The New Deal and the Great Depression
By Arnold Kling
The notion that if we can just create more monopoly power for every single sector of the economy, encouraging every sector to produce less so they can raise their wages and prices, that we will then somehow make everybody richer, is so spectacularly wrong-headed that I would be just as dumbfounded to find that Brad De Long believes it as he seems to be by those of us who maintain that some aspects of New Deal policy surely did make the recovery from the Great Depression slower.
In case you have not been following it, Daniel Gross and Brad DeLong have been hurling insults at people who fail to genuflect to the proposition that the New Deal helped to cure the Great Depression.
A reasonable view is that some New Deal policies helped, and some hurt. In fact, the book Reflections on the Great Depression, which interviews many famous economists, finds James Tobin criticizing some New Deal policies (the cartelization policies that Hamilton decries) and Milton Friedman praising some of them (going off the gold standard, which Hamilton praises).
Knowing what I know now, if I could go back to 1933 and tell President Roosevelt what to do, I would say “yes” to deposit insurance, “yes” to going off the gold standard, and “no” to pretty much every other New Deal policy, including Social Security. I would also encourage two things that were not tried–a monetary expansion and a fiscal expansion (which in those days, with taxes relatively low, would have meant more government spending). Although I do not believe in Keynesian “fine tuning,” I think that in the 1930’s I would have tried Keynesian policies as a way of getting to the right channel.
Whether Roosevelt’s actual policies were, on balance, helpful or harmful, is something that I think reasonable people can debate. Hurling insults at one side or the other is not appropriate.