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.