The Corner

Robert Barro on the Great Depression

This is an interesting interview by Sophie Roell over at FiveBooks.com with Harvard University economist Robert Barro on the lessons of the Great Depression. (By the way, why do we capitalize Great Depression?) Barro is very balanced in his conclusions about the New Deal. For instance, to the question of whether we should take seriously books with titles like FDR’s Folly (which claims that Roosevelt prolonged rather than alleviated the Great Depression), he responds:

It’s clear that a lot of the policies that were put into place were negative, but as to sorting out how important they were, that’s a much more challenging question. And I think Roosevelt at the time recognized ex-post that some of the things he tried were failures and then his attitude was, “OK, it’s a failure. I’ll stop doing it.” Which is actually pretty positive.

For example, some of the things he did was try to organize labour unions and also businesses essentially promoting monopoly – I don’t think that was a plus. He was trying really hard to keep wages and prices from falling with direct influence and that was a negative. The effect of the expenditure programs is less clear. In the mid-1930s with the New Deal there was an unusual amount of infrastructure-type of expenditures. But it’s not actually big enough to sort out in a statistical sense – to figure out how much it mattered in terms of the recovery after the trough in 1932-33. I don’t think we know that that was a mistake, but it’s not clear that it was all that important.

He explains, however, that even in the context of massive expenditures in a wartime situation, the multiplier effect of government spending on the economy is less than one, which means that it doesn’t have a multiplier effect. His conclusion is still that stimulation by spending doesn’t work.

And here are his thoughts about Obama’s stimulus:

I think the stimulus package was very stupid; it was awful. It’s just a tremendous waste of money and it’s going to cause some trouble in terms of a bigger public debt; it’s just wasting resources.

Finally, read about his five favorite books on the Great Depression here.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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