Before my spirited exchange with my esteemed friend Amity Shlaes about the New Deal reaches the point of diminishing returns, it should be possible to agree on some points that may be applicable to current economic questions.
I think we agree that Obamanomics has not succeeded, beyond a tentative stabilization, easily shaken by lack of public confidence in the regime and the absence of any serious deficit-reduction plan. We seem also to agree that unfocused fiscal profligacy on the scale of the $800 billion stimulus bill has not led to significant reductions in unemployment, that more of the same will not succeed any better, and that the ability of the federal government to keep hurling money out of the airplane on that scale has probably passed anyway.
Where we agree in interpreting the economic experience of the Thirties is that U.S. unemployment on Inauguration Day 1933 was between 25 and 33 percent; that it was between 12 and 16 percent in late 1934, and between 9.8 and 14.2 percent just before the 1940 election; and that unemployment was effectively eliminated in the U.S. before America’s entry into World War II in December 1941.
Beyond this, we seem to part company, as on that record, I do not see how Amity could write, as she did last week on NRO, that “Roosevelt did fail to end the Depression.” She applies the criterion of “getting back to where we were before.” When Roosevelt died in office in April 1945, after more than 12 years as president, U.S. GDP had more than doubled from 1933, and was half the economic product of the entire war-ravaged world.
Amity acknowledges that within a year of taking office, Roosevelt could claim that more than 60 percent of the unemployed were “gainfully employed,” albeit about 60 percent of the reduction was in the giant New Deal workfare infrastructure and conservation programs. Yet she describes this as an “Obamaesque argument.” I don’t think so, as these were real jobs, and after $1.4 trillion of deficit spending, President Obama is reduced to implausible arguments about saving jobs that would otherwise have been lost, rather than creating new ones.
Where I hope we do agree is that this administration — to engage the unemployed until the private sector could absorb them — should have emulated Roosevelt’s workfare programs at much less cost and to much greater benefit to the nation than the Santa’s bag of toys of the stimulus bill. There is going to be an extended process, as the economy reorients itself from consumption (especially of foreign oil and luxury goods) to more saving and investment, manufacturing and extractive industry. It was naïve to imagine that the overladen Christmas tree of stimulus could achieve much of what was needed.