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Money Makers
Forthcoming in September, from Basic Books

On this day in 1933, it was the first Friday of Franklin Roosevelt’s administration, and the new president met reporters to talk to them about ending the bank holiday with which he had begun his term. The Federal Reserve Banks would open on Saturday so that member banks of the Federal Reserve System could open on Monday. A reporter asked if the banks would be open “[a]ll along the line, Mr. President; that is, all functions?” Roosevelt replied, “Yes, all functions. Except, of course, as to gold. That is a different thing. I am keeping my finger on gold.”

The president’s week had started with his inauguration on March 4, the previous Saturday, when he had told the American people they had only fear itself to fear, and promised them an “adequate but sound currency.” The next day Roosevelt worked all through the day with members of his team and holdovers from Herbert Hoover’s to draft orders to close the banks and halt all payouts of gold. They worked so hard that Sunday that it was late by the time the order was ready for presidential signature – so late that Federal Reserve counsel Walter Wyatt urged the president to wait a little longer to sign, so that it would be Monday, and not so sacrilegious. Roosevelt did wait, and then, on signing the order said – gleefully, according to one account – “We are now off the gold standard.” That was in the wee hours of March 6; later that morning, Americans began a week of doing business without access to banks.

At Roosevelt’s first press conference, on Wednesday March 8, he told reporters that “what you are coming to now is really a managed currency.… It may expand one week and it may contract another week.” The end of the dollar’s convertibility to gold was not temporary but “part of the permanent system so we don’t run into this thing again” – which was what he repeated when he said, on Friday, that he was keeping his finger on gold.

Roosevelt was strikingly consistent in his monetary policy declarations.1 The US went off the gold standard with the bank holiday, he never meant to go back on, and he didn’t. He wanted to establish an international system of managed currencies, with an agreement that would allow them to remain stable for long periods, but adjustable in case of need – that was what he told the World Economic Conference at the end of summer 1933, and that was why it broke up – because other countries weren’t yet ready to join the US. At the end of 1933, Roosevelt talked up the dollar in value, stabilizing it in January 1934, while saying “I reserve the right … to alter this proclamation as the interest of the United States may seem to require.”

Despite some often-quoted barbs at Roosevelt’s method of getting there (complaining that the president’s talking up of the dollar by unpredictable amounts looked “more like a gold standard on the booze than the ideal managed currency of my dreams” or a “game of blind man’s bluff with exchange speculators”) John Maynard Keynes approved of the destination, writing in January 1934 that the president’s policy “means real progress.” Roosevelt had “adopted a middle course between old-fashioned orthodoxy and the extreme inflationists.” He had done nothing “which need be disturbing to business confidence,” and the monetary policy was “likely to succeed in putting the United States on the road to recovery.” Roosevelt’s adoption of a value for the dollar to be kept generally stable, if altered at need, also opened the possibility for an international conference on money, to “aim for the future not at rigid gold parities, but at provisional parities from which the parties to the conference would agree not to depart except for substantial reasons arising out of their balance of trade or the exigencies of domestic price policy.”

In other words, before Roosevelt had been in office a full year, he had articulated, with Keynes’s approval, all the elements of what would become the Bretton Woods monetary policy in 1944: currencies would be kept at stable exchange rates, but would be adjustable in keeping with the needs of economic prosperity in each country.

1Historians have a real problem recognizing this, owing I think to the influence of a couple of misleading memoirs by disaffected Roosevelt advisors who didn’t like his monetary policy, and who departed the administration early and therefore got their licks in early. Maybe I’ll write a post about this particular thing.


On the jacket of Alexander Field’s new book A Great Leap Forward, my colleague Greg Clark says this:

As we sit mired in the Great Recession, Alexander Field’s exciting reappraisal of the Great Depression offers surprising solace. By showing the Great Depression was coupled with the most rapid technological advance in U.S. history, he fundamentally recasts the history of the 1930s. But he also offers hope that our own depression likely will have no long-run costs to the U.S. economy.

By measuring total factor productivity (TFP), or the improvement in productivity not accounted for by traditional inputs, Field finds tremendous gains during the Depression. They owe in part to private investment in manufacturing efficiencies, chemical processes, and other technical improvements. Historiographically, there’s a major payoff in showing that the vast majority of such innovation came during the Depression, not during the war.

But (as the bulk of Field’s book is devoted to showing) the productivity improvement owes mostly to construction transportation infrastructure – to the construction of roads, bridges, and all that made the modern trucking industry possible. Field even goes so far as to say the end of the golden age of productivity in the American economy in 1973 “coincides with [he does not quite say owes to] a tapering off of gains from a one-time reconfiguration of the surface freight system in the United States”.

And this massive public investment in infrastructure, which made possible the postwar suburbanization and boom, went along with financial regulation. Field attributes both the current crisis and that of the 1920s to “a failure to control, or really to be interested in controlling, the growth of leverage.” If we want to come out of the Current Unpleasantness with less than a Great Depression to show for it, we’ll have to see regulation that responds accordingly, he says. “If an even more serious crisis occurs within the next decade, it will be because the regulatory response ended up being less effective than that which was summoned during the New Deal.”

Which makes Field sound a lot less optimistic than Greg. The Great Depression turned out relatively well in the long run because we had not only significant private investment in R&D and other improvements, but also the New Deal – road-building and regulation. Do we have that, or anything like it, now?

The latest round of Ron Paul excitement reminds me of this blog’s long and rich relationship with the mad doctor. Herewith a holiday selection of oldies.


Speaking of Charles Forsman as I was yesterday (he of the brilliant Raiders of the Lost Ark/Popeye mashup) I realized that the timing of the hiatus prevented my sharing with you my own Forsman original sketch.

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The charming Bidwell Bowl amphitheater on the campus of Chico State University. A creek separates the stage from the seating. I would love to perform there.

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Henry Farrell takes some time to write a careful case that he summarizes thusly:

Megan McArdle believes that we would all benefit from more intellectual charity in the exciting cut and thrust of the blogosphere. There is indeed a plausible case for this. What there is not a plausible case for, in my opinion, is more intellectual charity towards Megan McArdle.

This case begins with a discussion of the infamous “spanking Eric Rauchway incident,” which you may remember concluded with Brad DeLong and Paul Krugman saying I was right. Henry says McArdle promised to revisit the issue, which was a promise I did not see at the time.

I tread warily on Eric’s turf, but this is too much to resist. David Leonhardt lays out, in today’s Times, the gamble which most of the world is about to undertake:

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

The risk, of course, is that the same thing will happen that happened in the period 1936-1938. Then, premature fiscal tightening put a bullet in the head of the still shaky recovery, and the world economy collapsed back into depression. There is, now that you mention it, a book about this.

But now Things Are Different. For example, “Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once.”

Ah. Well, but some things are different and improved, right? “The initial stages of our own recent crisis were more severe than the Great Depression.”

Hmm: still looking. No, wait! Leonhardt quotes Adam Posen, an economist working for the Bank of England on potential strengths of the system now that didn’t exist then. They are “China, India, and the relative health of the financial system today versus the 1930s.” This leads Posen to the ringing endorsement that “The chances we’re going to come out of this O.K. are still larger than the chances that we aren’t.”

Whew, I feel better. China will rescue us!


Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery.

Is it too late to buy gold?

I don’t know how often a sidewalk needs repaving. But this certainly looks like a WPA signature on a sidewalk in Davis, on the north side of First Street between B and C.

If that’s what it is, it’s a nice illustration of the scope of the WPA; it’s a point that can’t be made frequently enough and is nicely made in Jason Scott Smith’s book, that the WPA’s reach was one of the things that made it simultaneously so popular and so unpopular. The project for Dixon was a boondoggle, of course, but the project for Davis was vital to the improvement of infrastructure.

From Nate Silver, a social scientific lapse.

A study purporting to find a connection between stimulus spending and the partisanship of a district suffers from an obvious flaw. But in so doing, it provides an example of why it’s important to retain some common sense — and some sense of context — when conducting a statistical analysis.

The study, by Veronique de Rugy of George Mason University and the National Review, claims that congressional districts which elected a Democrat to the Congress received a larger amount of stimulus finds by a margin which is statistically significant even after controlling for certain other effects like the unemployment rate. However, the study does not control for at least one other variable that is overwhelmingly important in determining the dispensation of stimulus funds.

The variable in question is in fact pretty obvious if you simply look at the districts that have received the largest amount of stimulus money, according to de Rugy’s dataset.

The district that received the largest amount of stimulus funding in the 4th Quarter of 2009, according to de Rugy’s tally, is California’s 5th Congressional District. Is there anything notable about the 5th Congressional? Well, it is home to the state capital, Sacramento. Let’s keep that in mind.

Next on the list is New York’s 21st Congressional District. The largest city in the 21st is the state capital of New York, Albany.

Third is the 21st Congressional District of Texas. It contains parts of Texas’ state capital, the wonderful city of Austin. (Another district that contains parts of Austin — the 25th — ranks 14th on de Rugy’s list.)

At this point, it ought to be pretty obvious what is going on. The three districts receiving the largest amount of stimulus funds are home to the capitals of the three largest states — New York, California, and Texas. Let’s pause for a moment and make a bold prediction. I’ll bet you that the district that ranks 4th on the list will contain the capital of the 4th largest state, Florida.

Bingo. Up 4th on the list is Florida’s 2nd Congressional, home to Tallahassee.

Fifth is Pennsylvania’s 17th, which hosts the state capital, Harrisburg.

The sixth through tenth districts contain the capital cities of other large states: Ohio, Georgia, Michigan, Illinois and New Jersey, respectively. They are followed by districts that include the state capitals of Indiana, Tennessee, Virginia — then another part of Austin, Texas — then Arizona, Missouri, North Carolina and Wisconsin. Finally, in 19th place is South Carolina’s 3rd Congressional District, which does not host a state capital. (Ironically, it has elected a Republican — J. Gresham Barrett — to the Congress).

This, of course, makes perfect sense. A lot of stimulus funds are distributed to state agencies, which are then responsible for allocating and administering the funds to the presumed benefit of citizens throughout the state. These state agencies, of course, are usually located in or near the state capital.

Something similar occurs with scholars who get hot under the collar over the distribution of New Deal construction funds to the West and South. It’s politics! Because the western states were swing states, and the southern states were loyal Democratic states! Or perhaps it was because the West and the South were the parts of the country that most needed infrastructure spending and that would benefit most from it, and it was much cheaper to build in western states where the federal government already owned the land anyway.

One more chorus about New Deal denialism, thanks to Dissent. If you want, you can read the article in pdf here.

Ferdie Pacheco, “The Lector Reads to Women Cigar Workers” (Detail)

Today brings another installment of “there is too interesting and nontrivial scholarship in today’s scholarly history journals,” this one drawn from the flagship journal of US history. The article touches on two of my favorite topics. One, I’ll grant, is a favorite for purely sentimental reasons: my native heath. The other, though, is of long-standing scholarly interest to this blog: the New Deal.


Elna C. Green, “Relief from Relief: The Tampa Sewing-Room Strike of 1937 and the Right to Welfare,” Journal of American History 95, no. 4 (March 2009). Accessed July 7, 2009, here.


How did WPA workers think of themselves—as workers, or as recipients of welfare? How did their employer, the state, see them in return?
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Scott McLemee has a great interview with Jeet Heer, on the original Little Orphan Annie:

In 1931, Daddy Warbucks loses his fortune to unscrupulous Wall Street speculators, is blinded, and lives for a time as a street beggar. But after hitting bottom he regains his fighting spirit and outwits the Wall Street sharks who brought him and America low. By 1932, the villains in the strip are increasingly identified with the political left: snide bohemian intellectuals who mock traditional values, upper-crust class traitors who give money to communists, officious bureaucrats who hamper big business, corrupt labour union leaders who sabotage industry, demagogic politicians who stir up class envy in order to win elections, and busybody social workers who won’t let a poor orphan girl work for a living because of their silly child labor laws. Gray started to identify liberalism with elitism, a potent bit of political framing which continues to shape political discourse in American today.

This is the good stuff—undiluted crazy ignorance—as peddled on the floor of the United States House of Representatives.

FDR wanted so badly to cause the Depression he traveled back in time to get a bad law passed, and for good measure, took a side trip so he could pick up the Reverend Spooner to make the name of the act even sillier.

For bonus points, Coolidge was apparently president during the recession of 1920-21.


[Editor’s note: Our good friend, awc, elaborating on this comment, sends along the following from the far eastern edge of the American West. Thanks, awc.]

Politico’s recent feature on Amity Shlaes’ The Forgotten Man is an example of one of my pet peeves: the evaluation of economic policy in terms of statistical factors like growth, the stock market, and unemployment rather than systemic qualities like equality. The piece discusses the popularity of the book among D.C. conservatives, briefing mentioning Professors Rauchway and Krugman, who have skillfully defended the efficacy of New Deal recovery policies. When Shlaes responds that she intended the book to question the ethics of the New Deal, not just its utility, Politico simply drops the pretense of debate. They ask neither scholars nor ordinary folks to evaluate her celebration of the poor beleaguered corporation. The result is an article that presumes that New Deal laws can be defended only as spurs to recovery, not as devices for promoting a better society.

This narrowly economic approach is worse than conservative; it’s ahistorical. New Deal staffers cared about raising wages, protecting workers, ending poverty, conservation, recreation, and a hundred other things aside from recovery. They didn’t view themselves as failures when the jobless rate rose. And while Republicans made significant gains in the 1938 elections, the overwhelming majority of Americans still endorsed the Roosevelt administration. Then and now, policy isn’t solely about GDP per capita.

The journalistic focus on utility is also phony. The press is fixating on a technical question, namely the effectiveness of government stimulus. While this discussion is inevitable, the Republican affection for Keynesian tax cuts suggests the real disagreement is moral. Today, historians usually defend the New Deal not just because it helped end the Great Depression, but also because it relieved human misery, promoted social equality, and strengthened the nation for its confrontations with Nazism and then Communism. Shlaes disagrees, and to her credit, she wants to have this argument. But journalists keep pulling the debate back to the unemployment numbers. They’re just looking for a policy that will return us to the status quo ante.

The problem with Politico reporting of Amity Shlaes’s Forgotten Man that

Critics of the book, including economist Paul Krugman and historian Eric Rauchway, have challenged Shlaes’ use of data, noting, for example, that the unemployment statistics she uses do not count Works Progress Administration jobs. Shlaes defends her approach, arguing that make-work jobs are not evidence of economic growth and noting that President Barack Obama recently used the same data series she did in discussing unemployment during the Great Depression.

is not that it’s “they-said, she-said” journalism, but that it’s an inadequate representation of the truth. It’s not just Shlaes versus a famously shrill Nobelist and some dude at an ag university; it’s Shlaes versus the accepted academic consensus.

As previously noted, if you were a sufficiently honest and competent researcher located like Amity Shlaes near any number of world-class reference libraries simply out to find out the unemployment rate in the 1930s, you would not find the data Shlaes cites; you would find, in the authoritative reference work, an explanation of why it’s not best to cite the data Shlaes cites. Shlaes has to go out of her way to find other data.

Shlaes likes to pretend it’s the other way around—that she’s using authoritative data while Krugman and I are citing data from an old but (she graciously concedes) “useful” paper by Michael Darby. This is not true. Darby’s paper is the opening point in a decades-long process of scholarship that extends through published papers by several other economic historians including Robert Margo and David Weir that culminates in the authoritative reference work, Historical Statistics of the United States, publishing Weir’s series and not Shlaes’s preferred data. This is what academic work is supposed to accomplish: establish by research and the adversarial process of debate and peer review a consensus. Shlaes is defying it.

This may seem rather similar to the method used to deny that tobacco use causes cancer, or that human action promotes global warming: by making something seem complicated, by saying, well, there’s disagreement, Shlaes and other denialists undermine the entire academic enterprise.

I don’t know if they tried to call Krugman, but Politico left no evidence of trying to get in touch with me; if they had, I would happily have explained the above. Perhaps they’re content simply to flack for Shlaes.

That’s the program title. If you’re really, really interested in listening to me talk about the New Deal at some length, with France Kassing on our local one and only KDVS, it’s here.

Wednesday night at the Pacific Film Archive in Berkeley, I’ll be introducing—probably with a very, very short introduction—a double bill of Our Daily Bread and The Plow that Broke the Plains. You can find details here.

They’re pretty remarkable films, released only two years apart, but what a two years. The wild, really kind of crazy and fantastic hope1 in Our Daily Bread yields to the brutal, dismal—I don’t know if I want to say realistic per se, but certainly more realistic and inconclusive picture of The Plow that Broke the Plains. Just as, broadly speaking, you could say the New Deal went from the idea of We Can (and Should) Do Anything to We Need to Work within Clear Limits over the same period.

Really, I guess you should watch Vidor’s fable first and then Lorentz’s documentary.

Anyway, I’ll have something to say in this line tomorrow night.

1Which is described as leftist. But do you notice in the scene where they talk about what form of government they want to have, they reject democracy and socialism, and conclude, it’s a big job and we need a big man to run it? Hmmm.

It’s hard to exaggerate the incoherence of the WSJ editorial, “FDR’s Conservative 100 Days”. The authors write that Obama’s program “has been likened by the president himself to Franklin D. Roosevelt’s famous first 100 days. But FDR did not launch his New Deal with a program that roiled financial markets.” No: he shut down the banks, and reopened about eighty percent of them with federal assurance that they were sound. This helped restore confidence in the American financial system.

And, FDR said, “I hope you can see from this elemental recital of what your government is doing that there is nothing complex, or radical in the process.”

The authors also quote Raymond Moley saying, “It cannot be emphasized too strongly that the policies which vanquished the bank crisis were thoroughly conservative.” And then they add mention of the Economy Act, which cut the budget dramatically.

Now, you might note, as Ed Kilgore does, that you want to be careful quoting Moley, who “left the Roosevelt administration midway through 1933, and then devoted much of the rest of his long career to New Deal-bashing, contemporary and revisionist.”

Or you might want to use your common sense. Yes, it is in some sense “conservative” to save the banking system as FDR did—it helped, as Moley also said, save capitalism. But is it in any sense more conservative than what Obama’s doing to save the banking system? No; Obama’s so far avoided shutting down all the country’s banks for a week and keeping 20 percent closed for even longer. Which, by the way, is no recommendation of Obama’s policy; with each day it seems a less conservative measure might be a good idea.

But set all that aside: most hilariously, the WSJ authors’ measure of Roosevelt’s conservative success is that “By July 3, the Dow Jones Industrial Average was 93% above its close on March 3, the day before Inauguration Day in 1933.” Yet their account of the hundred days stops with the Economy Act, on March 14. Between March 14 and July 3, you had also (among other measures) the

  • Civilian Conservation Corps / Reforestation Relief Act, which employed young men chiefly for the maintenance of public lands;
  • Agricultural Adjustment Act, which taxed processors to subsidize reduction of farm crops;
  • Federal Emergency Relief Act, which allocated $500m as unemployment relief to the states;
  • Tennessee Valley Authority Act, which established federal management of the Tennessee River and its watershed, to generate lower electricity rates (among other purposes);
  • Banking Act of 1933, which among other things separated commercial and investment banking;
  • National Industrial Recovery Act, which created federally sanctioned industry cartels to set prices and wages and which strengthened the right to unionize.

I look forward to the WSJ editorial explaining how these conservative policies contributed to the market rally evident by July 3, 1933.

Jesse Jones, head of the Reconstruction Finance Corporation, writes of how the New Deal dealt with an insurance company.

The RFC acquired voting control of Maryland Casualty in April, 1934, when we first bought preferred stock in the Company. At that time we sent Silliman Evans to Baltimore to take the presidency of the company and Edward G. Lowry, Jr., of our legal department, to be its vice president and special counsel, each being elected as director. Mr. Evans later became chairman of the board…. When we got into the company, the situation was so much worse than had been represented that we felt it necessary to replace the management.1

I imagine this would have some present-day relevance to a White House stuck with an insurance company whose position turned out much worse than represented.

Then there is this to consider:

For political reasons, Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.2

Which might also seem apposite.

UPDATED to add a special bonus New Deal version of how to deal with rude letters from corporate types—in this case, the chiefs of the New York Stock Exchange, asked by the SEC to reorganize in light of recent events.

… the matter of reorganization was referred to the Exchange’s Law Committeee—in other words, to Richard Whitney…. After due deliberation, the Law Committee concluded that reorganization … was impracticable, and that negotiations with the SEC should therefore be broken off. It drafted a harsh letter to [William O.] Douglas saying so…. [W]hen an Exchange lawyer delivered it to Douglas in Washington a few hours later, the SEC chairman merely nodded and said grimly, “All right, then, we’ll take the Exchange over.”3

1Jesse Jones, Fifty Billion Dollars, 158.

2James S. Olson, Saving Capitalism, 126.
3John Brooks, Once in Golconda, 245.

A student points me to Ron Paul on the 1920-21 depression.

In 1921 we had a severe depression; it was over in one year. A little bit later in the 30s we had another one but then the government decided to do all these things, bail everybody out. Exactly what we’re doing now and it prolonged the correction.

The implication is that in 1921 the government didn’t “do all these things”. But of course the government did adopt policies to restrict trade and immigration.

Interestingly, two of the first Hoover administration responses in 1930 were to restrict trade and immigration.

I think the lesson one would draw here is that policymakers, seeing that restricting trade and immigration went along with a swift end to the 1921 recession, tried them again in 1930. But they didn’t work. I don’t see any reason to conclude that the government opted not to intervene in 1921 and to intervene in 1930.

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