Monday 13 April 2009

GOP lies about FDR and government intervention

The main purveyors of the “FDR prolonged the Depression” nonsense are Harold Cole and Lee Ohanian at UCLA. Trying to ridicule stimulus programs like the ones being contemplated now in Washington , these two guys claimed, with no evidence, that the New Deal recovery took longer than it should have, and that most of the blame for this alleged delay belongs to the National Industrial Recovery Act (the NIRA, not the NRA). This assertion is idiotic: the NIRA was blown away by a Supreme Court ruling only 2 years after enactment, and had very little impact even when it was in force. They claim further that under the NIRA, FDR went too easy on Big Business, which is absurd – Big Business hated FDR more than any man in the 20th century and wanted him destroyed. They insist, also on no evidence, that without the NIRA the Depression would have ended in 1936.

And the people who are trying to peddle this Cole/Ohanian rubbish to the American people: Fox News. Enough said. They claim that historians agree with this assessment, which is dead wrong.
The argument that FDR’s effort to restore the economy took too long begs the question: compared to what? The Republicans? Hoover had almost four years to fix the problem and he failed disastrously: virtually every economic indicator tanked, including the stock market which dropped something like 90 percent. Hoover signed the Smoot Hawley bill even though he knew it was risky, which made matters even worse. Despite all this, the Republicans nominated him for reelection in 1932, and he made clear that he intended to stick to his own economic plans if reelected. Even after he lost the election, he was still yammering at FDR to continue doing things the Hoover way. So clearly Hoover couldn’t have done it better.

And who did the Republicans nominate in 1936? Alf Landon, who liked FDR and publicly approved most of the New Deal (although he criticized it a week before the election because he knew he was about to get crushed by the voters). Landon would have had to do things pretty much the way FDR did, but he couldn’t have done it without FDR showing the way.

The widespread view held by both historians and economists is that FDR did what he had to do. Despite the necessity of essentially rewriting the textbook for modern economics and fiscal policy right in the middle the worst economic crisis on record, he did just what was needed. Bush’s Fed chair, Bernanke, and conservative economist Milton Friedman are among those who have admitted that FDR’s reform of the financial sector was the key step in saving the economy, and that setting up the FDIC was the best move for stabilizing finance in 70 years. FDR saved the banks and the banks helped save the country.

And just as important, FDR restored the one element necessary to any healthy economy: confidence. Once people knew that we had a president who was going to work like a dog to solve the problems, and that there was going to be a sensible level of oversight to prevent speculation, fraud and other nonsense, people spent, bought, invested, worked.

Nobel prize winner Paul Krugman is one of a number of experts who pointed out that the only time the recovery faltered was when FDR dialed back the New Deal programs in 1937, under pressure from conservatives. It was impeding the New Deal programs that impeded the recovery.

Specifically, unemployment dropped from 25 percent to 14 percent when FDR launched the New Deal. It spiked back upwards when conservatives pressured FDR to back off on the New Deal in 1937. When he stepped on the gas again, unemployment dropped from 20 percent to 4.
Even the way Cole and Ohanian framed the question was wrong: the issue was never how fast FDR rebuilt the economy, but how well he did it. It was a Herculean task that was going to take a long time no matter who was doing it. But at the end of the day, if you’re undergoing open-heart surgery to save your life, do you want the guy who will do it in 10 minutes with a jackknife, or in 2 hours with a surgical team? Or, in Hoover ’s case, someone who can’t do it fast OR do it right? Any effort to launch a quick fix in 1933 would have led to a speculative-bubble sugar-high like the one that caused the Depression in the first place. Building safely and soundly, as FDR did, was what got confidence, spending and investment going. America saw that, and reelected him three times.

People in the political world never seem to grasp the fact that although their own world moves fast, economic change moves slowly. Note that I said economic, not financial – currencies and stocks can jump all over the place in a day, but the underlying economic fundamentals just don’t change that fast. And when you ask these critics – what could FDR have done to speed things up? – a silence descends.

Only FDR could have achieved what he did: not Hoover , not Landon. Not even FDR’s rivals for the 1932 nomination: Al Smith hated FDR and the New Deal, and John Nance Garner interfered with FDR so much that FDR threw him out of the vice-presidency in the 1940 election, and prevented him from running for president.

FDR achieved a miracle, and raised us up from disaster into world conquest. Without FDR’s brilliant New Deal performance, we never could have built the greatest economy in world history and conquered both halves of the world in WWII. Never, not even during the age of Alexander or Genghis Khan or Napoleon, has a nation risen from such disaster to such greatness in such a little time. From economic catastrophe to world domination in only 12 years, and they say it didn’t happen fast enough? Carping about the New Deal is like whining that Sergeant Pepper isn’t perfect because they should have chucked out “Fixing a Hole”. It’s freakin Sergeant Pepper. Just shut up.

No comments: