Did the New Deal make the Great Depression last longer?

[Charles Dean]

I'm interested in hearing opinions on this from people here. This is a popular theory among conservatives right now and I'm wondering what other people's thoughts are on this subject.

[perfectfire]

Opposition to Keynesian Theory is neither new nor relegated to "conservatives".

[Charles Dean]

I'm talking about a specific time in history. Not about Keneysian Theory in general, which we could discuss ad nauseum if we wanted to.

Specifically I've seen a number of Right wing talkers and bloggers over the last 6 months say that the New Deal didn't help at all, and in fact made the depression worse and last even longer. So the subject with which I posed the original question does seem to be relegated to conservatives at this time.

[Kittitas]

I remember listening to my grandparents talk about the depression, how in the early days it was not uncommon to only have enough food for one small meal per day. All of my grandparents seemed to agree that the new deal brought hope for the future that was non existent during the Hoover administration.
The election in 1936 shows that the new deal was pretty popular at the time, with Franklin Roosevelt beating Alfred Landon of Kansas in a landslide. Roosevelt got 523 electoral votes, while Landon got only 8. The results for 1940 were similar, with Roosevelt getting 449 electoral votes while Wendell Willkie (Indiana) got 82.

[rose-colored-coolaid]

There are several ways to look at this. First, I've not seen any compelling evidence that the New Deal shortened the length of the Great Depression. In fact, there was another crash (1936 or 1937 I believe) in the middle of it. That said, if you listen to first hand accounts it's obvious that the New Deal lessened the impacts of the Great Depression for many people. Obviously those who got jobs, but also their families, and merchants they shopped at.

Also, only a fool could discount the positive post-war impact of the New Deal. Without all the civil engineering projects done in the 30s (with cheaper labor mind you), there's no way the post-war boom would have been so dynamic.

The same is true this time around. If we're looking at an 8 year recession, nothing Obama does will change that much. But, maybe he can limit unemployment to 9% instead of 12%, and maybe renewable energy initiatives will set us up for another 15 year boom at the end of his 2nd term (assuming he lasts that long).

[davidlosh@davidlosh.com]

The Great Depression was sandwiched between two world wars. The prevailing thinking is that WWII ended the Great Depression. It also seems that the end of WWI may have started the Depression in the first place.

World War One was the end of the Monarchies. World War Two finished all of the Royal Families for good. I would even venture it is like Africa ridding herself of European rule. The irony of today is that we are once again in a global economic crisis of the haves and have nots.

The new aristocracy of the very wealthy seems to be winding down with real problems of starvation, medical care, water supply, and climate change added to pollution issues.

In Europe and the United States after World War I there was a vacuum of need. People needed to be fed, clothed, and sheltered. There was very little time or money for frivolous things. The Industrial Age showed we could manufacture weapons as fast as we could kill people. Attention was drawn to big steel projects. Dams, Bridges, Trains, and automobiles put people to work. We needed those roads for the big trucks. We needed everything, the world needed everything.

Then World War II put all of those big steel pieces to the test, and we blew up a whole bunch of stuff that in Italy is still blown up today. So in my honest opinion the Great Depression was keeping people hungry so that they would do any job that some one offered. A lot of money was made, but it stayed with the new aristocracy, the very wealthy.

[perfectfire]

[sniglet]

It is pretty much impossible to prove whether the New Deal prolonged the depression. On the other hand, I think it is hard to show that it shortened it either. The fact that FDR, and the New Deal itself, were popular doesn't mean anything.

It is very hard for me to understand how the government's re-direction of capital from private markets to all manner of public investment/work schemes helped the economy. Sure, private investors may never have paid to build the Hoover Dam, but maybe they would have ultimately invested in other things that would have made the economy even stronger (who says Las Vegas really needed to exist in the first place?).

Likewise, the world's governments are doing precisely the same thing today (i.e. by borrowing money governments take money out of the private economy and re-deploy it elsewhere). Instead of letting private capital find it's own outlets, governments are sucking up all this private wealth to allocate towards even MORE housing and other public works. Why is it a given that building even more homes or bridges is better for the economy than funding new start-ups, or manufacturing facilities?

[jon]

[plymster]

This only my opinion, but it's at least as valuable as the other claptrap I'm reading about this topic.

The New Deal did not make the Great Depression longer or shorter, but it did do two important things:
It redistributed wealth from the wealthiest to the poorest in the nation.
It built a national infrastructure critical to the future of an industrialized US.

Why was wealth redistribution important? In 1932, a large portion of people were barely able to eat. 25% unemployment can do that. Famine of this sort results in widespread death and disease. Additionally, it gave the poor something to do with their idle hands instead of crime or revolt (eg: Nazi Germany).

Why was national infrastructure important? It helped the US be able to compete internationally, and made the war effort possible. Without roads, trains, bridges, etc to ship troops, goods, and munitions, the US would have been a great resource, but would have had little effect on the Allied Forces.

Would private investment have done any good? It definitely would not have helped build infrastructure, and it's likely that it would not have produced jobs for the majority of the nation. Over the past 30 years, we've had an enourmous shift of expenditure from the government (directly) to private industry (via government contracts, and private investment). The result is a vast, unemployable workforce and a handful of high-paying jobs, burger flippers or code shippers, with very little middle ground, and little need for the lower end workers (hence their low pay). It has shipped what used to be middle class jobs (manufacturing) abroad in search of cheaper labor on the back of a communications and shipping infrastructure largely developed in western nations.

If you doubt the effects of the New Deal, look at 1937-38 (thanks, rose-colored-coolaid - I'd forgotten about that), when FDR started repealing some of it. We had a crash and almost instantly descended into another recession.

Complaining that the New Deal lengthened the Depression is like walking for 20 miles and then bitching that your sneakers are hurting your feet (while without them, you wouldn't be going any faster, and you'd be walking on bloody stumps).

[Charles Dean]

I was mostly just curious to see what people's thoughts were, since I've seen it discussed as a topic lately. I should've gone ahead and started it out with a poll though, just to see what the bubble's consensus was.

My personal opinion is with Plymster and Rose. That it did help and helped more than private industry would've done. I also think that many of the work projects have had long lasting positive effects on the whole country that have had great long term impacts felt even today.

For instance, in our state many of our state parks were developed by the CCC. You can usually find something at any of the parks talking about that.

I think in some ways FDR went too far and that some things were not effective.

I also think that the economy was so bad that there was no fast reversal on making things better, just like there isn't a quick fix to the problem that we find ourselves in now.

That is interesting about your grandfather perfectfire. Do you remember specifically things that he hated about FDR?

My family often times joked about my grandparents and great grandparents being depression babies, because they scrimped on everything. But, they also had things that were 40-50 years old that were still in great shape and very functional, because they took care of what they had.

My great grandfather was an assistant postmaster all thru the depression and pretty well supported most of my extended family thru it. They raised rabbits for meat for a really long time and just got by barely on his USPS salary.

I think one of the things that we do forget about with The Depression is the famine that happened in the dust bowl as well and how that and a lack of a good transportation infrastructure made things that much more difficult for basic needs.

But in the end, I really think that the New Deal had much less fiscal impact than it did psychological impact. Even though many of the alphabet soup jobs were low paying, they were a job. I think that most people would prefer an honest days work to a handout. And I think that allowed people to be able to take a little pride in at least something in their lives.

[lamont]

[rose-colored-coolaid]

All the debate over Keynesian theory has, I believe, missed two core points. First, there are times when private industry simply will not spend. The Great Depression was such a time. Those who had money horded it, and in times like that the willingness of anyone to spend real money (even the federal government) has a large impact to loosen tight fists. If you know Uncle Sam is sending you a check you worked hard to earn next month (and the one after that even), it's much easier to spend it on new clothing you badly need.

Second, there are vital projects that private industry simply will not participate in due to a high initial cost and a long time-frame for profitability. In addition to roads, certain power plants, and national parks there are the research items like the internet. Sure, a company who literally owns the internet would be stupendously wealthy (look at Google and they only metaphorically own the internet), but what company could have (or would have) afforded 20 years of zero ROI on a project of such massive scale where the capital equipment (the internet backbone) loses value so quickly? Nobody would.

That said, occasionally the lines do blur. The railroad systems across the global were all built by governments, except for Britain. In Britain all their empire wealth allowed them to create a rail bubble funded privately to build their system. Of course, this destroyed significant wealth when the bubble popped, but they did do it.


Here's how it relates to today. Deficit spending to build public infrastructure is justifiable. So is spending on renewable energy research, at least where that spending is too expensive for private industry. Spending on renewable energy tax breaks is definitely justifiable. Spending money on banking bailouts...I suspect history will judge us poorly.

[plymster]

I agree with Lamont and RCC. Right now, there is no money for investment in startups or new tech; it's all being parked in treasuries. When trillions of dollars are being "invested" at 0% interest for 3-months at a time (the going rate for 13 week T-Bills), or 1.3-1.7% for 5 years, that is not "investment". That's going to cash equivalents.

I further agree that there is absolutely no danger of inflation, unless the world's reserve currency crashes. Given everyone's (China, Europe, Middle East, Japan, India, etc) dependency on the US Dollar as a major trading currency, that should only happen if true printing occurs (as opposed to borrowing, which is what's happening now).

If Obama's administration can reign in reckless spending (like tax rebate giveaways to the wealthiest American's who don't really need any more T-Bills), and concentrate on what puts food in bellies and shelter over people, then T-Bill parkers should have confidence that the US isn't going to default.

It'll get tricky when/if the economy starts to recover, driving up the costs of trillions in treasuries outstanding, and forcing an increase in taxes. We'd better have somebody with brains in office then to curb spending and stifle the tax giveaways, or that could cause a default situation.

[WestSideBilly]