Assessing the Not-So-Great New Deal.

• Author: Selgin, George
• Position: USA YESTERDAY

"Many economists and economic historians... maintain not that the New Deal was rotten through-and-through, but that big chunks of it were counterproductive, and that the damage done by these undid much of the good done by the rest." " FDR's New Deal Worked. We Need Another One." So said the headline of one of Noah Smith's recent Bloomberg columns. The subheadline adds that "Claims that the programs adopted in the 1930s lengthened the Great Depression don't hold up." For good measure Smith adds that such claims only are encountered "in certain right-wing circles and among a few contrarian economists."

Far from being novel, Smith's rhapsodic view of the New Deal represents today's conventional wisdom, hundreds of instances of which might be gathered from the popular press and elsewhere. Here are a few:

"Without [Pres. Franklin] Roosevelt's intervention, the economic recovery that lasted from 1933 to 1937 would have been weaker and shorter--not unlike our own recovery after the Great Recession" and "Any who doubt the New Deal's effectiveness need only look at the double-dip recession of 1937, after a conservative backlash in Congress scaled down relief spending." (David Weiman, "Imagining a World Without the New Deal," 77K? Washington Post, Aug. 12, 2011)

"[Pres.] Roosevelt enacted the New Deal, a fiscal and legislative tour de force that... ultimately set the conditions for America's economic recovery in time to mobilize the country for World War D." (Sherri Goodman and Greg Douquet, "The New Deal's lessons can guide us into a post-pandemic economy," The Hill, May 14, 2020)

"FDR and his team launched the New Deal to help get the country back on its feet. They succeeded, yet the myth persists that the New Deal had little effect on economic recovery and only World War II ended the Depression." (Richard Walker, "Did the New Deal Cure the Great Depression?" The Living New Deal research project, Dec. 15, 2015)

"I think to really get the economy running again, we'll need either some sort of New New Deal or we'll just have to wait a decade or more." (Stanford University economic professor Matthew Jackson quote in Business Insider, April 21,2020)

Believe me, I could locate and insert a dozen more, all from the last several years, in half as many minutes.

Smith's suggestion that only "right-wingers" imagine that New Deal policies hindered recovery from the Depression also has become standard fare. In his 2018 book, Winter War: Hoover, Roosevelt, and the First Clash Over the New Deal, for instance, Eric Rauchway traces modem denials of the New Deal's success to post-Goldwater Republicans who, having

swallowed Pres. Herbert Hoover's selfserving memoirs hook, line, and sinker, have gone on to concoct a myth that treats Hoover's anti-New Deal crusade much as certain Civil War revisionists treat the Confederacy; that is, as a lost but nonetheless righteous cause.

Rauchway's tale is handy for putting critics of the New Deal in a bad light. It also is very misleading. One does not have to be a Hoover fan to conclude that New Deal programs, taken as a whole, failed to achieve a lasting recovery from the Great Depression.

Indeed, for most of the postwar period--starting long before Barry Goldwater ran for president in 1964--conventional wisdom had it that the New Deal did not end the Great Depression. Instead, World War II was supposed to have done so. Moreover, this was not a "right wing" perspective. It was shared by many to the left of center, including several former New Dealers themselves. Whether their view was sound--and particularly whether WWII itself really ended the Depression--is a question to be taken up later.

The point is that one need not be a post-Goldwater Republican, or a Republican of any sort, to entertain doubts about the New Deal. Plenty of Democrats have done so, as have many who owe no allegiance to either party--nor does one have be unaware of the economic record of the 1930s to wish to take the New Deal down a peg or two from where so many recent commentators have placed it.

As a matter of fact, many economists and economic historians, of different political stripes (or no leanings that readily are discernible) have done so. These experts maintain not that the New Deal was rotten through-andthrough, but that big chunks of it were counterproductive, and that the damage done by these undid much of the good done by the rest. Because of this, the U.S. economy still was depressed when the Japanese bombed Pearl Harbor in December 1941. These experts agree, in other words, with the view of the New Deal that many once took for granted, rather than the one that has come into vogue mainly since 2008.I happen to be one of them.

I hope to introduce readers to evidence casting doubt on the view that New Deal programs ended, or mostly ended, the Great Depression. I also will address here and there some other popular misconceptions (as I see them) about the New Deal. I do not expect to win everyone over to my view of things. I am not that ambitious. I merely hope to convince you that those who claim the New Deal held up recovery do not deserve to have their opinions dismissed out of hand, or attributed to purblind partisanship.

I had better mention now several other things I am not trying to do. I am not offering a verdict on Roosevelt's presidency, nor am I necessarily holding him responsible for what I regard as the New Deal's shortcomings. Like all presidents, FDR had to make compromises, and while some New Deal policies reflected his own preferences, others did not. If I do occasionally criticize FDR, it is because he himself championed a policy I consider misguided.

I also am not trying to suggest that Hoover's policies were better, let alone that the Great Depression would have ended sooner had he won a second term. For all I know, a second Hoover Administration would have botched things even more--perhaps a lot more --than FDR's did.

I also am not setting out to prove that all New Deal policies were bad. I do not think they were, and I especially do not think so about most New Deal programs aimed at offering relief, through temporary jobs or otherwise, to the unemployed.

I hardly am the first person to offer a critical overview, informed by academic writings but aimed at general readers, of the New Deal's economic consequences. Some others who have done so include Thomas Hall and David Ferguson (authors of The Great Depression: An International Disaster of Perverse Economic Policies), Gene Smiley (professor of economics at Marquette University), and Jim Powell (senior fellow at the Cato Institute). While I have profited from the works of these as well as many other writers, I consider my views different enough from theirs to justify this separate attempt--nor do I consider it useless to repeat many things they already have said. On the contrary, misconceptions about the New Deal are themselves hardy perennials that must be cut down afresh every season.

There also is this to be said for my effort: it will not cost a thing for anyone to consider.

Since defenders of the New Deal like to pretend that its critics are all Republicans or rightwingers, I had better lay some of my cards down. Because I work at an avowedly libertarian think tank, it goes without saying that I generally like free markets, and it is not a secret that I especially believe that governments have made a mess of monetary institutions and monetary policy. However, just as Cato itself is nonpartisan, I am neither a Republican nor a Democrat--nor can I be said to be a Herbert Hoover fan. Had I been around to vote in the November 1932 presidential election, based on what everyone knew about the two candidates then, I am pretty sure I would have voted for FDR, if only because he promised me cheaper imports and untainted hooch.

Perhaps more importandy, I am not opposed to countercyclical economic policies, provided they serve to keep aggregate spending stable, or to revive it when it collapses. (Naturally, I also believe governments should foster private-market arrangements that can help achieve these ends.) Unlike some "New Classical" economists, I take for granted that many money prices, and nominal wages especially, are not perfectly flexible, more so when they need to flex downwards.

Consequently, I do not consider it prudent to count on deflation to quickly restore full employment if spending dries up for some reason. If you think this makes me a "Keynesian," you need, first of all, to brush up on your history of economic thought, but you...