 |
Do I delude myself in thinking Amity Shlaes is giving a bit of ground? In her latest effort to persuade us the New Deal was bad she admits, “Many of FDR’s initial plans did bring stability: His first Treasury secretary worked to sort out banks with the outgoing Hoover administration in a fashion so fair that an observer noted that those present ‘had forgotten to be Republicans or Democrats.’ By creating deposit insurance, FDR reduced bank runs. His Securities Act of 1933 laid the ground for a transparent national stock market. Equities shot up.” Which in fairness is not a concession I remember her making before.
But she’s still devotedly wrong. Today it’s the dollar devaluation that was a horror: “Using emergency powers, FDR yanked the country off the gold standard…. Some of the worst destruction came with FDR’s gold experiment. If he could drive up the price of gold by buying it, he reasoned, other prices would rise as well. Roosevelt was right to want to introduce more money into the economy (the United States was deflating). But his method was like trying to raise an ocean level by adding water by the thimbleful.”
Except, as even some George Mason economists will tell you, devaluing the dollar was possibly one of the best things FDR did, contributing mightily to the “spectacular” rate of recovery under the New Deal.
If the Post had wanted to publish a column on the general subject of whether current uncertainty is harmful, and reflecting on the New Deal, they might have wondered if today we have done as much as Roosevelt did with the bank holiday to make banks stable and worth the investment of public money.
The Edge of the American West 
28 comments
February 1, 2009 at 10:48 am
davenoon
I like Dean Baker’s argument that the Post‘s Outlook section can only be understood as a jobs program.
February 1, 2009 at 10:53 am
Kevin
Say what you will, but I think the Washington Post should be commended for hiring people with psychiatric problems.
They probably shouldn’t let them take their delusions out on the op-ed pages, but hey, it’s their business. Let them destroy it if they want.
February 1, 2009 at 11:17 am
Jonathan Rees
Eric:
Have you ever seen any New Deal denialist even address the issue of relief? Imagine for a moment a bizarro world where Shlaes is actually correct about recovery and you came back and said something like, “Well at least Roosevelt stopped people from starving.” Can you imagine what the response might be?
February 1, 2009 at 11:32 am
drip
‘Well at least Roosevelt stopped people from starving.’ Can you imagine what the response might be? Yeah, “but if he hadn’t feed and clothed them, the markets would have worked more efficiently so fewer would have starved to death and nobody would have died of exposure.”
And Kevin’s right about the Post’s Op-ed page. I think its a testing ground for the new DSM.
February 1, 2009 at 11:39 am
kid bitzer
liquidate the starving!
February 1, 2009 at 11:46 am
silbey
Soylent Green is…people!
February 1, 2009 at 12:03 pm
Chris J
Eric and colleagues, you guys follow this stuff for a living (and maybe a hobby, too), but I’m struck by what seems to me to be a huge and rather sudden resurgence of New Deal bashing over the past year, and especially the past few months. I suppose it’s all about framing the dominant narrative for the upcoming battles. But were things this strident back when Bush’s Social Security “reform” balloon when down in Hindenburg-size flames? Lately there just seems to be an order of magnitude more noise from those people. The more obviously compelling is the evidence in favor of governmental intervention in the economy for the common good, the louder the squawks.
February 1, 2009 at 12:37 pm
Jonathan Rees
What I meant, drip, is do they even bother to critique FDR on the relief front?
February 1, 2009 at 12:42 pm
student
Just look at today’s Washington Post (outlook section); she’s at it again. She’s giving ground, like you say, but still a big liar.
February 1, 2009 at 12:50 pm
John Emerson
As I wrote on “Political Animal” (edited):
It’s because the owners and managers of the Post want to deceive people. That’s why.
I wish people would quit playing dumb. The Post prints dishonest writing because the Post wants dishonest writing. They don’t make hiring mistakes. They don’t promote liars and fluffers by accident. Whatever they might have been in the distant past, the people who run the Post and the Times are bad guys now.
They don’t care what you think. They’re going to continue with this stuff. The Post will be as bad five years from now as it is now.
Lucy isn’t going to change, Charlie, no matter how much you beg.
Seriously, the editorial pages of the Times, the Post, and the WSJ are propaganda organs, period. It’s like complaining that Ann Coulter makes factual errors.
February 1, 2009 at 1:12 pm
eric
Have you ever seen any New Deal denialist even address the issue of relief?
No; the game is to never talk about relief or reform.
Imagine for a moment a bizarro world where Shlaes is actually correct about recovery and you came back and said something like, “Well at least Roosevelt stopped people from starving.” Can you imagine what the response might be?
I do say these things, but Shlaes types don’t listen.
Besides, isn’t it fun to be right about recovery, too? 3 for 3, baby.
February 1, 2009 at 1:55 pm
kth
John Updike on Amity Shlaes (basically he’s not a fan; apologies if this has been linked previously here).
February 1, 2009 at 3:18 pm
Jonathan Rees
Thanks Eric,
That’s exactly as I expected.
Just like in the 1930s these idiots will ultimately lose the political argument because real lives are on the line. The freedom of markets doesn’t matter to people on the unemployment line.
February 1, 2009 at 5:28 pm
Sir Charles
eric,
As soon as I read this article this morning I knew that you would slap her down. Thank you.
February 1, 2009 at 6:00 pm
John Emerson
Not talking about worker welfare is standard. Sometimes Europe has higher employment than the US, but unemployed Europeans are far better off than unemployed Americans.
February 1, 2009 at 10:21 pm
eric
Thank you.
You’re welcome, Sir C. But seriously, you didn’t need me to tell you the piece was wrong, did you?
February 1, 2009 at 10:58 pm
Michael Turner
I’ve gotten really tired of how she keeps trotting out the line about FDR’s gold-price-setting through choosing lucky numbers. I always figured that one as an out-of-context quote (since it was suspiciously devoid of any context except Morgenthau’s diary entry, itself quoted without any context.) Here’s another view on “Because it’s three times seven”, via Arthur Schlesinger’s The Coming of the New Deal, 1933-1935 (p.241):
February 2, 2009 at 12:35 am
Michael Turner
I hit “submit” by mistake, there, but let’s stop, contextualize and discuss for a second. FDR, Morgenthau, RFC chairman Jones, and, sometimes, George F. Warren — an agricultural economist, an ardent opponent of the gold standard, and a professor of Morgenthau’s at Cornell, and very important in this picture — would meet and discuss. The goal was to get control of prices in general, and commodity prices in particular, which were spiraling downward. FDR was taking counsel from economists with expertise in commodity prices. Warren’s theory might have been bunk, but they thought it was something worth trying, and it was at least rigorous enough to provide a basis for rough price calculation. It didn’t work when the gold purchases were domestic only, but it did seem to have some (admittedly rather chaotic) positive effect (with the chaos decried by central bankers elsewhere, and ultimately even by Keynes; see below) when the purchases were made on the international gold market.
Continuing (again, all added emphasis mine):
Now, accepting Schlesinger’s version of the story at face value, there’s a possible real reason for Morgenthau’s concern about “lucky numbers” that Schlesinger, in his recounting, doesn’t mention, possibly because Schlesinger didn’t think of it, and that Morgenthau didn’t mention because he thought it too obvious: if the goal was to be unpredictable, using “lucky numbers” was not a good random number generater — it’s far short of random, and persistence in any pattern could have been picked up and used by savvy speculators. Also, Warren’s theories about the perniciousness of the gold standard were reasonably well-known, he’d been promoting them for years as a way to save the American farmer. So the formula the White House used for price estimation might have been accessible to the more sophisticated Wall Street gamblers. If someone knew it was “Warren’s formulae + fudging with lucky numbers,” the price-setting operation could be gamed even more precisely. (As it was, Warren was practically snuck into and out of the White House, perhaps to try to keep his involvement under the radar, and perhaps for this very reason.) Schlesinger’s quip about Morgenthau not often realizing when his leg was being pulled could be just Schlesinger’s guess; Morgenthau might have gotten to worrying about a real risk, in the evening, after having gotten in a good laugh himself at FDR’s joke, in the morning.
How reliable is this version of the story? Well, perhaps only as reliable as Henry Morgenthau’s own memory (or reporting), which appears to be the source for Schlesinger’s version. Morgenthau’s diary is perhaps our only source. From his diary, it reads like this:
Perhaps Morgenthau needed cheering up; those weren’t exactly cheery times. He might have had more of a sense of humor than Schlesinger gives him credit for, however. Morgenthau goes on to say:
So maybe Morgenthau had a sense of humor after all?
To sum up: in grim times, FDR’s people, using the only workable theory they had for pulling commodity prices out of a deflationary spiral, calculated a price range for gold every day. On a particular day, after the choices were thus narrowed, FDR made a joke of picking a “lucky” number in that very narrow range, perhaps as a way of poking fun at Prof. Warren’s theories (about which he was known to be humorously skeptical), and to try to cheer up Morgenthau. Morgenthau recognized it as humor (at the time? Belatedly? It’s ambiguous), and noted it to himself later as a source of worry (seriously? tongue-in-cheek? It’s ambiguous).
Now, this is a pretty different picture from FDR as totally arbitrary gold-price dictator, isn’t it? FDR was perhaps being dictatorial in a sense — he claimed the right of the Executive Branch to determine gold prices, based on both the charter of RFC and on an obscure post-Civil War ruling of some kind, and what he was doing was considered quite outrageous at the time. History vindicated this decision to some extent. It seemed a worthy experiment, it had some modest success, and it was perhaps ended mainly to quell domestic and international political objections. But whatever it was, it was definitely not based on some superstitious racetrack betting heuristic.
You wouldn’t know this from reading Shlaes. I haven’t read Shlaes’ The Forgotten Man. However, in an AEI piece that, amazingly, lauds Schlesinger as a chronicler of FDR’s reign, this entire episode that Schlesinger got more or less right (if Morgenthau is to be believed, and why not?) gets re-rendered thus:
Roosevelt: Fascist Liberal! (Who doesn’t even laugh; oh, you know those humorless liberals!) Easily painted as such, when you fail to expand on and consider what Morgenthau’s “etc.” meant in context.
Worse, here is how Shlaes begins that piece:
Which is to say, it’s almost certain that Shlaes wrote in full awareness of context, so what can explain her desperate abbreviation (to the point of leaving out the fact that FDR was joking) except an overwhelming need to be ideologically tendentious?
Too bad we don’t seem to have an historian of Schlesinger’s caliber these day, in the popular mind. We need somebody who could give this silly little liar the smackdown she so richly deserves, for sending so much of the real story down some Orwellian memory hole.
February 2, 2009 at 12:41 am
Michael Turner
Damn, but it’s hard to find where to close all those tags, without preview. I demand preview. OR the chance to make this a guest post. My position is not negotiable: I will hold my breath until I turn blue, until I get one or the other.
February 2, 2009 at 6:44 am
kid bitzer
pssst–eric! ari!
better give turner a guest post, before he turns blue!
i’d hate to have him turn blue down in comments, but seeing it happen in a guest post could be pretty entertaining!
February 2, 2009 at 7:31 am
Sir Charles
eric,
Although I certainly didn’t need you to tell me that the piece was wrong and that her revisionism is bullshit, as a lawyer I like to see someone muster the facts and essential arguments rather than simply relying on my much more general reading on the subject. You do so rather well.
February 2, 2009 at 7:58 am
Michael Turner
Kid, I kind of did turn blue in comments — I’m not sure what that link color is, but it got splashed all over some text that was supposed to be b&w.
All I really need is closure. Tag closure. Let a true historian make a post of this. I just play a historian, in comments here.
As for how a rank amateur like me can get this particular episode down more accurately than Shlaes, the supposed professional, well . . . . my income doesn’t depend on believing or propagating her kind of garbage; if anything, my income (all of ours, probably) may very well come to depend on economic policy makers and legislators seeing her garbage for what it is.
February 2, 2009 at 8:13 am
grackle
Shlaes isn’t the only one as busy as a bee rewriting history.
Mighty Mouseuh, Eric! Help!February 2, 2009 at 9:03 am
Vance
Better now.
February 2, 2009 at 12:11 pm
Barry
Usually the volkhscum aren’t as bad as their comments cesspool, but Ilya quoting a Wall St Journal Editorial is pretty rich.
It definitely removes any reasonable doubt that Ilya is anything other than a liar.
February 3, 2009 at 12:58 pm
jazzbumpa
In Volokh’s linked WSJ article, Cole and Ohanion say:
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). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
Hard to imagine, given all the facts that have been presented here. Any idea how they arrived at this?
February 3, 2009 at 1:03 pm
jazzbumpa
Never mind. I’m going for a pony ride.
February 5, 2009 at 3:58 am
valuethinker
So FDR invented what it took economists another 30 years to formalize.
This is all an artefact of the remarkable intellectual parochialism that infects American public commentary. People, the United States is only 1 nation, and THE DEPRESSION WAS A WORLDWIDE PHENOMENON.
Barry Eichengreen has shown that the timing of each nation’s recovery depending on its exit from the Gold Standard ie devaluation: Britain in 1931, US in 1932 etc.
France and Belgium stuck to the ‘franc fort’ until 1935 and it crippled their economies and pre-war rearmament efforts.
Devaluation is a form of loose monetary policy.
If every country devalues then in theory that is not true BUT that assumption breaks down if there are nominal rigidities– even a collective devaluation could then be reflationary.