Sunday, December 14, 2008
Will on the New Deal
"The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. ... The policies included encouraging strong unions and wages higher than lagging productivity justified, on the theory that workers' spending would be stimulative. ... In a 2004 paper, Harold L. Cole of UCLA and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. ... And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision-making. Which sounds familiar. ... Writes Russell Roberts of George Mason University: 'By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everthing is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s'," George Will at the Houston Chronicle, 30 November 2008.
I do not think what FDR did in the 1930s ended the Depression. FDR's actions prolonged it in my opinion. There is much dispute as to what the Fed should or should not have done in the 1930s to end the Depression. I disagree with most people as to what caused the Depression. I think it was an inevitable result of World War I. The world could not emerge richer from WWI as opposed to poorer. I think the restrictions on consumption that were needed to pay for WWI came in the 1930s. Most economists thought we would have a depression in 1946 when WWII ended. Instead we have had perpetual inflation. An inflation with no end in sight. Got gold? Get more. Got bonds? Huh?