The debate rages in academia and on the pages of the nation's newspapers; how successful was FDR's New Deal in bringing the economy back from its lows in 1932-34?
Amity Shales of the Wall Street Journal and author of a recent book on the New Deal shows conclusively that government spending on make-work jobs programs did absolutely nothing to bring the underlying unemployment rate down significantly and may have even delayed recovery:
Ms. Shales takes Nobel Prize winning economist and New York Times hysteric Paul Krugman to task for risking another depression by advocating a massive public sector jobs program:
What kept the picture so dark so long? Deflation for one, but also the notion that government could engineer economic recovery by favoring the public sector at the expense of the private sector. New Dealers raised taxes again and again to fund spending. The New Dealers also insisted on higher wages when businesses could ill afford them. Roosevelt, for example, signed into law first his National Recovery Administration, whose codes forced businesses to pay an above-market minimum wage, and then the Wagner Act, which gave union workers more power.
As a result of such policy, pay for workers in the later 1930s was well above trend. Mr. Ohanian's research documents this. High wages hurt corporate profits and therefore hiring. The unemployed stayed unemployed. "If you had a job you were all right" -- the phrase we all heard as children about the Depression -- really does capture the period.
Why does all this matter today? Because lawmakers are considering new labor legislation containing "card check," which would strengthen organized labor and so its wage demands. Because employees continue to pressure firms to spend on health care, without considering they may be making the company unable to hire an unemployed friend. Piling on public-sector jobs or raising wages may take away jobs in the private sector, directly or indirectly.
What the new administration decides about marginal tax rates also matters. Mr. Obama said in a Thanksgiving talk that he wanted to "create or save 2.5 million new jobs." People who talk about saving new jobs are usually talking about the private-sector's capacity to generate jobs in the future -- not about the public sector alone. We know that the new administration is going to spend. But how? It can try to figure out a way to do that without hurting the private sector. Or it can just spend, Krugman-wise, and risk repeating the very depression we seek to avoid.
Increased taxes, a rebirth of protectionism, massive deficit spending sounds like exactly the same mistakes made by Hoover-FDR at the onset of the Great Depression.
Will history repeat itself? Given a lack of GOP opposition to these plans, it is likely that Obama will get almost everything he wants in order to "stimulate" the economy and "create" jobs. The fact that these actions are likely to do exactly the opposite of what Obama intends means that we may be headed for more trouble than necessary.