I’m probably missing something here

Amity Shlaes seems to be the anti-Roosevelt scholar du jour.Today she explains why Roosevelt's economic policy should not be the model for Obama's recovery efforts.

Beginning with an anecdote about the continued economic woes in 1937, she raises the question of the effectiveness of Roosevelt's policies, given that there were still economic problems 4 years after his policies began. But she gives us two reasons for the concern with Roosevelt's economics.

But Roosevelt the economist is unworthy of emulation. His first goal was to reduce unemployment. Of his own great stimulus package, the National Industrial Recovery Act, he said: "The law I have just signed was passed to put people back to work." Here, FDR failed abysmally. In the 1920s, unemployment had averaged below 5 percent. Blundering when they knew better, Herbert Hoover, his Treasury, the Federal Reserve and Congress drove that rate up to 25 percent. Roosevelt pulled unemployment down, but nowhere near enough to claim sustained recovery. From 1933 to 1940, FDR's first two terms, it averaged in the high teens. Even if you add in all the work relief jobs, as some economists do, Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice — as a nightmare. 

Maybe I'm missing something really important here, but isn't a 30% drop in the unemployment rate a success? Never mind a 120% drop, if you count in work relief? What am I missing here? Is it unreasonable to expect that a stimulus bill of the same magnitude (proportional to GDP) would effect a proportional decrease in unemployment? The numbers that I think I saw the last couple of weeks from the CBO suggested as much. So what is the argument here? That, stimulus spending can make improve things, but perhaps not fix everything? Is that a reason to not emulate Roosevelt? Starting from 25% unemployment and getting it down to 10% cannot be compared to Obama worrying about 10% and presumably spending to decrease it to 6-7%.

This seems to be a version of the argument, if policy x aims to address problem y, and policy x does not fix problem y, then policy x should not be undertaken. This may be a good argument in some cases (where we have a choice between two policies and one will solve y and one won't), or, if it were combined with evidence that some other policy z would better affect problem y. But as it stands it seems a bit bizarre.

But that's not all:

The second goal of the New Deal was to stimulate the private sector. Instead, it supplanted it. To justify their own work, New Dealers attacked not merely those guilty of white-collar crimes but the entire business community — the "princes of property," FDR called them. Washington's policy evolved into a lethal combo of spending and retribution. Never did either U.S. investors or foreigners get a sense that the United States was now open for business. As a result, the Depression lasted half a decade longer than it had to, from 1929 to 1940 rather than, say, 1929 to 1936. The Dow Jones industrial average didn't return to its summer 1929 high until 1954. The monetary shock of the first years of the Depression was immense, but it was this duration that made the Depression Great. 

It's hard to judge this assertion. It isn't really an argument. Rather than justify the claim that the New Deal crowded out the private sector, she suggests that the New Deal was motivated by hostility to the private sector ("went after. . . the entire business community"). Next she asserts that because of this hostility to business, investors did not invest in the US, and so the Depression lasted longer than it would have on some other Deal.

She finds several cautionary tales in the Roosevelt record (short term vs. long term job growth, and possible problems with public investment in utilities), but ultimately the history seems to be less than is needed to support her assertion.

What about spending? The Depression tells us that public works are probably less effective than improving the environment for entrepreneurs and new companies. The president has already put forward a big tax cut for lower earners. He might offer a commensurate one for higher earners. He might expand the tax advantages he is currently offering to companies — wider expensing of losses, for example — and make them permanent. A discussion that permits the word "trillion" might also include the possibility of bringing down U.S. corporate taxes, taxes on interest, dividend and capital gains — again, permanently. The cash that a relatively competitive United States draws from abroad will move the country forward faster than any stimulus.

Economic arguments like this seem to require more than just history to justify the conclusion. It's not clear to me how the depression could tell us what she thinks it tells us, at most we would need to compare it to some other Great Depression in which tax cuts were tried and in which the economy recovered more effectively. It seems to me that the arguments about how to understand the Great Depression ultimately rely on economic theory or hypothesis, more than historical anecdote.

 I'm not sure that I would call this fallacious (though there is a specter of several fallacies haunting the piece). but it seems to me that the history she draws our attention to, at best would illustrate a theoretical view (spending is less effective than tax cuts at stimulus) that she holds on the basis of some other evidence which she has chosen not to make explicit. She suggests however that the historical record provides good reason to hold that theoretical view.

8 thoughts on “I’m probably missing something here”

  1. When you’re dealing with macro-economics, allegories like this are completely useless.  While I agree that public works may not be the best way to restore the economy, her argument was not meant to inform, but merely as a conversion piece.

  2. More of an addendum…

    I’ve never liked general discussions about employment/unemployment. It seems that high unemployment is bad, but reducing the rate numerically doesn’t say much about what sorts of jobs are being created. There are jobs, and there are sustainable careers. The latter seem more desirable to create. The question we should be asking is two-fold: how can we reduce the unemployment rate AND what sorts of jobs can we create that are sustainable and contribute to general prosperity? For example, more wage-slavery jobs created is preferable to no jobs created, but that does not address the issue of what sorts of jobs we should promote the growth of (see Kristof’s article from a couple of weeks back where he encourages the growth of sweatshops). What sorts of jobs will be created by cutting corporate taxes, capital gains taxes, etc.? Are there any economic reports that demonstrate the growth of particular types of jobs based on these policy measures?

    The stimulus package issue is one that requires a fair amount of evidence in the form of economic data in order for anyone’s arguments for or against it to hold up, which, sadly, is something that we never see in any editorial comments on the matter – just bad oversimplications of history with dubious analogies and overt ideological arguments. Is this economic crash similar to the Great Depression in the relevant economic ways? Is the stimulus package going to be spent in ways similar to the New Deal? Can we even compare the economy of the 1920’s to our contemporary economy? These are questions that should be answered clearly before we jump ahead to criticism or endorsement of the stimulus plan.

  3. I was thinking about the argument that seems implicit in her discussion of Roosevelt’s failure to fix all the economic problems of the nation, and the earlier discussion of Obama’s failure to bring about a “new politics” because of a “political firing” in the State department. And wondering about the general forms of these arguments. A sort of argument from the failure to attain an unreasonably high goal. It seems to work by taking the commitment/goal in an entirely unqualified sense and then taking any evidence of not meeting that commitment/goal  as evidence of failure (sometimes qualified with a knowing but cynical suggestion that the evidence is a canary in the mine).

  4. There is here variation of the argumentum ad Obamam: if one claims to be an agent of change, hope, or charity, and one does not change everything absolutely, one is a failure.  More formally, interpret your opponent’s argument in the broadest possible terms, and then nitpick their failure to meet your unrealistically high standard.  In this case, if FDR only managed to reduce unemployment by 15 percent, he’s a failure, because there was still high unemployment.

  5. If this piece (from an economist — admittedly, one with an agenda) is correct, then the Shlaes piece is an example of an argumentum ad verecundiam:

    Shawn Fremstad’s claim is that Shlaes is an “English Major”, and neither an historian nor an economist. Fremstad provides a backtrack to a Dean Baker piece that offers a more detailed critique of Shlaes. (Again, an economist, again with an agenda; but Baker actually sinks so low as to offer empirical evidence for his position, something the WaPo didn’t seem to believe was relevant in printing Shlaes.)

  6. That’s true what you say about Shlaes Gary.  She has training neither in economics nor history, so what business she has doing those things has confused some with more qualifications.  I don’t think, however, that her argument would constitute a verecundiam.  She would have to basing her claim on her own authority, rather than on her own very crappy arguments.

  7. Ah, you’re right of course: she’s not appealing to her authority, at least not directly. A case might be made for an “implicit appeal” based upon the absence of data and citation in her article, leaving her as the soul authority for her claims.  But that strikes me as a weak argument to make given the more immediate problems with her claims.

  8. That’s right Gary.   The “trust me” claim–I am a senior fellow in economic history (despite my having an undergraduate degree in English (take that “doctor” Laura!!)–seems implicit to some extent.  The adults in charge ought to have better judgment.

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