Economics

The New Deal Counter-Orthodoxy

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Amity Shlaes, author of the controversial best-seller The Forgotten Man: A New History of the Great Depression, in a Forbes column does a good job with a quick journalistic overview of some of the Great Depression theories that counter the "FDR saved us all with bold, persistent experimentation and a very convenient war" theory. Some big points:

…Public Choicers would say that the 1930s story was also the story of a power struggle between public and private–and one in which the public sector gained ground. This clearly was true for the growth industry of the day, utilities. Scholar Robert Higgs holds that the very unpredictability of the government chilled markets, and this idea–what Higgs calls "Regime uncertainty"–is borne out by the data. The 1930s stock market is famous for its drops, but its second outstanding aspect is actually rallies, specifically micro-rallies of 10% or more. In other words, the abiding feature of the market was its volatility.

Another applicable theory, one stressed by [Benjamin] Anderson [economist at Chase Bank during the Depression], is old-fashioned classical economics, which looks at supply as well as demand. What Anderson saw was that businesses forced by New Deal policy to pay wages higher than they could afford struck back by hiring fewer workers.

The takeaway from the newer research is important because it is optimistic. [1920s Treasury Secretary Andrew] Mellon irritated New Dealers precisely because he made clear that their government intervention was not necessary to perpetuate American growth. If we understand our own downturn correctly, and promulgate wiser policy, this downturn too still has a chance to prove itself a mere "bad quarter-hour."

Nick Gillespie interviewed Shlaes in Reason magazine's January 2008 issue.

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  1. “Regime uncertainty”

    This makes it sound like stability and predictability are important aspects of good government. All we really need to know for sure is that our masters’ motives are pure.

  2. What Anderson saw was that businesses forced by New Deal policy to pay wages higher than they could afford struck back by hiring fewer workers.

    That’s kind of a strange way to describe it. I would say that government made it illegal to employ anyone who wasn’t worth a particular wage rate, so employers only hired those who were worth at least that much. It’s not about “striking back”, it’s just a matter of what makes sense when you’re trying to keep a business afloat in a depression.

    -jcr

  3. This makes it sound like stability and predictability are important aspects of good government. All we really need to know for sure is that our masters’ motives are pure.

    No, what he is saying is that collapse of government is really bad for investment because it increases risk; because, e.g. there is nobody around to enforce contracts (never mind the general chaos and destruction that usually accompanies such collapses).

    Stability of a regime makes the calculation of risk easier.

  4. Her book is not only pretty sound (compared to the usual accounts of the Great Depression) but a really engaging narrative as well. Highly recommended.

  5. Sounds like this guy might just be onto something here!

    RT
    http://www.anonymity.ru.tc

  6. I hope Satan rapes and eats you Anonymity Bot!

    MNG
    http://www.anonymitybotihopeyougetrapedandeatenbySatan.ru.tc

  7. This is the market fundamentalist version of intelligent design. Nothing will shke your faith! Market-hu akbar!

  8. I like your articles, you have a great writing style!
    Thanks for sharing

  9. runescape gold

    Chnage your name to Comma Splice, you sniveling ass licker. Writing style indeed!

  10. Why have Edward and Anonymity Guy come back at, like, exactly the same time?

    (ponders)

    Edward has multiple personality disorder. This explains everything, so it must be correct. QED.

  11. Morris, hurling insults at an obvious spambot undermines any credibility that the ad hominem invectives you directed toward the original post might have had.

    Failing to perform a quick spelling check on your own post just reveals you to be a dick.

  12. Shut the fuck up, Morris.

  13. Shlae’s scholalry credentials? She hsa a BA in English! She’s not even a fucking economist! For you twits, that’s a plus. Creationists don’t like biologists either.

  14. Shlae’s scholalry credentials? She hsa a BA in English!

    This doesn’t stop most other English professors from holding ludicrously uninformed opinions on economics either.

    Textual analysis anyone?

  15. You libertarian true believers like your global warming deniers similarly untrained in anything remotely connected to the climate, too, don’t you? You make the Vatican look rational.

  16. Spambot Smackdown!

    $99.99 on pay-per-view. Order now!

  17. This is what I mean:

    Libertarian climate specialist Bjorn Lomberg spent a year as an undergraduate at the University of Georgia, earned a master’s degree in political science at the University of Aarhus in 1991, and a Ph.D. in political science at the University of Copenhagen in 1994. He has no training in climatology, meteorology, or the physical sciences.

  18. Morris is a dick, but he has something of a point. While a degree in no way guarantees the presence of expertise, it tends to be indicative, and its lack, while in no way excluding the possibility of expertise, is not a cause for confidence without independent demonstration of skill.

  19. Go another step, Elemenope, and ask yourself why your Kool-Aid-pushing gurus prefer experts with no demonstrated expertise to shore up the dogmas. It’s a fucking cult!

  20. “Regime uncertainly” isn’t about small government versus big government. It’s about capricious government. Businesses are reluctant to expand, and individuals reluctant to invest, when they don’t know what government will do. Will it nationalize industries? Will it increase capital gains taxes? Will it impose onerous regulations? FDR’s New Deal was characterized by frequent unpredictable interventions in the market. the supreme court would strike one down, and another seemingly random intervention would be unveiled the next month. Then one would prove to be disastrous, so FDR would roll out something new and completely unrelated.

    After a while of this, it was no wonder that businesses and investors took a “wait and see” approach. Heavy handed big government interventionism is bad enough, but add in the unpredictability, and you would be a fool to stick your head out of the burrow.

  21. Well Morris, the climate change issue is not only one of technical science (is the earth warming, is that warming a threat, is it something we can address) but also one of political values (what trade-offs should we be willing to make if we find it is occurring, is a threat and we can address it), so I don’t think a PhD in Pol Sci in this debate is like Aquaman in a cross-country race or something…

  22. Uh, Morris is obviously Lefiti/Edward/Teenage Mutant Ninja Turtle Raphael. You can probably ignore him with impunity.

  23. Shales, Smales, (a frigging hournalist?); if you really want to know about the New Deal just check out Oxford Univeristy Press’ new book “A Socio-Historical-Economico Analysis of Economic Trends Vis-a-Vis Statistically Significant Government Growth in the Post-Capitalist Age of Corporatism and Other Academic Musing Containing Many Graphs and Figures as Well as 1,234 Footnotes in the APA Style” by Dean William Butternipple III, PhD, EdD, MBA, MFA, George Lucasian Professor of Contemporary Historical Metaphysics, Mathematics and Econotronomics at Harvard University with a joint appointment at the William Howell III Center for Comparative Econo-Historical Understanding at Stanford. Only 88.99 in cloth.

    I draw your attention to page 2,241 of Volume II, footnote 3: “SMOOT-HAWLEY YA’LL, THAT’S WHAT DONE IT ALL!”

  24. Fuck that Epi, I’m going to ignore his ass with lots of punity!

  25. From the Economist

    http://www.economist.com/blogs/freeexchange/2009/03/link_exchange_131.cfm
    TODAY’s recommended economics writing:
    Amity Shlaes, the non-economist, empirically challenged author of The Forgotten Man, a would-be-revisionist history blaming the New Deal for the depth and length of the Great Depression, has won her way into the hearts of Republican stimulus dead-enders by questioning the conventional economic history of the 1930s. Jon Chait has had quite enough of it:
    Now here is the extremely strange thing about The Forgotten Man: it does not really argue that the New Deal failed. In fact, Shlaes does not make any actual argument at all, though she does venture some bold claims, which she both fails to substantiate and contradicts elsewhere. Reviewing her book in The New York Times, David Leonhardt noted that Shlaes makes her arguments “mostly by implication.” This is putting it kindly. Shlaes introduces the book by asserting her thesis, but she barely even tries to demonstrate it. Instead she chooses to fill nearly four hundred pages with stories that mostly go nowhere. The experience of reading The Forgotten Man is more like talking to an old person who lived through the Depression than it is like reading an actual history of the Depression. Major events get cursory treatment while minor characters, such as an idiosyncratic black preacher or the founder of Alcoholics Anonymous, receive lengthy portraits. Having been prepared for a revisionist argument against the New Deal, I kept wondering if I had picked up the wrong book.
    And yet, Ms Shlaes is being held up as some kind of authority on the economic issues surrounding the Depression, even though she often takes pains to emphasise that she’s no economist. But she also isn’t turning down the speaking engagements or saying no to editors who approach her for opinion columns, and she certainly isn’t suggesting that conservative legislators trumpeting her book as an authoritative rebuttal of countercyclical macro policy are completely out of line. What a way to conduct a public policy discussion.

  26. I can’t wait to take Anomity Bot back to hell
    I’m going to fill him with my hot demon gel
    I’ll make him squeal like my scarlet pimpernel

  27. Fuck that Epi, I’m going to ignore his ass with lots of punity!

    Raphael could totally kick your ass, dude. He’s the bad boy of the Turtles, much like Joey Fatone was the bad boy of ‘N Sync.

  28. I thought you meant Morris.

    Of course I didn’t mean Raphael…Man, I would never say that about Raphael, that guy’s cool man…With the sai and all? Why did you think that? You didn’t tell him that is what I mean did you?

    Man, you don’t think he thought I said that about him do you? He wouldn’t think that I said that would he, I mean he knows I’m cool with him. He knows it.

    Man, could you like go talk to him and tell him I’m cool with him and would like never, ever say something like that about him. Please?

  29. Mo,
    There are plenty of well respected climate scientist who question AGW and plenty of non-scientist who get a lot of credit for pushing the global warming position – Algore.

    This is even more true for the New Deal, where there a multitude of very respected economist who have demonstrated that it did more to prolong the depression then end it.

  30. She may have no PhD in economis, but she ain’t exactly bad to look at…Kinda has that Dr. Melfi sexiness…

    http://www.amityshlaes.com/bio.php

    I mean, that look, plus Nick G in his leather jacket looking all rebellious and hard to get, you just could feel the sexual tension dripping all over the set of After Words on CSpan…

  31. MNG, you’ll have to fight him to gain his respect, just like Casey Jones, and that thing he did with April.

  32. Fuck, man, fuck, why did you have to say that! Why does he have to be like that. He should know he is my man, my niggah, why he gotta be like that? I would never say that about Raphael man, not Rapheal, that guy, that guy is great. Everybody knows that. Man, can’t you talk to him, can’t you say something. Fuck man, fuck!

  33. Mr. Shales, you say the policies of FDR served to PROLONG the nation’s concerns? To entice the populace into thinking that their long neglected needs were to be med, but then were followed by a continual early withdrawal?

    Why, yes, Nick, you’ve really hit it right in the sweet spot there, right….in….the the sweet spot. You see, FDR’s policies opened up, well, a gaping, yearning hole in our economy, a hole that begged to be filled, to be addressed, to have something done to it, and something done hard and fast. FDR’s constant missing of the mark left this hole in a sense of urgency that something with the right force, the right aim, would quickly and manfully fill it.

    You mean Ms Shales, something like

    Yes, Mr. Gillespie, yes, something like

    You mean something like a massive

    (sighs)

    Large,

    Oh yes!

    Across the board

    Yes, Nick, Yes!

    Reduction in, shall we say, Capital Gains Taxes

    Yes that’s it, that’s it! You leather clad God of a man! Come inside my Sugar Walls you deregulating beast you!

  34. Whatever you do, MNG, do not try to placate him with a veggie pizza. That’s like waving a red cape in front of a bull.

  35. experts with no demonstrated expertise to shore up the dogmas. It’s a fucking cult!

    You’re talking about Al Gore and his followers, it sounds like.

    -jcr

  36. The only reason Amity Shlaes is getting any sort of credence is because she’s telling a lot of people exactly what they want to hear. Good on her. Telling people what they want to hear is a valid and lucrative career path.

  37. Telling people what they want to hear is a valid and lucrative career path.

    Tell me about it!

  38. I be a foreign student.

  39. Amity’s hero Andrew Mellon was Secretary of the Treasury when the US GDP fell from over $800 billion in 1929 to less than $600 billion in 1933. Under Roosevelt, GDP surpassed the 1929 high by 1936 and never fell back, even during the 1937-1938 mini-depression, when Roosevelt’s fear of inflation (and general incompetence) caused unemployment to climb rapidly. Don’t believe me, believe Wikipedia http://en.wikipedia.org/wiki/File:Gdp20-40.jpg

    Mellon used federal employees to figure out ways to lower his taxes. He claimed deductions for charitable contributions he didn’t make. Check out Liaquat Ahamed’s “Lords of Finance,” which is ten times better than Amity’s “controversial” tome.

  40. Libertarian climate specialist Bjorn Lomberg spent a year as an undergraduate at the University of Georgia, earned a master’s degree in political science at the University of Aarhus in 1991, and a Ph.D. in political science at the University of Copenhagen in 1994. He has no training in climatology, meteorology, or the physical sciences.

    Bjorn Lomberg is not a libertarian. He is a social democrat.

    And he is not questioning the scientific “consensus” on global warming, he is questioning the political and economic “consensus” on global warming. Political and economic issues are usually considered to be within the jurisdiction of Poli Sci PhDs.

    Now if you actually disagree with his positions then spell them out and voice your counterargument. So far all the criticism of Lomberg I’ve heard is along the lines of “he’s a heretic, burn him.”

    And as someone else pointed out above, exactly what qualifications has Al Gore got in this matter? He has no post graduate degrees at all and his undergrad degree is in Government. And yet an awful lot of people seem to base the ideas on GW on what Al Gore has told them.

  41. . Under Roosevelt, GDP surpassed the 1929 high by 1936 and never fell back,

    GDP’s a rather slippery figure, since it includes the “make work” jobs that don’t actually produce any wealth. It’s rather like the Soviets’ claim that they always had full employment.

    -jcr

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