04 Jan 2009

Did FDR Prolong the Great Depression?

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Here’s a rather silly post about the Great Depression and whether FDR hurt or helped (HT2 Bob Roddis).

To be sure, you can credibly argue that the New Deal had its share of problems. But overall, the numbers prove it helped — rather than hurt — the macroeconomy. “Excepting 1937-1938, unemployment fell each year of Roosevelt’s first two terms [while] the U.S. economy grew at average annual growth rates of 9 percent to 10 percent,” writes University of California historian Eric Rauchway.

This is singularly irrelevant. First of all, note the hilarious “Excepting 1937-1938,” when unemployment shot up to 20% in some months (if memory serves). Pretty big asterisk.

But beyond that, the issue is whether FDR prolonged the Depression or not. So to answer that, you have to speculate about what would have happened to unemployment in the absence of the New Deal. E.g. suppose Harding had been in charge?

Well, there was a very severe spike in unemployment (and drop in output) during the 1920-21 depression, but as the title indicates, they were resolved very quickly. As we all know, the only reason we call it the “Great” Depression and spend so much time studying it, is that it was three to four times longer (and more severe to boot) than the typical depression up to that time.

I’m trying to think of a medical analogy, but my ignorance of medicine is making it difficult. Anyway, imagine somebody had the flu, and then Dr. Keynes came in and administered a small amount of poison every day. And so the otherwise healthy person took one month to get better, when normally it might take him 10 days. When inquiring about the poison, imagine an apologist saying, “Look at the charts! The person’s temperature started out at 105, then it fell half of a degree every day that the poison was administered, except for the spike 11 days into it when it jumped back up to 104. Clearly the poison helped get rid of the flu.”

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