Great paper on a New “New Deal”

At The Big Picture, Marshall Auerback, an economist and global portfolio strategist for RAB Capital, persuasively lays out the case for a New “New Deal.” The abstract is inside.

Historical revisionists have done much to dismiss the economic achievements of the New Deal, some even going so far as to suggest that FDR’s fiscal policies worsened the crisis. Such arguments have been made popular during the past 25 years by economists and historians keen to debunk the effectiveness of Keynesian economics in favor of the neo-liberal Washington Consensus. We suggest, on the contrary, that mainstream economics and policy have been unable to come to grips with our current socio-economic problems because of a lack of historical memory.

In particular, the key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. Including such ‘workfare’ recipients as employed presents a radically different picture for the New Deal, showing unemployment dropping by almost two-thirds from a high of 25%. Treating these men and women as unemployed while soldiers in Germany and France were treated as having jobs has made the Roosevelt administration’s economic performance appear uncompetitive, but it is fairer to argue that the people employed in government public works and conservation programs were just as authentically (and much more usefully) employed as draftees in what became garrison states. Meanwhile Roosevelt was rebuilding America at a historic bargain cost.

As President Barack Obama confronts the most serious economic crisis since the Great Depression, it behooves him to embrace the legacy of Franklin Delano Roosevelt and introduce a new “New Deal” as soon as possible.

This paper is certainly worth a full read. I can’t help but quote where Auerback lists some of the accomplishments of the New Deal, putting to rest the folderol emanating from quarters like CPAC. Roosevelt saved capitalism, period.

The key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown.

It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock.

What’s maddening, in the context of today’s conservative claims that the New Deal was ineffective, is that people are familiar with most of the accomplishments. Many of the electrons making it possible for you to view this likely came from the BPA, if you’re in the Northwest. Yet conservatives prance around claiming things that simply are not true, especially when it comes to the “mini-depression” that occurred precisely because FDR temporarily abandoned his New Deal spending in favor of fiscal austerity.

Auerback asks a simple question about spending, deficits and debt: if spending is so terrible, why did the U.S. economy prosper so much after World War II? He also notes that we were giving 2% of our GNP to Europe in the form of the Marshall Plan, which led to a remarkable economic expansion both here and in Europe.

It is, in my view, conservatives who will have destroyed capitalism in our era if they succeed in preventing a New “New Deal,” even as they nonsensically scream about “socialism.” They will destroy this country before they change their ways or their minds, and the last eight years are proof positive of that. The mind boggles at people who so badly want to sit atop a heap of economic ruins, just to say “we won.” No wonder they always call progressives mentally ill, they’re projecting like crazy. So to speak.

This isn’t some simple “honest difference of opinion,” where the relative merits can be sorted out and argued. You cannot have a reasonable national discussion if one side will not accept reality, historical and otherwise, as a condition of the discussion. While there is always room for increasing our understanding of history, if someone were to claim that George Washington lost the Revolutionary War, and stick to that claim despite overwhelming evidence to the contrary, they would pretty much erode any credibility they might have had.

And so it is with today’s conservatives and their claims about FDR and the New Deal. There is no meaningful national discussion possible, because the deluded and ridiculous nature of conservative views regarding FDR prevents it. And that’s a crying shame, because as Auerback points out, we have the advantage of being able to learn from the New Deal, unlike FDR. As proposals are trotted out regarding the financial system and recovery, our stilted national discourse revolves largely around personalities and the views of obstructionist Republicans (and a fair number of Democrats) in Washington, D.C. Vital issues like doing something meaningful about the insolvent large banks are not being addressed in an adequate fashion, and the obstreperous opposition of conservatives (both Democratic and Republican) is at fault.

Sometimes legacy journalists and others want to demand that bloggers “listen to the other side” because they might learn something. In ordinary times this would be true.

These are not ordinary times. The only thing one can learn from today’s movement conservatives is that their tribalism has no apparent boundaries, and the conservative movement exists excusively to provide a platform for whatever cultural and racial resentments can be fanned and turned into political fuel. Whether they put a pretty, sexy face on it, a supposedly blue-collar, regular-Sam face on it or a bloated, drug-addled face on it, the craziness and purpose is always the same. Our tribe our tribe our tribe!

That’s not just outrageous in this time of crisis, it’s also pathetic. For people who always claim to be so damn patriotic, it’s also inexcusable.

The  American people really need to ask themselves if they’re going to allow these fools to finish off this noble experiment once and for all.


  1. 1

    tpn spews:

    When will mainstream discourse figure out that Keynesianism is not Socialism, in spite of the right’s rhetoric otherwise?

  2. 2

    WatchManOnThe Wall spews:

    Ha,Ha, well this isn’t the 30’s and Obama isn’t FDR This is real new deal. just a short story you might wanna read,

    The little red hen called all of her Obama ‘Stimulus’ supporting neighbors together and said, “If we plant this wheat, we shall have bread to eat. Who will help me plant it?

    Not I,” said the cow.

    “Not I,” said the duck.?
    “Not I,” said the pig.??

    “Not I,” said the goose.?

    “Then I will do it by myself,” said the little red hen, and so she did. The wheat grew very tall and ripened into golden grain.?

    “Who will help me reap my wheat?” asked the little red hen.

    “Not I,” said the duck.?

    “Out of my classification,” said the pig.?

    “I’d lose my seniority,” said the cow.???

    “I’d lose my unemployment compensation,” said the goose.?

    “Then I will do it by myself,” said the little red hen, and so she did. At last it came time to bake the bread.

    “Who will help me bake the bread?” asked the little red hen.

    “That would be overtime for me,” said the cow.

    “I’d lose my welfare benefits,” said the duck.

    “I’m a dropout and never learned how,” said the pig.

    “If I’m to be the only helper, that’sdiscrimination,” said the goose.

    “Then I will do it by myself,” said the little red hen.

    She baked five loaves and held them up for all of her neighbors to see. They all wanted some and, in fact, demanded a share. But the little red hen said, “No, I shall eat all five loaves.”

    “Excess profits!” cried the cow.? (Nancy Pelosi)

    “Capitalist leech!” screamed the duck. (Barbara Boxer)

    “I demand equal rights!” yelled the goose. (Jesse Jackson)

    The pig just grunted in disdain. (Ted Kennedy)

    And they all painted ‘Unfair!’ picket signs and marched around and around the little red hen, shouting obscenities.

    Then the farmer (Obama) came. He said to the little red hen, “You must not be so greedy.”

    “But I earned the bread,” said the little red hen.

    “Exactly,” said Barack the farmer. “That is what makes our free enterprise system so wonderful. Anyone in the barnyard can earn as much as he wants. But under our modern government regulations, the productive workers must divide the fruits of their labor with those who are lazy and idle.”

    And they all lived happily ever after, including the little red hen, who smiled and clucked, “I am grateful, for now I truly understand.”

    But her neighbors became quite disappointed in her. She never again baked bread because she joined the ‘party’ and got her bread free. And all the Democrats smiled. ‘Fairness’ had been established.

    Individual initiative had died, but nobody noticed; perhaps no one cared…so long as there was free bread that ‘the rich’ were paying for.

    Same crap different era.

  3. 3

    Don Joe spews:

    Christina Romer’s speech at the Chicago Booth forum (PDF) (via the Economist’s View) provides additional context for the same discussion.

    She makes an interesting point with respect to credit markets:

    Before leaving multipliers, one issue that has come up is the interaction with the financial crisis. A common argument is that fiscal stimulus will have less effect because financial markets are operating poorly and lending is not flowing. I want to offer a different view. I think it is possible that fiscal policy will have even more oomph in this situation. When households and businesses are liquidity-constrained by reduced lending, any money put in their pockets is more likely to be spent.

    More fundamentally, there is strong reason to believe that a recovery in the real economy is salutary to the financial sector. When people are employed and buying things, loan defaults fall and asset prices are likely to rise. Both of these developments would surely be helpful to stressed financial institutions. This is, I believe, a key lesson of the Great Depression. In the Depression, the end of deflation, renewed optimism, and increased employment and output were as crucial to the recovery of the financial system as the more direct actions taken to stabilize banks. Thus, real and financial recovery reinforced each other. So, fiscal policy to raise employment may help to restart lending and in that way generate a more durable recovery.

    I wonder how much this thinking animates the Administration’s approach to banks. It’s certainly a different perspective than the one we’re getting from folks (Ritholtz, Krugman, Galbraith, Roubini, et. al.) who are outside the Administration.

  4. 4

    Don Joe spews:

    @ 2

    just a short story you might wanna read

    What’s with these folks who think that it’s a good idea to base policy decisions on works of fiction?

  5. 5

    Another TJ spews:

    What’s with these folks who think that it’s a good idea to base policy decisions on works of fiction?

    What’s the problem? Next, you’ll be claiming Jack Bauer isn’t real or even realistic.

  6. 7

    WatchManOnThe Wall spews:

    FICTION,is what you hear on the liberal news media net works, I think the little red hen gets her point across, she doesn’t wnat to make policies she wants what she has worked for.Until she figires out if ya can’t beat em then join em. Go lil red hen.

  7. 8

    Mr. Cynical spews:

    Obama really thinks he is Lincoln & FDR.
    I guess that’s because his daddy abandoned him and he has a severe identity crisis.
    Also, his mommy abandoned him for a couple of years too…forcing his “typical white woman” grandma to raise him.

    Obama is in la-la land.
    He confuses the FDR New Deal with the Obama Pork-laden BAD DEAL.
    FDR had also zero Pork in his stimulus.
    Obama is full of shit.
    Oink oink oink ain’t no New Deal.
    It’s the same old BAD DEAL!

  8. 9

    YellowPup spews:

    Given the ravages of the “neo-liberal Washington Consensus” for the last 30 years, I just wonder what resources the government would be able to use to launch a new New Deal. So much has been taken out of government in tax cuts and poor investments (wars, corruption, etc.), and we’re paying so much every year in interest on all this debt, it seems like government isn’t able to cover the costs of its existing commitments.

    Aren’t resources finite in the end? Eventually isn’t there going to be a moment when our debtors say, “No more”?

  9. 11

    The Truth spews:

    “It is, in my view, conservatives who will have destroyed capitalism in our era if they succeed in preventing a New “New Deal,”

    The democrats with this new budget will destroy capitalism and never pay for it.
    Just a week ago obama said PAY AS YOU GO what a joke he is just words with no meaning makes you feel good and warm.

    You have control of 3 branches of government and in your view your concerned about Republicans preventing the new deal?

    How is that?

  10. 13

    Roger Rabbit spews:

    @2 Please spare us from this full-of-shit wingnut-fairytale mass-circulation e-mail crap. We get enough of this junk in our e-mail in-boxes without some jerk like you posting it in the comment threads.

  11. 14

    Roger Rabbit spews:

    Regardless of whether the New Deal helped the economy, it rescued millions of people from abject misery, and that by itself made it worth doing.

  12. 15

    Roger Rabbit spews:

    @11 “will destroy capitalism”

    You idiots have been shrieking this alarm for over 100 years, but liberalism hasn’t destroyed capitalism yet, and has saved it more than once. Don’t worry, we’re going to rescue you troglodytes from your self-inflicted destruction yet again.

  13. 20

    Proud To Be An Ass spews:

    Syni-KKKlown above: “Obama really thinks he is Lincoln & FDR.”

    A classic! You see, wingnuts cannot come up with anything resembling a coherent argument, so their fallback position is their alleged ability to read minds.

  14. 22

    Martha Koester spews:

    The basic conservative assumption is that people who are hired to produce public goods aren’t really employed. That would not only include CCC workers in the 30s, but cops, firefighters, teachers, librarians and the entire US military.

    Odd how these people who love the military so much are always screaming about “communism.” Operationally, the military is the only communist dictatorship that we have. The nanny state provides for all your needs and tells you when to sleep and wake up, and totally regulates the way you spend your waking hours.

  15. 24

    The Truth spews:

    “liberalism hasn’t destroyed capitalism yet”

    wait for this to pass…

    More money will be spent on his one budget then all the federal budgets combined.
    With no way of paying for it.

  16. 25

    Al Minkman spews:

    re 2: Where or how did the hen get the land and the bakery?

    The hen’s actual question was: Who wants to work for peanuts for me and the farmer? We’ll keep some of you permanently unemployed and starving as object examples of what will happen to you if you don’t toe me and the farmer’s line.

    When the hen had five loaves she asked: Who wants to buy my loaves — and the starving workers said we’d love to, but you don’t pay us enough to afford it.

    The chickenshit hen then took her bakery to China where she could pay people even less, and for a short time sold many cheap, poisoned loaves in America untill the whole system fell apart.

  17. 27

    Nolaguy spews:

    The new “new deal” as described in the link seems to have some very good ideas.

    Why wasn’t that approach taken in the recent stimulus bill that was crafted that passed?

    I thought that WAS the “New ‘New Deal'”.

    It wasn’t?

  18. 28

    Mr. Cynical spews:

    Today’s Rasmussen–
    The Lying Bastard’s Strong Approval Rating now down to +8% (was +32%)
    Obama is a Liar.
    Obama is a Bastard.

  19. 29

    WatchManOnThe Wall spews:

    Take a hike roger bunny, i’ll post whatever i want to post if it is on the subject, seems you do, if you don’t want to read it, close your eyes, ignore it, look the other way,wouldn’t that be called tolerance, the basis of liberal democratic beliefs.In other words Shut up i wasn’t talking to you.

  20. 30

    WatchManOnThe Wall spews:

    To stinkman,every one in the barnyard had the same opportunity. DUMB ASS!

    Classic mushroom mentality, You are in the dark and the farmer is feeding you shit on a daily basis.

    Get your head out of your ass, or that shitty outlook will never go away.

    By the way, i wasn’t talking to you either.