Economic History Lesson

Amity Shlaes, author of the superb book, The Forgotten Man: A New History of the Great Depression, had a very sharp piece in yesterday's Washington Post on the "five non-monetary missteps" that hindered recovery and helped make the Great Depression worse. As Shlaes notes, these mistakes are as relevant today as they ever were. Here's one:

Assuming bigger government will bring back growth. There's a sense today that Washington has retreated too much from daily lives. Wall Streeters mutter that "the system" (the financial markets) doesn't work anymore. In the 1930s, people didn't just mutter that—they believed it. Public-sector expansion seemed the only way to sustain America's promise. New Deal programs did much to alleviate the pain month to month—many found dignity in six months of work at the Works Progress Administration, the Public Works Administration or the Civilian Conservation Corps. But economics is a competition for scarce capital. Such state solutions tended to suppress the creation of long-term private-sector jobs, as did the aggressive Wagner Act for organized labor. The National Recovery Administration, the New Deal's centerpiece, favored large businesses at the expense of small fry. The new Tennessee Valley Authority and Roosevelt's repressive Public Utility Holding Company Act combined to crowd out private utilities that hoped to light up the South. As for Wall Street, those New Yorker magazine cartoons were accurate: Wall Streeters retreated into their martinis and country houses rather than rebuild. This yielded the "Depression within the Depression" of 1937.

Whole thing here. In our January issue, Nick Gillespie talked with Shlaes about FDR, big government, and the death of classical liberalism. Back in 2004, I looked at how the New Deal made life worse for African Americans.