rendered irrelevant, the boy does not choose to enjoy the pony, but instead orders a cartload of manure from the local store and starts shoveling it into the stall, to vindicate his initial criticism. Left unchecked, the boy is not only going to foul the stall, but also to bury the pony.
In the behavior of this boy we see the modern New Deal denialist. The New Deal wasn’t perfect, it’s true, but noting that it takes occasional maintenance and correction isn’t enough for the denialists, they have to bury it in horse manure. And no sooner do their kindly friends clear one load of these misconceptions away than they order up another load and start shoveling it into that poor pony’s stall. Clear away the misconceptions and you find that under the New Deal, GDP was up, unemployment was down, productivity was up. Which, to reiterate, doesn’t mean the New Deal was anything like perfect; it wasn’t. But still, a pony is better than no pony, right?
If someone then comes along and says to you, yes, GDP was up and unemployment was down and productivity was up and the New Deal did lots of good and important things like Social Security and yanking the South out of poverty and bringing transparency to the securities market and saving the banks, “But the facts do not support the perception that FDR’s policies shortened the Depression…. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39)”—well, you should be suspicious. Do you ordinarily judge a recovery by increase of hours worked? When was the last time you heard an economist on the news explaining to a business reporter, “Well, Tallulah Mae, perhaps we’re back to work and our productivity is up and our national wealth is up but we haven’t recovered because we’re not working the same number of hours we used to”?
Let us not even get into this argument—even though, if you do get into this argument, if you do concede the ridiculous starting point that we should pretend NRA=New Deal, you evidently can still show the description of the recovery is wrong; even though, when you strip away the bluster and misdirection, the argument is really, “The New Deal jolly well did save us from the Depression, it just might have saved us faster if it hadn’t been for the NRA”; even though, if you do want to talk about what happened to hours worked, per figure 1A there’s a long-term reduction 1900-2000 and though there was a spike up during World War II, it might have been because there was a total war going—no. Let us not get into these arguments because trying to turn the argument to a discussion of what happened to hours worked is simply letting a new load of manure get shoveled into your pony’s stall, and you don’t want that.
And if it should happen that you walk happily away from your pony’s stall one day, leaving it reasonably clean and cheerful, and when you come back the pony is asphyxiating under a pile of manure, please do not stand sorrowfully, reasoning to yourself, “poor pony, if only it had done a better job of not fouling itself it wouldn’t be stuck under a pile of manure.” Ponies don’t make that much of a mess on their own. The pony chokers have been at work. Get a shovel.
88 comments
February 2, 2009 at 9:37 am
Kevin
Part of me thinks this is where the ref should step in and stop the fight.
But then I realize these idiots are never going to stay down, and will keep getting back up again and again like Jason Voorhies.
So keep clubbing away at the body and don’t ever believe you can turn your back on it.
February 2, 2009 at 9:52 am
AWC
We appreciate your labors Eric. I’m fascinated by the psychology of these fellows. Why are they compelled to shovel manure onto a system that produced the richest and most powerful nation in human history? What do they hate about a regime that ended the routine panics that punctuated every decade from 1810 to 1929?
And what do they think US growth numbers would have looked like under laissez-faire? Would we all be living in solid-gold geodesic domes, complete with holo-decks, fem-bot servants, and fully stocked, ice-cold kegerators?
February 2, 2009 at 9:54 am
AWC
That should read: “every other decade.”
February 2, 2009 at 10:01 am
silbey
Why are they compelled to shovel manure onto a system that produced the richest and most powerful nation in human history
Because this is part of the current partisan fight. The GOP likes to rewrite the foundation of political debate (cf “liberal”) and this is a starting point for a rewrite in which the New Deal (and Roosevelt) were actively malignant rather than beneficial. It’s the same kind of rewrite of history as had Jane Fonda losing Vietnam.
February 2, 2009 at 10:04 am
hebisner
I suspect that the Amity Schlaes and her fellow travelers are terrified of a modern version of the New Deal, and the larger political consensus that supported it and the programs and regulatory structure it created. Anything they can do to prevent that they are willing to do.
February 2, 2009 at 10:04 am
Ahistoricality
ouch.
A quarter-century from now, when one of your students asks you when “pony-choker” became slang for the old Republican party, you can say that you were there at the creation….
A millenium for now, some enterprising anthropologist will note that the absence of large-scale pony graveyards in the styrofoam strata suggests that the ancient tales of “pony-choking republicans” were apocryphal. Or perhaps that the tradition of pinata can explain the idiom.
February 2, 2009 at 10:18 am
AWC
Let me be clear, David. I understand the folks who hope that revising history will get them marginal political and economic gains. Given the choice, they’d rather not pay for other people’s healthcare. This is perfectly reasonable (though I obviously differ).
But I don’t understand the anger. Why are they so unhappy under the current system, which seems fairly sensitive to their needs and has produced pretty remarkable results?
February 2, 2009 at 10:20 am
silbey
But I don’t understand the anger
I think anger is the current Republican emotion of choice. There’s something in it that echoes the fashionable sports motivation of “everyone disrespected us…” that seems so prevalent as well.
February 2, 2009 at 10:26 am
AWC
I don’t doubt the party stokes the flames, but the emotion pre-exists politics. It’s psychological.
But perhaps it’s best I not indulge my Hofstadterian proclivities in public.
February 2, 2009 at 10:45 am
silbey
but the emotion pre-exists politics. It’s psychological.
But perhaps it’s best I not indulge my Hofstadterian proclivities in public
No, no, I think you’re right. The GOP has deliberately fashioned its message to take advantage of a stream of national anger that exists independently of it.
February 2, 2009 at 10:54 am
Cosma
And what do they think US growth numbers would have looked like under laissez-faire? Would we all be living in solid-gold geodesic domes, complete with holo-decks, fem-bot servants, and fully stocked, ice-cold kegerators?
Based on a youth mis-spent reading science fiction published by Baen Books, I can say with some confidence that many of them believe exactly this. Except for the bit about geodesic domes, those are for dirty fucking hippies.
February 2, 2009 at 11:03 am
Vance
I agree with Cosma — I think many of the people who are saying that the New Deal was a mistake really do believe we would have been better off without it. And I’d go further: I think at least some of the people who lie to make the case actually believe it’s so true it’s worth lying for. They’re aware they’re stretching (as in this example, cherry-picking the metric of hours worked) but that doesn’t cause them to reevaluate the larger claim.
February 2, 2009 at 11:06 am
AWC
No, no, no. The hippie domes are made out of hemp, not gold.
February 2, 2009 at 11:11 am
Ahistoricality
If they had their way, we would still be on the gold standard anyway, so nobody would use it for construction. Kevlar, probably, for home defense, with a flame-thrower-proof overlayer of asbestos.
February 2, 2009 at 11:14 am
Spike
The trouble with hemp domes is that the hippies keep setting them on fire.
February 2, 2009 at 11:15 am
AWC
O.k., and let me hijack the thread further by asking another question: how do the GOP’s libertarian dreams clash with its militaristic fantasies?
In other words, do Republicans imagine that US could have defeated the Axis and USSR without the New and Fair Deals, which bound ordinary Americans to the state while offering foreigners an alternative to fascism and communism?
Shlaes lionizes Willkie, never acknowledging that the struggle itself might have forced him– had he won– to adopt much of the planning he attacked as a utility executive.
February 2, 2009 at 11:36 am
Other Half
Regardless of its political/historical/moral aptness, your analogy reminds me vividly of the behaviors of a certain actual little boy that we both know.
February 2, 2009 at 11:56 am
Barry
Half of them think that the USA shouldn’t have opposed the Central European Anti-Communist Axis; many of the others don’t see a disconnect between a vast military empire and a domestic small-government Libertaria.
February 2, 2009 at 11:59 am
Ahistoricality
The militarism is, I think, more of the neo-confederate variety: Manliness, Honor, etc. with the free market providing bigger and better guns, etc. Aircraft carriers will have to be commercial enterprises, but rest assured that the WSS Sam Walton will dwarf the USS Enterprise and its damyankee jets!
February 2, 2009 at 12:02 pm
Barry
Vance: “I agree with Cosma — I think many of the people who are saying that the New Deal was a mistake really do believe we would have been better off without it. And I’d go further: I think at least some of the people who lie to make the case actually believe it’s so true it’s worth lying for. They’re aware they’re stretching (as in this example, cherry-picking the metric of hours worked) but that doesn’t cause them to reevaluate the larger claim.”
I saw a reference where Schlaes was praising Bush’s post-Katrina disaster-management efforts to a point which was either stone ignorant (and malpracticingly so in a historian), gullible (and malpracticingly so in a historian), or flat-out dishonest.
That, and her New Deal Denialism, leads me to believe that she’s simply a right-wing liar. Now, considering that she’s better paid for her lies than we are for our jobs, that’s an easy thing to be.
February 2, 2009 at 12:47 pm
Vance
Here’s one post on Shlaes and Katrina (but I too have seen another just recently; take this).
In any case, my claim is practically irrelevant. It’s clear that refuting the “New Deal denialists” won’t slow down the individual writers: they’re impervious, for whatever reason. Rather, the refutations have to win in the court of public opinion (to coin a phrase), which means that they need to keep coming.
February 2, 2009 at 2:07 pm
The Ambrosini Critique » Blog Archive » The extent of our knowledge
[…] like this paper by Eggertsson (h/t EotAW) because it shows how important the assumptions on exogenous shocks can be. Cole and Ohanian have […]
February 2, 2009 at 2:25 pm
Urk
”
but the emotion pre-exists politics. It’s psychological.
But perhaps it’s best I not indulge my Hofstadterian proclivities in public
No, no, I think you’re right. The GOP has deliberately fashioned its message to take advantage of a stream of national anger that exists independently of it.”
I’ve been thinking that there’s something generational in this, something that has to do with the joining of ideologies, one anti-government growing out of the sixties and opposition to that gvt.s war and other policies, the other older, driven by a backlash against the 60s and a nostalgic attachment to the 50s: pro business, anti-communism. The approximate place where they meet is skepticism of the ability of the government to efficiently and justly manage anything combined with a recoil from the power that the gvt. showed intervening federally in civil rights cases and trying to adjust the political situation of an entire class of people in society. It manifests itself in a withdrawal form the public sphere that’s become a kind of speech-thought habit for vast swaths of the population.
or something like that. I had to type that fast, so its probably all wrong, but its something I’ve been thinking about. I think about it every time my dad and his friends–who all used to drive VW microbuses out to the land outside of town that they built domes on–talk about buying guns to protect them from poor people and the government both.
February 2, 2009 at 2:35 pm
New Deal Denialists and Blogroll Amnesty Day « Liberty Street
[…] a comment » Eric Rauchway has an incisive response to the Wall Street Journal’s latest instance of the revisionist meme circulating on the right […]
February 2, 2009 at 4:59 pm
Bloix
I am a fan of the New Deal and I’m no denialist. But even assuming that the Depression was lengthened and deepened by the mistaken reduction in spending of 1937-38, and even assuming that the 1929-1933 period was made worse by Hoover’s policies, we are still left with a very long, hard recession from 1933 to 1937 that Roosevelt was unable to end, even though he had four years to do so. Yet you’d get the impression from some of the anti-denialists that 1935 was a great day to be a workingman in America.
Yes, Roosevelt’s policies made things much better but it was still the Depression. And certainly one measure of underemployment is average hours worked – not a good measure from one decade to another, as expectations about the “normal” work week change, but not so bad from one year to the next. I don’t find it at all hard to believe that men who wanted and needed to work 50 hours a week at a skilled job to support their families were scraping by on 25 hours of casual labor.
A fair question is, why was the Depression so much harsher than earler business cycle recessions and why didn’t the economy recover in a year or two to the level of activity of the prior decade? If the answer is that Roosevelt didn’t spend enough – that there wasn’t enough stimulus – then why did all prior recessions manage to end themselves without any stimulus at all?
February 2, 2009 at 5:27 pm
Vance
Yet you’d get the impression from some of the anti-denialists that 1935 was a great day to be a workingman in America.
Who are you talking about specifically? I haven’t seen this claim.
February 2, 2009 at 5:50 pm
Tyler Blalock
One amusing argument that I keep seeing is that the New Deal made the depression worse, and that it was really the wartime economy which ended the depression.
That argument is silly for the simple reason that the wartime economy was characterized by even more extensive forms of government economic planning and government spending than that which characterized the New Deal from 1933-1941. In other words, the wartime economy was an amped-up version of the New Deal.
So if the New Deal didn’t work, then the wartime economy wouldn’t have worked either. If someone really thinks that the wartime economy is what ended the depression, then the only possible criticism that can be made of the New Deal with that in mind is that the New Deal did not go far enough, soon enough.
February 2, 2009 at 6:34 pm
Sandwichman
Hooray for Cole and Ohanian. They have raised, in an admittedly inept and round-about manner, a key issue that most self-styled Keynesians don’t seem to want to talk about. From the paragraphs quoted it does seem that Cole and Ohanian are looking at a pony and calling it manure. However, the fact is that the hours of work per worker DID decrease — and that decrease may well have been a decisive factor, along with government spending, in the recovery from the depression and in the post-war boom.
Keynes himself highlighted the strategic importance of work time reduction in his 1943 Treasury Department memorandum on “The Long Term Problem of Unemployment”. Dean Baker has recently written op-ed pieces in the Guardian and the New York Daily News calling for work-time reduction as part of a stimulus package. So far no response to Dean’s proposal from Brad DeLong or Paul Krugman. Why such reticence?
I’ve posted a draft submission to the White House Task Force on Working Families on EconoSpeak (see http://econospeak.blogspot.com/2009/01/task-force.html) that outlines the rationale for work-time reduction, in the context of the current economic crisis and the environmental challenges of climate change and resource limits.
February 2, 2009 at 7:59 pm
andrew
Isn’t new deal denialism sort of a foundational belief among the currently dominant form of conservatism? There was a period, probably peaking during Eisenhower’s presidency but spanning roughly the 1940s to the early 1960s, when many conservatives had reconciled themselves to much of what had been created by the New Deal – Eisenhower’s presidency saw high tax rates and infrastructure spending, for example, but none of the expansions of social programs that came in with the Great Society. But following this period that strain of conservatism has been beaten back – you might be more likely to find it among centrist Democrats, nowadays – until you get something like the current situation.
February 2, 2009 at 10:13 pm
Michael Turner
“we are still left with a very long, hard recession from 1933 to 1937”
What recession from 1933 to 1937? What the hell are you talking about, Bloix?
A recession is the economy shrinking. From 1933 to 1937, the U.S. economy grew dramatically, along with employment. Even if you adjust for growth in GNP-per-capita from the end of the Long Depression” to the end of the irrationally exuberant 1920s — an adjustment which probably, if anything, overstates trend growth, — you can see one of the most dramatic and sustained economic recoveries of all time between 1933 to 1937, economic growth far greater than anything explainable by mere trend growth.
The best explanation we have for why this happened was the New Deal (despite some parts that didn’t work or did harm, perhaps including NIRA). The best explanation we have for why the New Deal wasn’t enough to bring employment back to normal was the economy simply didn’t get enough New Deal. One of the best pieces of evidence for that hypothesis was the period after FDR cut spending and raised taxes, which sent the economy downward again in 1938. The economy was still in The Depression, so they needed a new name for what had just happened. So they made one up: they called it The Recession.
Are you clearer on what the term “recession” means, now?
As for why previous recessions hadn’t resulted in Great Depressions — note that the Long Depression (which some have called The Real Great Depression was longer and worse, and in some ways — particularly in the role of property speculation up to 1873 — bears a closer resemblance to the present day recession than anything that happened in 1929 and afterward. Also, the global policy responses to the Great Depression — protectionism, banks being left to fail, nations unilaterally defaulting on their war debts, struggles to either stay on or return to the gold standard, etc. — did not have the desired effects but rather strongly reinforced the factors causing economies everywhere to crash.
February 3, 2009 at 1:13 am
Michael Turner
So if the New Deal didn’t work, then the wartime economy wouldn’t have worked either. If someone really thinks that the wartime economy is what ended the depression, then the only possible criticism that can be made of the New Deal with that in mind is that the New Deal did not go far enough, soon enough.
Milton Friedman, perhaps the most esteemed (latter day) economist in the pantheon of “the currently dominant form of conservatism”, talked out of both sides of his mouth about the economic effects of government spending during the Great Depression and WW II. Asked in an interview if, as JK Galbraith had just told PBS viewers a few days before, the economic response to WW II spending was a vindication of Keynesianism, he responded
Hm, I’ll have to tell my ex-Air Force pilot father (now 88) that the fighter-bomber he flew over France was not real, but only an artefact of “the appearance of activity.” As he is currently suffering some mobility problems, I’m sure he’ll be overjoyed to learn that he has always been able to fly even without aeronautical means.
Now, I think there’s something to what Friedman said. Consider that Paul Samuelson, who was to become the post WW II archdruid of Keynesianism, predicted the need for vast, continued stimulus right after the war, only to see the economy recover under far less prodding than he thought was required. For that matter, Keynes, in the years before his death, thought that getting the business cycle under control might mean government control of, or strong influence over, as much as two thirds of all investment activity. Maybe if you count homeowner tax exemptions and other forms of support for housing investment, you might get somewhere near that two thirds, but I doubt it. Friedman was partly right: Keynes didn’t nail the whole macro picture, his theoretical shortcomings starting becoming evident not long after the war; much later, stagflation definitely posed problems that Keynesian remedies couldn’t cure.
However, Friedman was answering a subtly different question than the one he was asked. Friedman started talking about employment maintenance over the long term, and we all know what Keynes said about the long term, when faced with harrowing circumstances in the short-term. I think Friedman might have more honestly (and correctly) begun his answer with admitting Keynes was only partly wrong.
As it turns out, Friedman was a supporter of much of the New Deal, and probably wouldn’t differ greatly with most New Keynesians today, at least on the current stimulus proposals (with the likely exception of Greg Mankiw, who still holds out for tax cuts as possibly the only stimulus worth trying.) Asked what in the New Deal he had supported and why, Friedman answered.
Well, howdy: put me down with Uncle Miltie. I’m all for being able to manage the economy with monetarist economic policies, as he preferred. So, I’m sure, are Larry Summers, Ben Bernanke, Tim Geithner. The question is, really: how do we get back to those (relatively) halcyon conditions?
Just as it’s unfortunate we don’t have economic historians with the public profiles of JK Galbraith and Arthur Schlesinger to speak out for the New Deal today, it’s perhaps also unfortunate, in a way, that Milton Friedman is no longer speaking for the Chicago school — he could at least tell a transparent half-truth. Instead we have Casey Mulligan and his mumbo jumbo argument that unemployment is going up because too many people don’t want to work, mainly because their taxes are too high. Sales are plummeting almost everywhere? Hey, Amazon just had its best holiday season ever! Look at the bright spots in my [um, not even seasonally adjusted?] late 2008 sales figures! Yep, prosperity’s just around the corner. So don’t touch that stimulus dial or you might get a big shock! Demand a tax cut instead!!!1!!!11!1!!
Couldn’t they at least have waited for the old Arthur Laffer to die before saddling us with a new one?
February 3, 2009 at 3:54 am
drip
Couldn’t they at least have waited for the old Arthur Laffer to die before saddling us with a new one? Laffer hung on too long. The use of his curve as the reason to cut taxes forever choked the economy before he could make his exit. Upthread someone asked where the right’s anger comes from. I think it comes from the public realization that 28 years of tax cuts has proven to be destructive to the system it was supposed to fix and that there is no parable, bubble, theory, or delusion available to take its place.
February 3, 2009 at 6:38 am
Student
Here’s Shlae’s latest historical atrocity in Sunday’s Washington Post (as mentioned it the other day but I forgot to provide link)
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/30/AR2009013002760.html
It looks like she’s giving a little ground on progress toward recovery but her basic argument remains the same. Plainly she has an “in” with the Post editorial board, which tends to the right these days.
February 3, 2009 at 6:57 am
Dr J
Shorter Bloix:
FDR only pulled the national economy most of the way out of the grave Hoover and his predecessors dug for it, so the New Deal was a failure.
February 3, 2009 at 8:25 am
Michael Turner
Student, I started to read that WaPo piece again, but I had to go throw up. Shlaes should have been a novelist. Instead she’s a . . . well, I’ve actually known people engaged in prostitution, and IMHO it’s a relatively honorable profession compared to whatever it is she’s doing. So let’s skip the obvious metaphor and just say she’s suffering from NDD, OK?
The gist of Shlaes’ lede above: FDR’s economic mismanagement literally drove poor kids to suicide.
The reality: yes, in 1937, the U.S. suicide rate was starting to increase significantly, but at that point, it was at about the level you can see (Fig. 10.4, p. 200) it reached just before the Crash of ’29, when supposedly everything was so hunky-dory that people could hardly sleep for all the excitement and joy. Go figure. Actually, since reporting on suicide statistics began to improve around 1930, it’s quite possible that the suicide rate in 1937 was lower than in 1929.
By 1940, Wendell Wilkie was reduced to promising he could do anything FDR could do (and pretty much everything FDR was doing), only with less money. It was like “Buy my New Deal — 20% off this election year only!”
February 3, 2009 at 8:40 am
Bloix
I may be older than most of you – I’m 53- and both my parents lived through the Depression. My mother’s strongest memory from her childhood (she was eight, in 1934) was watching the buttons and notions and bolts of cloth from her parent’s store being put out on the street because they couldn’t make the rent. Her father spent the next five years running a sewing machine when he could get work at all and her mother did knitting in the kitchen. They didn’t experience any upturn until 1939 or 1940. My father, who was a teenager during the Depression, always said that the Depression didn’t end until the war.
Now, this is anecdotal, I know, and many people here have a stonger grasp of the statistics than I do. But all the written and oral memory of that period is that the lived experience of the Depresssion lasted from 1929 to 1940.
In spite of Dr J’s snark, I’m not knocking the New Deal. I am saying that the Depression was not experienced as a normal part of the business cycle. It was experienced as something bizarre and sinister, as an unprecedented break-down of the economy that went on for year after year with no end in sight.
So I asked for an explanation of this undeniable fact, and what I get is a sneering lecture from Michael Turner that the Depression wasn’t technically a recession, it was only a Depression.
Not very helpful. And just what I was talking about – in response to the New Deal denialists we appear to be developing a school of Depression denialists.
February 3, 2009 at 8:56 am
Vance
But all the written and oral memory of that period is that the lived experience of the Depresssion lasted from 1929 to 1940.
This is quite consistent with the general claim that’s put forth here — there was a collapse so terrible that years and years of strong growth were required to get back on track.
February 3, 2009 at 9:11 am
drip
First, I have yet to see a depression denialist. I have seen voo-doo economists, objectivists, supply side trickle downists, anarcho-capitalists and other numbskulls denying that the government helped people once Roosevelt was elected and got what became the New Deal underway. These people are wrong and appear to be so wrong that one labels them denialists to avoid the less polite but more accurate term liars.
Second, Shlaes is just one delusional mouthpiece among many. I had to turn off the normally reasonable Diane Rehm Show as Eamon Javers of Politico explained how the elites in Washington had it all wrong and the New Deal was a failure until WWII inverted the economy and other erroneous notions debunked above and previously. And he was the journalist on the show. William Beach of Heritage was crazier. James K Galbraith tried to explain what was going on, but it’s like talking to the flat earth society with these delusional bubble-seekers.
February 3, 2009 at 9:17 am
eric
Bloix, there’s no Depression denialist here. We have a whole school of posts on New Deal denial because, well, there are a lot of New Deal denialists getting high profile perches at the Washington Post and the Wall Street Journal to say things that are factually wrong.
Why was the 1930s Depression so severe? There’s a big literature on this, of course, but mostly it breaks down to a few things:
(a) After WWI, you had a new center to the world economy — the US — which was unprepared and/or unwilling to play the role of stabilizing the system previously played by the UK. The interwar gold standard might with international cooperation and adjustment have served better than it did if not as well as it did before WWI.
The interwar system of international debts, at the center of which was the US, had been incurred for purely destructive purposes (i.e., WWI), and to pay them back was going to take a long time, particularly for war-damaged countries. The only real source of money to pay off these debts was further loans from the US. Money flowed from the US, to be paid to creditors and ultimately back to the US — not enough was going out to be productively invested so that creditors could be paid back out of profits.
And even if there had been enough productive investment, the US was not taking as much in trade as it might — tariffs started to go up in 1921 and continued upward through the decade, so there was less opportunity to sell to Americans.
The flow of money around the world might have eventually sorted itself out, were there no shock to the system — but to paraphrase Keynes, eventually we’re all dead.
(b) Domestically, a new system of debt and credit had begun to operate within the US. People’s borrowing approximately doubled over the prewar years. Americans were buying more and more durable goods on credit, and running the boom at home.
Again, this might have sorted itself out in the long run, but Americans didn’t have the long run.
(c) The Federal Reserve responded to speculation by raising interest rates in 1928. Ooverseas lending fell off, sending other countries into crisis. Defaults began.
Through almost the entirety of the 1930s, the Federal Reserve’s responses were the opposite of what we think they should be in a crisis — tighter, rather than looser, credit.
(d) Loans made for stock speculation, loans made overseas, loans made at home all started to go bad, beginning a banking crisis. The US banking system was traditionally quite vulnerable owing probably to prohibitions on branch banking. But it was more vulnerable in this climate of increased lending. So you had staggering banking collapses, exacerbated by the absence of a social safety net — people had to draw down their savings — and a banking safety net — people panicked and drew down their savings.
So: effects of WWI, the particular moment in a transition to a consumer-credit economy, bad policy mix including tariffs & monetary policy –> exceptionally bad economic crisis, worse than anything anyone remembered very well.
As Vance indicates at 8:56, the economy was recovering, quickly, during the New Deal. Things that are moving fast and in the right direction but after a long while still haven’t got where they’re going, are things that have a long way to go. That was the US economy in the 1930s.
February 3, 2009 at 9:19 am
Michael Turner
So I asked for an explanation of this undeniable fact, and what I get is a sneering lecture from Michael Turner that the Depression wasn’t technically a recession, it was only a Depression.
Where did I say “only”? I’ve never denied that The Depression was bad.
I’m also 53, and my father’s mother had to raise three kids through the Great Depression, without her husband’s help or income, because he died in 1932. When I ask my father about his early teen years, he says he can’t really remember anything. No wonder. It was that awful for some people.
Not very helpful.
God helps those who help themselves. You might help yourself to some basic elements of the history of the period, and economic terminology, before posting comments.
And just what I was talking about – in response to the New Deal denialists we appear to be developing a school of Depression denialists.
Oh, is that what were talking about? Depression Denialism? Funny, no trace of any such subject in your original post. No trace of any such subject anywhere else, either, unless there was some huge “The Great Depression Never Happened” discussion on the web and in the media, and we all somehow missed it.
I used the terms “recession” and recovery in their technical senses. I’m not going to apologize for that. For you, maybe, both “recession” and “depression” mean “my grandparents slaved for a pittance, when they could get work at all.” Yeah? Some people couldn’t get any work. Some people made out much better than others. Some even got rich then. “Recession” and “recovery” are necessarily statistical and economic expressions, not personal or anecdotal ones. Get used to it.
February 3, 2009 at 9:33 am
Bloix
Vance – that graph from David Beckworth appears to show that by 1937 GDP had returned to the level of 1929. Is that true? Was output in 1937 really as high as in 1929? If so why hadn’t employment returned to 1929 levels? If the graph is correct, shouldn’t employment and standards of living in 1937 returned to pre-Depression levels? Why didn’t they? Or am I reading the graph incorrectly?
February 3, 2009 at 9:43 am
Vance
I’m no expert, but I’d suspect natural increase. GDP per capita was obviously still less.
February 3, 2009 at 11:54 am
Bloix
Natural increase seems very unlikely – population growth from 1930 to 1940 was only 7.3%. If Beckworth’s graph is correct, and if I read it correctly, then the Depression was over in 1937. That’s what I mean by Depression denialism – there’s a lot of data being presented here and elsewhere that appears to require the conclusion – whether explicitly drawn or not – that the Great Depression ended in 1937 and then there was a little bitty blip in 37-38 caused by wrong-headed fiscal policy. If the data doesn’t require that conclusion, why not?
February 3, 2009 at 12:00 pm
Vance
First, I meant that graph just as an example of the account of the Depression that’s been argued for here, not as a conclusive summary. See (again just for example) this one on unemployment statistics. This makes it quite clear that in 1937, there were still miles to go (though there’s a dispute about how many).
And of course, the other thing that can raise GDP without putting people to work is … productivity.
February 3, 2009 at 12:04 pm
Vance
Sorry, “without putting people to work” s/b “while leaving people out of work”.
February 3, 2009 at 12:17 pm
eric
there’s a lot of data being presented here and elsewhere that appears to require the conclusion – whether explicitly drawn or not – that the Great Depression ended in 1937 and then there was a little bitty blip in 37-38 caused by wrong-headed fiscal policy.
You’ve seen no such data here and you’ll see none. You did get a long answer to your question of why the Depression was more severe than previous ones. If you’re just going to ignore it when people courteously answer your questions and at length, while assiduously mischaracterizing the things people are saying, possibly you should go somewhere else.
February 3, 2009 at 1:10 pm
silbey
And here we have the right-wing ecosystem in a nutshell: somebody with vague credentials writes a book of history/science/whatever that then serves as an underpinning for every GOP politician out there.
February 3, 2009 at 1:17 pm
Patricia Shannon
Not all recessions/depressions are alike.
Eg., many (maybe all) of the ones I’ve been thru were caused by the government raising interest rates in order to keep down inflation by causing unemployment to rise. So the fundamental economy was not in the weakened state it is now.
This time we are in the situation of the great depression, with a large disparity in wealth. Except we’re even worse off, because the government debt is so large.
This is not a unique situation in history. See:
The Cycles of American History by Arthur M. Schlesinger Jr.
The Fourth Turning by William Strauss and Neil Howe
February 3, 2009 at 2:24 pm
Readings (II) 02/03/09 | Venture Capital Bloggers Network
[…] New Deal deniers and the pony chokers (The Edge of the American West) […]
February 3, 2009 at 2:27 pm
Bloix
Eric, there’s no need to lose your temper. I read your answer with interest and considerable benefit to my understanding. But I have a specific question which I don’t think has been answered. The Beckworth graph, which you commend to us, shows that GDP in 1937 had reached the same level as in 1929. Is that true or not? Or am I misreading the graph? And if it does show that, doesn’t it imply that the Depression was over in 1937? After all, if GDP had reached pre-Depression levels, then absent significant productivity gains or population growth (neither of which seem likely) employment should have reached pre-Depression levels. You may think that the Beckworth graph doesn’t imply this – indeed you certainly do, with your testy “you’ll see none here” – but it implies it to me, and no one has explained why I’m misreading the graph.
As for “Depression denialists” – well, I admit that’s a provocative turn of phrase, but it’s meant tongue in cheek, and not with the intent to offend. To sample an example of Depression denialism, see Prof DeLong’s speculation that decreased hours of average weekly employment during the Depression is not necessarily a sign of underemployment because it might have been the result of “a much-desired increase in the bargaining power of workers who then choose to bargain for more leisure.” I have to say that I find this argument unconvincing. Don’t you?
February 3, 2009 at 2:35 pm
EconTech » Links for 2009.02.03
[…] The pony chokers. « The Edge of the American West […]
February 3, 2009 at 2:55 pm
Vance
Bloix, man….
And if it does show that, doesn’t it imply that the Depression was over in 1937?
No, GDP is only one economic measure.
After all, if GDP had reached pre-Depression levels, then absent significant productivity gains or population growth (neither of which seem likely)
Population rose more than 5% from 1929 to 1937. Brief googling says productivity rose.
employment should have reached pre-Depression levels.
But we linked data that showed it did not. What more do you want?
February 3, 2009 at 2:57 pm
eric
GDP in 1937 had reached the same level as in 1929. Is that true or not?
You can see for yourself at Beckworth’s source, but the answer is basically yes.
doesn’t it imply that the Depression was over in 1937?
No; (a) there’s no technical answer, apparently, to the question “when is a depression over”; if we were considering the question “when was the 1929 recession over” the answer is “1933” and (b) we use different ways of thinking about when the depression would be over, and one of them would be unemployment.
if GDP had reached pre-Depression levels, then absent significant productivity gains or population growth (neither of which seem likely) employment should have reached pre-Depression levels
Do real GDP and unemployment move in lockstep? What about the widely attested phenomenon of the “jobless recovery”? Besides, productivity gains are widely attested (see the Alexander Field article) and population growth is in evidence too.
Seriously, what do you think Beckworth did, make up the data?
Prof DeLong’s speculation that decreased hours of average weekly employment during the Depression is not necessarily a sign of underemployment because it might have been the result of “a much-desired increase in the bargaining power of workers who then choose to bargain for more leisure.” I have to say that I find this argument unconvincing. Don’t you?
No, not when you’re talking about a move from something above 50 hours or so a week at 1900 down to 40 hours a week or so at mid-century and a labor movement that’s been lobbying for an increase of leisure for decades; no, I don’t find that at all unconvincing.
February 3, 2009 at 2:57 pm
eric
Or what Vance said, more briefly.
February 3, 2009 at 3:13 pm
Vance
What’s especially weird is that on the broad qualitative points, there’s no disagreement — Bloix is just sure, somehow, that Eric et al. are saying something they’re not.
February 3, 2009 at 3:32 pm
kid bitzer
every time i see this post title, i’m reminded of the ojay’s philly-sound hit from ’72, “the back-stabbers”.
cue the horns:
“What they do ?
huh!!
(They smile in your face)
All the time they want to take your place
The pony chokers (pony chokers!)”
February 3, 2009 at 3:32 pm
jazzbumpa
Nothing of substance to add. Just want to thank you all for a fabulous post and comment stream. I was reading snippets to my wife, and she said, “You sure are learning a lot.”
BTW, you 53-y-o’s are YOUNG!
(But I’m still younger than Laffer. The horrible thing is, I saw him on Bill Maher’s show a few months ago, and he looks like he’s in his 40’s. Another thing righties forget, while I’m at it, is there is also a left side to his curve – there’s a maximum in there somewhere. Too subtle, I guess.)
February 3, 2009 at 3:34 pm
Barry
I would urge people to simply tell bloix to STFU. It’s clear by now that he’s just playing a game.
Patricia, you’ve got a good point – the standard post-WII (New Deal) recession was caused by the Fed raising interest rates. This meant that the Fed could lower interest rates, to bring us back out of recession. In the current case, we had a financial system break-down + Fed rates at extremely low levels.
Student, re Schlae’s latest WP garbage: “It looks like she’s giving a little ground on progress toward recovery but her basic argument remains the same. Plainly she has an “in” with the Post editorial board, which tends to the right these days.”
Her ‘in’ is that she says things which the Post’s editors want to say. It’s important to remember that the Post isn’t accidentally printing garbage, day in and day out. It’s quite deliberate.
February 3, 2009 at 3:41 pm
Bloix
Actually, Vance, I’m not sure of anything – that’s why I’m asking questions. I’m not operating in bad faith here, and I’m not accusing Beckworth of misrepresenting data. I’m asking questions. Now you’re certainly entitled to say, go away and read on your own, kid – but this is a blog, for chrissake, not a graduate seminar, and we commenters are allowed to be ignorant. Go ahead and diss me for being stupid if you want – but the accusations of bad faith seem designed to maintain this as a site for the faithful, not a place for discussion.
And your last two answers, actually, have been pretty enlightening. We’re now at the position that we agree that GDP by 1937 had reached pre-Depression levels, but we explain that unemployment remained high due to productivity gains and increased population. (Population did grow during the 30’s although only half as fast as in the prior and succeeding decades.) So this seems reasonable.
On the DeLong point, though, color me unconvinced. I’m familiar with the fight for the eight hour day, and I’m aware that, for example, the FLSA wasn’t passed until 1938 and the UAW wasn’t recognized by the Big Three until 1937 – both events too late to affect average hours of labor. And no, I don’t believe that wages rose sufficiently during the Depression, as compared to the 1920’s, such that unorganized workers had the ability or desire to bargain for increased leisure over higher pay.
And I don’t know why we’d want to contest the point that workers worked less than they wanted to during the mid-years of the Depression, unless we’re trying to prove that there was no Depression to speak of. It’s one thing to argue that the New Deal was working. It’s quite another to contend that the New Deal HAD WORKED – that the Depression was over and any residual unemployment or under-employment was just a manifestation of workers’ desire for leisure. If we argue that, we’re starting to sound like – well, who’s that Chicago-school guy who makes the exact same point about the current crisis?
February 3, 2009 at 4:06 pm
eric
It’s one thing to argue that the New Deal was working.
That’s all we’ve contended here.
It’s quite another to contend that the New Deal HAD WORKED
I don’t think anyone’s contending that. I think you’re misreading DeLong’s discussion of average hours worked to mean there’s no unwanted unemployment. Clearly there was.
February 3, 2009 at 4:47 pm
andrew
From Silbey’s linke:
That seems like an abbreviated reading of Kennedy’s “What the New Deal Did” chapter. (Kennedy’s actually written about the New Deal for the same
papersite, by the way.)February 3, 2009 at 6:09 pm
Paul Krugman
All hail the Nanny State!
Pick the scabs of our bleeding nation some more, lets print more money, re-sod the mall elect another president for 12 years. And plunge further into debt! Hooah, depression here we come.
February 3, 2009 at 7:14 pm
Dr J
(I don’t think that’s really Paul Krugman.)
February 3, 2009 at 7:25 pm
eric
At what point does permitting comments actually incur diminishing returns?
February 3, 2009 at 8:33 pm
Bloix
“I think you’re misreading DeLong’s discussion of average hours worked to mean there’s no unwanted unemployment.”
I’m not reading it that way at all. DeLong says that, in part, the drastic drop in hours worked from 1929 to 1936 – a dive-bombing free-fall according to his graph – is due in part to “a much-desired increase in the bargaining power of workers who then choose to bargain for more leisure.” I think that the notion that workers in 1936 had increased bargaining power over workers in 1929 is simply bizarre. Your own calculations show that in 1929, unemployment stood at under 5% while it was just under 10% in 1937. Where could this increased bargaining power have come from?
By 1938, unions made a difference – the CIO did a phenomenal job of organizing large numbers of industrial workers in all sorts of industries in 1937-38. But beginning in 1937 or 38, according to DeLong’s graph, hours of labor went up. So the data show that when organized labor was weak, hours were down, and when labor became strong, hours went up. How does this support his argument that, in the Depression era, increased bargaining power led to shorter hours? Or that shorter hours are a sign of labor’s desire for more leisure?
So I think DeLong should admit that it is possible that hours were down because there was insufficient demand for labor. Apparently you think this, too, because you compared the 1933-1936 period to a “jobless recovery.”
By the way, you’ve had dozens of substantive comments from all sorts of people that have clarified a number of issues and helped this reader, at least, understand your position, and you’ve had only one jerk with a non-substantive insulting comment. Not a bad ratio of sound to noise. If you decide to turn off your comments, it will be your readers’ loss.
February 3, 2009 at 8:45 pm
ari
Dude, that “jerk” is a Nobel laureate. Show some respect.
February 3, 2009 at 8:51 pm
Walt
I knew that Krugman had some secret agenda. I’m just surprised he decided to reveal it here. Maybe he’s relying on the fact that no one ever learns the lessons of history or history’s blogs.
February 3, 2009 at 9:03 pm
Bloix
Aha! Now we can fight over whether the Bank of Sweden prize is a real Nobel!!! Now that’s something worth arguing about!
But it isn’t really Krugman. You can tell because he never says Hooah.
February 3, 2009 at 9:04 pm
Michael Turner
Eric, you might ask Greg Mankiw about the diminishing returns to permitting comments — I’m sure he’d claim to be an expert. (He does respond to e-mail, I’ve found, so there is a way to reach him, even with comments turned off. That’s something.)
Bloix, on Beckworth’s graph: Natural increase seems very unlikely – population growth from 1930 to 1940 was only 7.3%.
Or “only” about 8 million people, which in this case actually understates growth in the supply of eligible workers. This graph shows evidence that the Great Depression cut population growth significantly, as you’d expect. Fewer could afford children, more were dying, and it probably cut immigration to some extent.) It shows something else, too: the Great Depression really kept ’em down on the farm — somebody else’s farm, if they lost their own. Expectations of improvement really do matter in perceptions of misery.
8 million added Americans understates the added burden of unemployment from that increase. People who decided to have children in that period were not adding an able-bodied person to the workforce with each trip to the maternity ward — their contribution wouldn’t have affect real labor supply for another 14-22 years. What you have to look at is growth in the supply of eligible workers — which would be proportional to how many had been added by birth or immigration to the U.S. population about 18 years before — or about 10-12 million people. But you can also look at a more indicative graph I already supplied: in 1937, real GNP per capita, corrected for trend growth to account for perceptions of where people thought they should have been in life at that point, was more than 15% below 1929. Bad, but not as bad as what looks like a -35% point the day FDR took office.
February 3, 2009 at 9:12 pm
andrew
Nobel lariats know how to catch ponies with out choking them.
February 3, 2009 at 9:38 pm
eric
I think that the notion that workers in 1936 had increased bargaining power over workers in 1929 is simply bizarre.
Really? You don’t think the Wagner Act (and before it, section 7a of the National Industrial Recovery Act) mattered? Bloix, either you’re trolling, in which case bravo, or else you seriously need to go read a nice history of the New Deal. Either way, you shouldn’t be here throwing out all this chaff.
February 3, 2009 at 9:42 pm
ari
Might I suggest a nice history of the Great Depression and New Deal?
February 3, 2009 at 9:47 pm
andrew
in which case bravo
I have to admit that sometimes this kind of rigorous good-faith argumentation can be a beautiful thing to watch.
February 3, 2009 at 10:24 pm
Bloix
eric, you know that the Wagner Act was not passed until 1935 and that until its constitutionality was upheld in 1937 it had very little effect on anything. Then it was used to great effect – as I indicated – by the CIO’s organizers.
And you know that the NIRA – enacted in July 1933 and held unconstitutional less than 2 years later – was not effective. But even if the NIRA had been effective in reducing hours, it would not have been an example of increased bargaining power of workers who wanted leisure – it would have been the result of government intervention in an effort to spread work around. In other words, your arguments support my position, not DeLong’s.
So why do you say that I’m a troll? “Krugman” is a troll; perhaps so many of your commenters are cheerleaders that you’ve lost the ability to tell the difference between a critical reader and a troll. As I said up-thread, you’re perfectly entitled to tell me to go away and read on my own; I take no offense at that. But your accusation of bad faith is just self-righteous bad temper on your part.
PS – Michael Turner, I used the census increase of 7.3% because that’s the figure I could find. The increase from 1929 to 1936 would perhaps be 6/10ths of that, perhaps, or 4.8 million, not 8. Still, that’s a lot of people, as I conceded up-thread. And I do agree that the relevant figure is not absolute population but increase in the working age population.
But I’m skeptical about arguments that the sense of Depression in 35-36 was one of perception that people had not become richer since 1929 (that is, that GDP per capita was below the trend line) and not that they were in fact significantly poorer than they were in 1929, in absolute terms. At the risk of further incurring eric’s wrath (and yours), I feel that we’re moving into Depression denialist territory – that you’re coming close to arguing that living conditions were not really worse, or not much worse, in 1935-36 than in the pre-Depression period, they just seemed worse because everyone had been conditioned to believe they should be getting richer. I just don’t believe that. I believe that the Depression in its decade-long entirety was genuinely a period of diminished living standards, in absolute and not merely relative terms. Perhaps there’s good data to show that I’m subscribing to folk history. But until I see it I won’t believe it.
February 3, 2009 at 10:27 pm
Michael Turner
Dude, that “jerk” is a Nobel laureate. Show some respect.
I’m sure Bloix meant me, ari. I suppose my comments were automatically “non-substantive” to Bloix because Bloix felt insulted by them. By “insulting to Bloix”, I mean, “failing to treat Bloix with the respect perhaps owed to Paul Krugman, even though Krugman only has a fake Nobel prize.” Or something. I can’t figure it out.
Bloix: So the data show that when organized labor was weak, hours were down, and when labor became strong, hours went up. How does this support his argument that, in the Depression era, increased bargaining power led to shorter hours? Or that shorter hours are a sign of labor’s desire for more leisure?
Not to oversimplify too much, but you have two kinds of (non-WPA/non-work-relief) worker during the Great Depression:
(1) those scraping by, on temporary and/or part-time work, catch as catch can, because work is scarce,
and
(2) those still employed, many (if not most) of whom are being worked much longer hours, a lot more hours than they liked. Why longer? Management is trying to make up for the overall loss of labor productivity. Why would productivity drop even with the remaining (not laid off) workers working at the same intensity? Because of debt service on underutilized fixed capital (made harder by deflation): management needed to continue paying back the loans that financed the construction of factories that ended up running at lower capacity than projected, because unemployment (which they themselves are ironically contributing to) is reducing demand below what was projected when the factory was planned.
The Fallacy of Composition strikes again: employer decisions that might be rational in individual business terms (“Lay some employees off and work the rest harder!”) can be self-defeating when they all do it at once (“Hey, our market is only continuing to evaporate, because unemployment is going up!”) Not all employers behaved that way during the Depression, but arguably some of them had no choice — as long as the government did nothing to prop up employment generally. And some employers might have no choice now, if stimulus measures fall short.
The part-timers and/or temps want full-time, and/or job security. While those more-than-full-timers could use a break — they “desire more leisure.” As you’d expect.
As unions, and labor-hours legislation, strengthened during the New Deal, more-than-full-time workers bargained for — and got — more leisure. This probably helped the economy somewhat, by forcing management to spread the work around over more eligible workers. And with economic improvement, more part-timers got full time work, leading to more hours worked in aggregate, with labor-hours limits on a legislated/negotiated basis.
With those expectation in place after WW II, well . . . . Brad DeLong, in a blog post you should read carefully, put it quite well:
No. Almost everyone was better off. Clearly.
The wonky substance of the debate is in terms bracketed by DeLong’s
February 3, 2009 at 10:32 pm
Michael Turner
Wow. Serious blockquote tag-close failure. Sorry. Starting at “and his closing remark”, mentally shift everything left by two tab stops.
February 3, 2009 at 10:53 pm
Bloix
No, Michael Turner, I meant “Krugman.” As I’ve tried to say clearly and slowly and repeatedly, I appreciate your willingness to engage with me and have benefited from your comments. I would say this in ALL CAPS if I thought it would help. If you choose to take offense, I really can’t help it. I don’t know why you’re so defensive. It’s a shame, but it’s not my fault.
And I did read DeLong’s post. I think he’s made an overstatement in his zeal to defend the New Deal from the New Deal denialists. That’s what I’ve been writing about. I even read his comments, and I look forward with interest to a debate between DeLong and these Cole and Ohanian fellows.
But this is enough for today, I think. It’s been useful for me, it’s clarified my thinking, and perhaps it’s been useful for Andrew, too. Thank you, Michael Turner, thank you, Vance, and thank you, eric, for the blog.
February 3, 2009 at 11:09 pm
Michael Turner
Bloix again: I just don’t believe that. I believe that the Depression in its decade-long entirety was genuinely a period of diminished living standards, in absolute and not merely relative terms.
You have to look at distribution in living standards. The Great Depression introduced greater skew between those employed (often “over-employed”) and the under- and un-employed.
Technology improved, and — to those with intact salaries — became more affordable during that time. Those with intact incomes had higher incomes, in real terms, because of deflation.
But did the added purchasing power buy the “lucky” employed more happiness? And on the other side of it: eating less than you need to survive is lot more miserable than eating less than you’d like. GNP doesn’t measure feelings.
GNP is ultimately composed of salary payments (the costs of goods being largely the costs of paying people to make and deliver them), and GNP per capita could have been higher in 1937 than it was in 1929, but still leave overall misery higher still.
How could that be?
Someone working 50-60 hours a week (“can’t say no to the overtime requests, the boss can replace me in an eyeblink”) could, with more purchasing power per dollar, not just more dollars, surround himself with more consumer goods. But is that more contentment? Maybe it’s mostly exhaustion, with less time for family and friends, leavened only a little with some added luxury — which you can’t enjoy as much, not just because you have less time and energy, but also perhaps because of real or latent envy of relatives and friends hard hit by the economy? Or maybe that you don’t enjoy added luxury at all, because you save all your added income in case your boss decides to fire you after all?
And what about the people left unemployed because bosses prefer pressing for overtime instead of hiring extra staff? That’s a lot more misery.
Multiply by the misery measurement for each by the appropriate factor tens of millions, in each category, and you get: not much real felt improvement with added purchasing power, for those who “luckily” got more, and megatons of misery for those left in the cold. “GNP per capita same as 1929” doesn’t need to mean “overall happiness same as 1929.” And I never said it did. Nobody here has.
Bloix, you seem to argue from aggregate when it’s distribution that matters, and from specific instances of distribution (e.g., your mother’s experience as a child) when aggregate is what matters. I’d like to think you’re arguing in good faith, only a little lazy about doing your own research, but that crack about “real” Nobel prizes — well, somehow I think if it was someone else talking about a Nobel laureated economist with whom you agreed strongly, you’d protest the unfairness.
February 3, 2009 at 11:37 pm
Ahistoricality
arguing that living conditions were not really worse, or not much worse, in 1935-36 than in the pre-Depression period, they just seemed worse because everyone had been conditioned to believe they should be getting richer.
Maybe I’m missing something, but I’ve gone back over this thread and I don’t see anyone saying anything of the sort. Nothing even remotely close, actually, except for your own comments about GNP being back up to pre-’29 levels by ’37. (but not per capita)
February 4, 2009 at 1:13 am
Bloix
Oh jeez, no one wants to let me go to bed, do they? Michael Turner, Krugman is a hero of mine. I’ve been complaining about the phony “Nobel” for years and years, which I believe was established for the purpose of putting a shine on the shit of neo-classical economics. I think it’s great that Krugman won the Nobel Memorial Prize, but I continue to believe that it is a political and not a scientific award.
Ahistoricality, see the last paragraph of Michael Turner’s 9:04 pm post. Plus, see his new (11:09) post, which argues that the Depression by the end of the 30’s wasn’t an underutilization problem at all but was primarily a distribution problem. Distribution being the easiest problem for a progressive government to solve (via taxation and provision of services), I don’t see how Michael Turner can argue this and yet be a fan of Roosevelt – he reads to me more like a critic of the New Deal from the left. But maybe that’s what he is.
Michael Turner and eric, you may want to confer with each other. Eric seems to believe that high unemployment in the face of rising GDP was possible due to increased productivity (at 2:57 pm) but Michael Turner thinks that “there was an overall loss of labor productivity” (at 10:09 pm). Perhaps there’s no contradiction.
Night, all.
February 4, 2009 at 4:28 am
Michael Turner
Wow, I must be stupid. I don’t understand how anything I said was a “leftist” criticism of the New Deal, or even leftist at all. Or even a criticism, really.
I merely pointed out that the same GNP per capita, distributed one way, can lead to more misery than if it’s distributed another way, especially under deflationary conditions. Come to think of it, you could almost define the Great Depression (as opposed to a mere recession) in such terms.
Is this rocket science? Am I too immersed in the subject now? Have I lost track of how hard it can be for ordinary people to understand this sort of thing?
Michael Turner thinks that “there was an overall loss of labor productivity”
That’s a chopped, non-verbatim, out-of-context quote. Real words: “Management is trying to make up for the overall loss of labor productivity.” Management (of a firm), not “the economy”, which is what eric was referring to.
No, there’s no contradiction, I don’t disagree with Eric. He’s talking about the economy as a whole: eagle’s eye, the numbers as a Treasury Secretary or Fed Chair would see them. Above, I’m talking frog’s-eye view, the point of view of the management (also the workers) of a particular firm as it faces certain harrowing choices. These choices don’t necessarily have the same ramifications for the economy as a whole, when they are made in various ways by thousands of companies. (Yep: The Fallacy of Composition, once again. Funny, how that one keeps cropping up in bad economic reasoning.)
In fact, in previous comments on the theme of New Deal Denialism, I’ve pointed out that productivity increase by leaps and bounds during the Great Depression.
And why not? The impetus was there, and the way was open. As long as there is room for capital substitution of labor to increase productivity, there is a fairly clean, straighforward, fast-acting mechanism for translating that potential into a reality: liquidation of the firm. New firms will rush in to fill the supply gap, firms not saddled with decrepit fixed capital. When inefficient, debt-saddled firms fail, the new firms (which could also include existing ones branching out, forming new divisions) can invest in the new production technology and make a profit. They can even profit while chasing shrinking demand, if the productivity improvement is high enough, and demand is shrinking slowly enough.
Where once there were ten jobs to make 100 widgets a month, you might need only three jobs to meet the new demand of 70 widgets a month. This can naturally feed deflation if reduced costs are reflected in the prices of products, not just in a return to profitability. However, that effect on nominal GDP washes out somewhat in real GDP numbers, which are adjusted for both inflation and deflation. So it seems possible for even a growing GDP to somewhat mask deterioration in employment and in demand, at least for a while.
That’s the simplest scenario. Short of bankruptcy, a company might invest in the same labor-saving fixed capital if it could still get investment backing, and if it made financial sense. It could also pay off its depreciated fixed capital after renegotiating terms with banks.
(A threat to go bankrupt otherwise might just do the trick with the bank. And plenty of firms were going bankrupt, so that could be — and probably often was — a pretty credible threat. Also, with deflation, a negotiated lower nominal interest payment can have higher real purchasing power for the bank holding the loan.)
Also, an abandoned factory can be bought from the bank for a song, and, without the obligation to service old capital costs with deflating money, it might re-hire and limp along, even with the same old equipment, where the previous company would only slowly bleed to death financially.
And of course, in several of the above scenarios, simply making workers work more hours, more intensely, is a win: less new capital equipment to finance.
If got faith in you, Bloix — I’m confident that if you spend maybe a hundred hours on focused reading on the topic of the economics of the Great Depression, you’ll eventually be able to work out these sorts of things for yourself. That’s what it took me, anyway. Maybe you’ll get there faster.
For now, why not just focus on avoiding misconstruing what we’re saying? I suggest reading every posting in the New Deal Denialism category at Edge of the American West, starting from the first. It shouldn’t take long. You might pay some attention to the comments on those posting, while you’re at it. You’ve certainly made a hash of my positions, between not knowing what they’ve been in the past, and not having the right vocabulary to talk about them. Now, it looks like you’ve even pissed off Eric, and he co-owns the blog.
February 4, 2009 at 5:55 am
Ahistoricality
Bliox, I read all those posts before I posted my comment. Your comment is, at best, a highly distorted paraphrase; more likely, it’s something you ran into before somewhere or thought up yourself and are projecting onto the discussion here. It’s not a fair or reasonable summary of the comments you cite, or any other in this thread (or any of the other New Deal Denialist threads I’ve read here.
You may be trying to move the discussion forward by summarizing and asking “what comes next” but you can’t do it unless the summaries are recognizable to the other participants of the discussion.
February 4, 2009 at 7:00 am
Barry
Michael Turner: “And of course, in several of the above scenarios, simply making workers work more hours, more intensely, is a win: less new capital equipment to finance.”
I’d bet $20 anyday that the wage/hour figures during that time were underestimates of hours and overestimates of wages. It’d have been trivial to work people 60 hrs/week and pay them for 40. The constant, looming, quite credible threat of being fired and not getting another job at all had to have been a nightmare.
February 4, 2009 at 7:18 am
jazzbumpa
Bliox –
Give it a rest, man. The folks here have spent a lot of time and effort giving you a free education, and have gone way out of their way to be polite. After spending a little time at conservative blogs, I can tell you the restraint and decorum here are remarkable and rare. I come here to learn too, and when somebody feeds me, I don’t nip at their fingernails.
Here’s some friendly advice. Your pony died underneath you about six posts ago. Please find it a suitable burial plot. Seriously. If this were my blog, I would by this time delete your posts, unread.
February 4, 2009 at 8:48 am
Why Does CBS Hate America? « From Laurel Street
[…] tack of asking Republicans for suggestions. He has given their failed policies legitimacy — he is assisting the pony chokers. No Comments so far Leave a comment RSS feed for comments on this post. TrackBack URI […]
February 5, 2009 at 1:58 pm
Badtux
I’ve used a similar metaphor in the past, but I use flying monkeys, not pony chokers. Whenever there is an unpleasant truth that they cannot refute with real data of their own, today’s right-wing instead releases hoards of flying monkeys to screech and howl and throw monkey feces in an attempt to hide the truth under so many piles of reeking monkey feces that you need a shovel and/or a map to find it. And today’s he-said she-said mainstream media, rather than provide such a map, dutifully helps spread the reeking monkey feces just as much as it spreads the truth, claiming that telling people that the reeking monkey feces was, well, reeking monkey feces, would be “analysis” rather than “news” and thus Not Their Job.
Which of course is why newspaper circulations go down every year and more young people get their news from Jon Stewart than get it from CNN. Because Jon isn’t averse to calling reeking monkey feces, well, reeking monkey feces. Still, I must admit that the pony choking metaphor works quite well for the particular instance that you are talking about, because it describes quite accurately Republican economic policy in a nutshell.
February 9, 2009 at 2:14 pm
Republicans: ‘Sorry, we can’t afford to save America’ « Millard Fillmore’s Bathtub
[…] I regret I didn’t make the connection earlier — go read “The Pony Chokers” at Edge of the West. Don’t let stiff-necked Congressional representatives choke your pony. Possibly related posts: […]
February 9, 2009 at 4:51 pm
EconTech » Links for 2009.02.09
[…] The pony chokers. « The Edge of the American West […]