Thursday, November 13, 2008

More myths from the Great Depression [updated]

You can never have too many articles pointing out the many myths of the Great Depression:

  • that President Herbert Hoover was a laissez-faire Republican who clung to the idea that markets were basically self-correcting (he wasn't; he was a meddler).
  • that the stock market crash in October 1929 precipitated the Great Depression (it didn't, the problems occurred much earlier.
  • that where the market had failed, the government stepped in to protect ordinary people (it didn't, it made things worse).
  • that greed caused the stock market to overshoot and then crash (it wasn't greed that caused the boom, it was inflation of the money supply).
  • that Franklin Rooselvelt's "enlightened government" pulled the nation out of the worst downturn in its history (it didn't: FDR's over-taxing, over-regulation and the regime uncertainty created just made things worse).

Paul Walker at Anti Dismal hosts the latest timely rejoinder to the myth Big Government Rescue. I loved the excerpt of Franklin Roosevelt's Treasury Secretary in May 1939, recognising failure after ten years of big-government failure:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"

Roosevelt tried everything in the big-government handbook, everything that's being talked about today including stimulus spending, welfare increases and massive public works, and it all failed -- everything except taking his hands off.  By November 1937, when other economies were recovering and the American economy was entering a 'depression within the depression,'  FDR was tearing his hair out, complaining to his cabinet, "I'm sick and tired of being told by Henry [Morgenthau] and everybody else what's the matter with the country while nobody suggests what I should do." 

"This," says historian John Flynn,

"settles for history the fact that after seven years in the White House Roosevelt had made no impression on the depression, that he had merely proved the unemployed with doles -- a poor and meagre substitute for jobs -- and now in the presence of the seemingly ineradicable shadow of depression, he blamed his advisors."

But still the myths survive.

UPDATE: Putting a human face on the American Depression is blog reader and movie-maker Frank Thomas (website here), who's just sent me this YouTube presentation of his brother's song 'Pennyland.'

In Thomas's words, "This is not meant as a political statement, but rather as an attempt to put a face on something that so often appears academic."

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6 Comments:

Anonymous Robert Winefield said...

The problem is that FDR did find a solution: Total, industrial-scale warfare.

11/13/2008 10:56:00 am  
Blogger PC said...

Yes, war -- the last resort of every statist.

But real recovery didn't start until after the war.

See for example Mark Skousen and Robert Higgs. Higgs is quoted at Paul Walker's site:
"Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperity” prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929."

Skousen argues that during the war, consumers had very little on which to spend their money, so they saved it instead -- and that pool of real savings (which had been wiped out in the malinvestments of the twenties and never allowed to recover) was available after the war to put into genuine production, and kick off a genuine production-led recovery.

In other words, the miracle of the depression is not that ten million men went off the unemployment rolls by being drafted, but that ten million men were so easily absorbed at the end of the war by an economy that was finally starting to grow.

11/13/2008 11:29:00 am  
Anonymous Robert Winefield said...

"But real recovery didn't start until after the war."

Good point.

How is that "war isn't an economical answer essay coming anyway?"

As I recall there were too many myths to slay for an essay...

11/14/2008 12:42:00 pm  
Blogger PC said...

Good place to start is Henry Hazlitt's chapter on 'The Blessings of Destruction' -- he points out that war is just a 'Broken Window Fallacy' on acid!

11/14/2008 01:00:00 pm  
Blogger PC said...

Oh, sorry, you mean the one I was writing.

Yes, it got a bit out of hand. I started to enjoy the research more than the writing.

But I never did find any decent counterfactuals. :-)

11/14/2008 01:02:00 pm  
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12/10/2008 11:47:00 pm  

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