Pic of the Day (Mid-1930s' Edition): Economic Suicide Girls Get Tattooed For the NRA!


Here's an image from a fascinating new piece in The Milken Institute Review. It is, in its way, totally fricking creepy, even if those are temporary tattoos (and they were, I'm sure). I shudder to think what their stomachs say. For those with full-onset adult eyesight, by the way, the bit under the eagle reads, "We do our part."

Written by economists Harold Cole and Lee Ohanian, it explains "Where the New Deal Went Badly Wrong," a topic of no small relevance for those of us lucky enough to be alive and well in the early 21st century. Their basic thesis?

We have calculated that, on the basis of productivity growth alone, employment and investment should have been back to their normal levels by 1936.

The Nobel Prize-winning economist Robert Lucas and the economist Leonard Rapping calculated decades ago that the Federal Reserve's efforts to expand the money supply should have brought the economy back on track by 1935.

So what went so badly wrong? Our research suggests that a slew of policies, specifically those that suppressed market competition, are central to understanding why the economy remained so weak for so long.

Cole and Ohanian, who have been studying and publishing on this topic for years, say that the anti-competitive elements of the New Deal's many programs didn't just represent a "sea change" in economic thinking but smothered the economy so much that a return to "full capacity" didn't happen until 1943, long after it would have absent such a broad restructuring of the economy. They argue that FDR's advisers were overly impressed with the results of short-term total economic planning during World War I, in which the government effectively controlled all aspects of industrial production.

The full article is well worth reading and is available online here.

Note also that the authors contend that massive deficit spending on World War II was responsible for ending the Depression. This is a hotly contested thesis, with economists such as Harvard's Robert Barro arguing that the "multiplier effect" of such spending is actually less than 1. That is, for every dollar the government spent on World War II, the economy grew by less than a dollar:

 I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports—personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses—there was a dampener, rather than a multiplier.

That 0.8 multiplier returns in Barro's calculations of military spending during World War I, Korea, and Vietnam as well. Barro's full argument here.

Ohanian was one of the experts in's video "Obama's New New Deal: As bad as the old New Deal?" Watch below and go here for more links, downloadable versions, embed code, and related articles.

Headline explained here.