The New Deal also created a lot of jobs--millions. And the New Deal did cause significant business activity. Industrial production--factory activity, basically--came back to 1929 levels around the time of Roosevelt's re-election. All of these outcomes are taken as evidence of public spending's success.Shlaes gives an interesting example:
But what really stands out when you step back from the picture is not how much the public works achieved. It is how little. Notwithstanding the largest peacetime appropriation in the history of the world, the New Deal recovery remained incomplete. From 1934 on--the period when the spending ramped up--monetary troubles were subsiding, and could no longer be blamed alone for the Depression. The story of the mid-1930s is the story of a heroic economy struggling to recuperate but failing to do so because lawmakers' preoccupation with public works rather got in the way of allowing productive businesses to expand and pull the rest forward.
One of the saddest accounts of the public-works job culture I came across involved a model government farm in Casa Grande, Ariz. The men were poor--close to "Grapes of Wrath" poor--but sophisticated. They knew that the government wanted them to share jobs. But they saw that the only way for the farm to get profits was to increase output and to stop milking by hand. Five dairy crew men approached the manager to propose purchasing milking machines to increase output. They even documented their plea with a shorthand memo:That's a great illustration of the difference between the incentives the government has and the ones private individuals have.
"Milking machine would save two men's labor at five dollars per day . . . Beginning in September would save three men's wages or $7.50 on account of new heifers coming in."
The men were willing to strike if they didn't get the machines, though they feared they might lose their precious places on the farm if they did strike. Their fears proved justified. "You're fired," the workers later recalled the manager replying when he saw their careful plan. The government man was horrified at the idea of killing the jobs he was supposed to create. "You're jeopardizing a loan of the U.S. government, and it's my job to protect that loan. You're through, everyone of you, get out."
1. The post-WW I Gold Standard was not the "gold standard" or "free banking" system that any current Austrian would defend. Trying to pin the problems of the 20s and 30s on the GS as talked about by Austrians or libertarians today is like dismissing free market health care reforms by blaming our current health care problems on our "free market" in health care. The really-existing GS certainly contributed to the crash and deflation.Read the while thing here.
2. Aside from that, it's totally clear that the Fed mismanaged the situation it found itself in by 1929. Almost everyone agrees this was government failure writ large. The disagreement is the comparative institutional question of whether that failure is "reformable" or requires a regime change. In either case though, the Austrian skepticism about central banks is in play.
The Great Depression was a consequence of (a) credit expansion to pay off war debts from WWI during the 1920s, (b) monetary contraction during the 1930s, (c) government microeconomic policies which completely curtailed the ability of market forces to adjust to the changing circumstances, and (d) government policies which eliminated the ability of individuals to realize gains from trade. None of this is about the gold-standard.Read the rest here.
The Forgotten Man is more descriptive than judgmental, a thoughtful history that allows readers to draw their own conclusions about the New Deal. But free of the starry-eyed admiration of many biographers, Shlaes presents the dark practical undercurrents to the rhetorical flights of fancy that characterized Roosevelt and the New Deal. As a result, it is difficult to escape the conclusion that while Roosevelt might have restored people's optimism, he undermined their productivity.It's on my "to read" list, for sure.
Five years in the making, The Dark Years, which begins next week on History Television, blends animation and archival footage while executing a rather audacious mission statement: retrieve our forgotten history.Set your VCR's and Tivo's!
The stock market crash in 1929 turned the world upside down. And Canada was not immune to the disorienting misery as a once booming economy sputtered to a crawl, leaving millions in dire straits.