Shlaes was also part of the chorus denying that the economy was in trouble as late as July, 2008.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/11/AR2008071102543.html?nav=hcmoduletmv

Lack of penalty for being wrong on economic matters seems to be a feature of a) the media including book publishing; b) the financial world and c) the economics profession. The penalties for these people being wrong are suffered by working people.

"Roosevelt's New Deal Agenda lowered the unemployment rate from 25 percent in 1933 to 10 percent in 1937."

Ah, no. Something reduced that unemployment rate, it is true, but the argument we should be having (and nothing to do with Ms. Shlaes) is whether it was the New Deal or whether it was something else.

After all, unemployment rates fell after all previous recessions as well, didn't they? GDP grew after all previous recessions, no? We do want a little more evidence that this is causation rather than correlation, don't we?

"The Blue Dogs of the Roosevelt era won sway and got Roosevelt to cut spending and raise taxes. This threw the economy back into a serious recession, just as any good Keynesian would have predicted."

Why are you so sure? first of all, you could kindly tell us by how much(say as a percentage of GDP) the gov't raised taxes and cut spending. then, how do we know that this was a big factor in causing another recession or in this case depression.

we know from reading this blog that you don't believe bubble housing prices should be propped up by policy makers. why should a bubble economy be propped up by kenysian spending anymore than the housing market should?

"This is an important point, because it doesn't make sense to try to re-inflate a housing bubble, just like it would be foolish policy to try to push the NASDAQ back to 5000."

mr baker, please use that logic for the rest of the economy! please use it for the bubble economy "demand loss of $2,700 billion" you mentioned. that's bubble demand in the economy just like high housing prices were bubble demand

So Keynesian theory explains the success of FDR's policies during the depression. Why then, didn't the US economy collapse in 1946 with the massive contraction in government war spending?

Otto Maddox: After the war, America had a great demand for non-military products.
I'll not make a judgment on the New Deal, although its obvious concerning the 700 billion BAILOUT, doing nothing would have been the wiser choice.

Ever heard of the Harding era Great Depression?

Maybe there's a reason you haven't.

Massive economic crisis, massive deflation, massive unemployment ... and, and,
well, recovery within a year.

Harding DID something .. he did the right thing and let the market process work.

He DIDN'T throw sand bag after sand bad into the gears of the economy like Hoover and Roosevelt -- turning a crisis into a never ending economic ruin.

Keynesian macroeconomics is cargo cult pseudo-science -- nothing more, nothing less

Dean, you are not honest.

The argument is that the interventions of Hoover sent the economy into a "Great" depression (perhaps you are simply very ignorant of this history) -- and the interventions of Roosevelt kept it there.

After all, unemployment rates fell after all previous recessions as well, didn't they? GDP grew after all previous recessions, no? We do want a little more evidence that this is causation rather than correlation, don't we?

Speak for yourself, pal. Folks around here don't need no stinking causation. Post hoc est propter hoc, that's all that matters.

Why was the Great Depression far worse in America than in any other country in the world?

The best answer is: Hoover and Roosevelt.

All you had to do to find a better economic performance was cross the border into Canada.

But facts don't matter in economics, never have.

The ending of the recession with the ascension of FDR is pretty good evidence of the value of his policies. Coincidence you say? Quite an auspicious one. The Fed was more responsible for the 37 recession with their jacking up of reserve requirements. It was more monetary than fiscal Keynesianism. The reason for the postwar boom was the war had redistributed considerable wealth from the wealthy to labor as they had earned much money that they had nothing to spend it on during the war.

One does wonder if an economy other than a bubble economy is possible. Trying to support the economy is not the same as creating another bubble, but we shouldn't be surprised if another develops, but it won't likely be the same one. Still, if there is anything worse than a bubble economy it is no economy at all.

As always with conservative ideas, we TRIED that one. The do-nothing plan was fully implemented in 1930-1932.

That's what ticks me off. We hardly ever actually try liberalism. We try conservatism over and over again.

Don't you love this Harding lovefest? Government was less than 10% of the economy so whatever he did was largely irrelevant. What was relevant was the Fed abandoning the gold standard for a price stability standard. Unfortunately they still maintained it was a gold standard which then did cause the Great Depression when they left deflation unchecked. If one can thank Harding for anything it was abandonment of the gold standard. But yes, why let the facts bother you when you you already have the true faith.

"As always with conservative ideas, we TRIED that one. The do-nothing plan was fully implemented in 1930-1932."

no it wasn't. you had reckless federal reserve policy that created the boom that caused the bust. hoover did in fact try to stop the economy from adjusting and he failed.

"when they left deflation unchecked."

you or the gov't knows better than the market what the price level or money supply should be?

the new deal caused the depression to be worse. simple as that. it postponed a real recovery.

your proof is playing out in real time. the federal reserve early this decade interfered with the recession and kept rates too low for too long. what we got is the bust we are currently experiencing.

why can't people see that?

The economy turned up and grew rapidly with FDR, among the most rapid on record. Productivity also rose fast which hindered employment growth. Certainly some policies were misguided, but nothing so much as destroying 30% of money supply and nothing could have recovered from that any faster.

"." wrote:

"your proof is playing out in real time. the federal reserve early this decade interfered with the recession and kept rates too low for too long. what we got is the bust we are currently experiencing."

Agreed on this - pretty clear the Fed started this party and then failed to take away the punch bowl.

"the new deal caused the depression to be worse. simple as that. it postponed a real recovery."

You say this, but provide no proof. How can you possibly know if the New Deal caused it to be worse? Personally I think the Smoot-Hawley act may had more to do with it.

We also has to be careful what we call the New Deal. The NRA and AAA were clearly stupid policies - and were found to be unconstitutional. These are bunched with the term "the New Deal" but clearly didn't help - and they were not part of the deficit spending that took place at the same time.

While I agree with other posters that we do not have causation for the reduction in unemployment, it would be difficult to argue that the spending policies did not play a role in the pre-1937 recovery, and that tax increases and cuts in spending had a role in the reemergence of recession in 1937.

The key question, which is essentially unknowable, is whether or not, longer term, government interference helps by providing a buyer of last resort, or just postpones the inevitable.

Certainly what we saw coming out of the dot.com bust was supportive of the idea of interference postponing the bad news through massive government stimulus in the form of war-time spending (Iraq/Afghanistan/Homeland Security). But again, we don't know what the economy of 2003-2008 would have looked like without that stimulus.

If anything, the New Deal spending paled in comparison to the spending on the war effort pre-WWII - thus, in my opinion, showing that in fact MORE spending was required than was done during the New Deal to generate growth. Which is a very uncomfortable thought, I imagine, for the Obama administration - that is - they could spend $816b and still have it be too small and fail for a reason that most would not expect.

Greg wrote:
"All you had to do to find a better economic performance was cross the border into Canada."

Not sure where you're getting your data - Canada was, by many measures, worse off than the US:

http://en.wikipedia.org/wiki/Great_Depression_in_Canada

The relevant passage in the Canada wiki is this:

"In Canada employment quickly recovered"

Hoover's anti-recession Smoot-Hawley bill set off an international trade war -- no one was harder hit than Canada.

"The relevant passage in the Canada wiki is this:

"In Canada employment quickly recovered""

Well, but you leave out that productivity stayed low, whereas in the US, employment was lower but productivity was higher. The point is that they were in a depression as long as we were - even longer by some measures. So the idea that Canada was not hit by the Depression is false.

Non-english major historians of the Great Depression generally credit FDR and his New Deal policies regarding the banks, the FDIC, and his devaluation of the dollar and partial abandonment of the Gold Standard (it became illegal for the next 45 years to own gold as an individual in the United States) with stopping the slide into economic oblivion and social revolution (which if you go back and read primary sources, people were really scared of happening in 1933). See Milton Friedman's "Monetary History of the United States." Non-english major economic historians, say Nobel Laureate Paul Samuelson, say the following:

"A: This is a new crisis because if you look at its bottom it says, "Made in America" (laughter). It's not Thailand. It's not Mexico. It's not Argentina. It's America. And, of course, it spread from there. Could you believe that the whole country of Iceland is bankrupt? Icelanders were the happiest people two years ago. They're the unhappiest people today.

What ended the Great Depression in Germany and in America? Deficit spending. ...

When I was a freshman at the University of Chicago, I was a good student. I got good grades and I had great teachers ... Frank Knight (1885-1972), Paul Douglas (1892-1976) and so forth.

However, everything I was taught and I read disagreed with what I saw outside the window of the university. At least one-third of the population had no jobs at all. It was exactly the same story in Germany. In 1933, Franklin Roosevelt gained power. Herbert Hoover was as unpopular as George W. Bush is.

Adolf Hitler came to power in Germany. Hitler spent money endlessly preparing for a war of revenge and that ended the big unemployment in Germany by 1939. The same thing happened in the United States under Franklin Roosevelt ... through public works expenditures, through the agricultural support programs. ... So it was not the central bank (that helped ease the recession). ...

More deficit spending

Q: I wonder if we will experience a second Great Depression. Or, will we see just a worldwide recession?

A: Rome was not built in one day, and Franklin Roosevelt did not get full employment. It took about seven years. Now I don't say it'll take seven years this time, but it won't be done with a balanced budget and it won't be done with "inflation targeting."

Q: If I understand you correctly, you are saying that in the end spending policy by the U.S. government could help turn the situation around?

A: That's what saved capitalism in the 1930s. It also did in Germany. Franklin Roosevelt brought unemployment down from one-third to less than one-tenth when there was no war or threat.

It was by PWA (Public Works Administration) and WPA (Works Progress Administration). Franklin Roosevelt, for more than seven years helped people ... handouts, rescues."

http://economistsview.typepad.com/economistsview/

By the way, there is all this passionate certainity, especially on the right, but also on the left, about the correct remedies. The salt water economists, most of the liberal Keynesian persuasion (Nouriel Roubini, Robert Schiller, Krugman, and our man Dean), but also some Hayekians (Mish Shedlock) at least have some credibility in that they have been calling "Wolf" or "Bubble" for the last six years and that it would all end badly, while the Fresh Water economists kept saying that there was no bubble and that his was the best of all possible economic worlds since Dubya cut taxes on the rich and stopped all that intrusive Government regulation. With a straight face they now say that they are certain stimulus of a liberal Democratic administration will be worse then useless. They don't know. But frankly, the Keynsians don't know how useful it will be. Just like the economy of 1929 was already very different then the economy of 1920, how immensely different is the the current economy from that one.

In 1920, as was very much still the case in 1929, a large part of the population still lived and worked on farms (25% in 1929). Most stimlus, whether tax cuts or spending, stayed in the United States since almost all our goods were still manufactured within the country except for some luxuries. Now, a great deal of the spending would good to buy goods made abroad since imports are about equal 20% of GNP, with only some of the profits and multiplier effect trickling back into the country as return on overseas investment. So the Keynesians really don't know how much good this will do beyond the direct hires and contracting. If they are honest, they would say not as much good as it would have done 40 or even 25 years ago. But certainly better than doing nothing, or the worse then nothing of promoting even more inequality of income with tax cuts for the top 1% which is the favored Republican/Randite prescription.

Rick - I agree with you - I don't think anyone can really know what the effect of the stimulus will be - especially as it is split between different strategies. So we have tax cuts, we have infrastructure and we have, essentially, poverty support. I think the truly damning thing about politics right now that is changing strategy would like be greeted with laughter by the Republicans - as opposed to taking the approach of "let's try something and then change if it isn't working."

Posted by: .

you or the gov't knows better than the market what the price level or money supply should be?

The market don't take decisions. The market is only a result of decisions, decisions made by a very big lot of peoples.

But it makes a condition in wich each new decision to be made have to take in account this condition.

And every new decision change the previous condition in a new one wich in turn have to be taken in account by people who have decisions to make.

And so on.

Condition influence decisions, but it is the people who takes decisions.

The market is a result, not an entity who has the power to think, know what is going on and make decisions, like deciding from what it knows that the prices should be so and so at this moment, and so and so at another moment, or like knowing and deciding what should be the amount of money in the economy at any moment.

"The economy turned up and grew rapidly with FDR, among the most rapid on record. "

this makes the Austrian case. that if we just let things alone a they will bounce back quicker. we should expect a big move up after such a sudden drop. now if we had just kept letting the economy reach it's NATURAL level instead of the artificial one we would have had a recovery quicker.

"You say this, but provide no proof. How can you possibly know if the New Deal caused it to be worse?"

because government spending is the equivalent of steroids. it's artificial. it's spending that would not have happened. spending that the market would not have done. that's why government does it. it's designed to be artificial. the thinking behind it proves Austrians correct.

in the housing market we could set a floor for home prices and it would be the same thing as Keynesian spending. it's just as artificial. it delays getting to a real price. keynesian spending delays a real recovery in the same way as a housing floor does.

"because government spending is the equivalent of steroids. it's artificial. it's spending that would not have happened. spending that the market would not have done. that's why government does it. it's designed to be artificial. the thinking behind it proves Austrians correct."

You miss the point - you have no proof of the outcome which you offer - that the New Deal made the Depression worse - because you can't know what the other outcome is. And you can't know.

Just because it is artificial doesn't mean that you would get a negative outcome. It might have had no effect for all we know. The reality is that it probably had some positive and negative effects. But to say that it was worse because of the New Deal is single causation, and an unknowable causation as well.

And there are plenty of reasons why we might want an artificial floor - markets are more often than not irrational during the short term - so providing some stimulus may provide a fill for the gap while the market catches up. Even Friedman said that market outcomes were often less than optimal.

This assertion is so wrong on so many levels...where to start? Rent control (setting a floor on home prices) is the same as public infrastructure investment (actually putting people to work and effing BUILDING THINGS)?

Did you take a class in ignorance?

This assertion is so wrong on so many levels...where to start? Rent control (setting a floor on home prices) is the same as public infrastructure investment (actually putting people to work and effing BUILDING THINGS)?

Did you take a class in ignorance?

"For folks who think that the growth in federal spending under Roosevelt and the recovery were just coincidence"

with a plunge in GDP so dramatic as that of the great depression, how can we be so sure that it was FDR's spending and not just largely the economy rebounding?

"but it is pretty hard to look at this data (available at www.bea.gov) and not see a relationship between government spending and GDP growth."

did we somehow use magic dollars that just fell out of the sky? these dollars that FDR spend came from somewhere. where? the answer is instead of spending on goods and services to help keep jobs the money was spent buying bonds and THEN spend by the government. I'd rather have the people spend it.

the other answer is that the money was just printed and therefore the price was a devaluation of the dollars already in circulation.

government can't create demand or create jobs. they can only steal jobs and demand from the future and/or shuffle them around the present.

perhaps we had a nasty recession/depression in 1938 because stealing demand from the future finally caught up with us? we see the results first hand right now. the car companies and housing companies stole demand from the future during the bubble years and look at the collapse.

my local government spent millions to have a nice downtown. it looks awesome but it's no great feat. the money simply came from consumers via a special tax and rerouted from their pocket books to downtown! no magic dollars there.

"You miss the point - you have no proof of the outcome which you offer - that the New Deal made the Depression worse - because you can't know what the other outcome is. And you can't know."

yes we can. we know that it was money not spend somewhere else. it was at best a reshuffling of jobs. the money had to come from somewhere. the depression would have ended sooner because the economy would have more quickly gotten to a sustainable level. stopping the depression would do just as an amount of good as stopping falling home prices. neither is good.

you cannot wish markets away. the market and the economy will go where it wants to. you can't stop it.

Sadly, money that was spent did not have to be spent elsewhere. It could have sat and rotted in mattresses. Money is not finite resource and its velocity is not a constant.

"you cannot wish markets away. the market and the economy will go where it wants to. you can't stop it."

I'm not trying to wish markets away - I think markets are a good thing. But to make the assertion that the New Deal caused the Depression to be worse is unsupportable. All you are doing is quoting academic theory.

"did we somehow use magic dollars that just fell out of the sky? these dollars that FDR spend came from somewhere. "

Yes they are magic dollars - it's called printing money.

"government can't create demand or create jobs. they can only steal jobs and demand from the future and/or shuffle them around the present."

While it is correct that the government can't create demand, I don't know where people get this idea that the government can't create jobs - of course the government can create jobs and does all the time. Bush created the Dept of Homeland Security. He then hired a bunch of people to work there including the head of the agency. None of this existed before Bush, thus the government created jobs.

Now if you want to make the argument that the government job doesn't have a net positive economic output, that I can agree with.

Who would want to live in .'s world?

We would not be able to afford drinking water at the tap, the ability to visit a nearby city without paying a hefty toll or ensure an education for our children at a reasonable cost - all of which are in danger of extinction after 25 years of extreme economic policy.

"So Keynesian theory explains the success of FDR's policies during the depression. Why then, didn't the US economy collapse in 1946 with the massive contraction in government war spending?"

Real GDP contracted 11% in 1946.[Source: US Dept Commerce website]. GDP contracted by about 1% in 1945 and 1947, as well.

Can we get better wingnuts please? [Like, ones who know how to find basic economic statistics using teh Google?]

Dean,
The usually articulate NPR/This American Life pair(Adam Davidson, Alex Blumburg)seem to take note yesterday that the Keynes idea has never been tested before. One major point they made was how the economy seemed to get better initially post FDR actions, but later sputtered. I don't think they mentioned the subsequent drop in govt. spending as a correlation.

What was your take on the commentary?

Thanks.

Vara

Two things that New Deal naysayers tend to ignore when whining about how FDR made things worse.

Number one – rules and regulations grabbed some folks buy the neck to help restore the most fundamental aspect of the “Invisible Hand”: TRUST.

Number two – the world has been abiding by one set of rules or another since folks began scribbling on cave walls. No rules, no way to keep the trust.

It seems that most of our supply side economists have left the most fundamental of variables out of their crazy equations; human behavior.

Greed tends to blow up free market capitalism over and over again – because when the rich get filthy stinking rich, they don’t want anyone changing the rules – thus conservative government. Add to that the sense of entitlement that goes along with having arrived on your pile of cash and you get literal personality cutouts from the 1920’s that Rush Limbaugh can fit though perfectly today.

Rush pulls down a lot of cash with his corporation, which as far as I can tell deserves a fifty percent tax cut; not to mention what ever he is going to do about the capital gains tax he hopes to relieve for someone. He’s a corp: maximize profit, minimize risk.

Only problem is, none of money from the “Invisible Hand” makes it out of the bottom, it just magical appears in the pockets of the one percent club in the good ole US of A that hold the vast amounts of wealth that the country now needs back to survive.

I suppose at this juncture, all we have to do to fix the problem with the free market is to allow someone to revoke the charter of the corporation when it breaks the trust. Of course that would be way too liberal, and would involve making changes in law and oversight.

If conservatives had done it right the first time, there would have been no need for FDR, Obama, and most importantly, Rush. Unfortunately time marches on, as does technology, science, education, life, and of course greed.

"Bush created the Dept of Homeland Security."

they just shuffled jobs around from the private sector to the public sector. after all, the money comes from somewhere.

"
We would not be able to afford drinking water at the tap, the ability to visit a nearby city without paying a hefty toll or ensure an education for our children at a reasonable cost - all of which are in danger of extinction after 25 years of extreme economic policy."

nonsense, we pay for all that through higher taxes.

“yes we can. we know that it was money not spend somewhere else. it was at best a reshuffling of jobs. the money had to come from somewhere. the depression would have ended sooner because the economy would have more quickly gotten to a sustainable level. stopping the depression would do just as an amount of good as stopping falling home prices. neither is good.

you cannot wish markets away. the market and the economy will go where it wants to. you can't stop it.”

No we can’t – it’s history (it can’t be “wished” into submission) and no matter how hard you spin it, it’s gone where it wanted to go.
By forcing money to be spent on things we didn’t necessarily blow up (one of the simple rules of economics –build things that don’t intend to blow up, like bridges, parks, roads, and yes, houses, you kind of grab the guys still sitting on the cash bags to stand up and take part.

We have great examples of free, un-tethered markets all over the world. Nice places where people gather to pray, and beg for bread, while a few “Magic Hands” of power let the place rot – because they can.

So, let us look at Iraq under Saddam; despot that holds together a functional economy in a society becoming more secular, because the lights work, the water flows, and toilets flush. Hang him and bring in the new guy responsible for turning the place into the new Disneyland, open up the market, throw away the rules, and let the economy go where it wants to go.

By the way there is a great story about letting things go where they want to go, I think it’s called Genesis or something like that. Terrible ending. I digress.

Suddenly the folks of Iraq are not only not really getting a piece of that economy, but the lights aren’t on as much, the water no longer flows, and yes, they get to crap in the street. The money leaves the country, the jobs are filled by non Iraqis, and there's lots of time to spend praying and coming up with great ways to punish the Great Satan.

In the end, it’s in all of our best interests to steer the economy because it’s like this: Economies don’t kill economies, people do.

Or more simply: it’s the people, stupid.

Why was the Great Depression far worse in America than in any other country in the world?

Uh, what? You're trying to argue that the Great Depression was worse in the United States than it was in, say, Germany?

Are you stupid or just completely ignorant?

nonsense, we pay for all that through higher taxes.

I thought you said the government never created jobs. If that's the case, what is that tax money being used for? Roads don't magically build themselves.

"they just shuffled jobs around from the private sector to the public sector. after all, the money comes from somewhere. "

Ok, so you're saying that anytime someone has a job and gets another, that's not a job created? By that measure, no companies create jobs because all the people had jobs before.

Again, if you want to argue about whether or not those jobs produce a net economic effect, that's something you can argue.

In some ways, this seems like an argument that I have with my creationist friends about evolution. Natural selection is a classic scientific theory that is based on what Sir Francis Bacon, in which a vast accumulation of evidence and observation supports the theory. But because it is an inductive theory, creationists always attack the inveitable gaps and incongruities, supporting their theory Creation with negative evidence and reducing God to a "God of the gaps" or simply rejecting not only evolutoinary biology, but most of Geology and Astronomy as well.

Economics is really much worse off then biology. First, over the last fifty years the dominant school of economics has preferred mathematical theory over direct observation and data collection, and has been indifferent to the political corruption of official statistics that has gone on since Nixon put one of his henchmen in charge of the BLS. But for the rational expectations and real BC crew, the reality is their formulas, not the actual numbers.

So we have our :. arguing a counterfactual argument that but for FDR, the economy, with a collapsed banking system and 33% unemployment in March 1933, would have returned to 3% unemployment it had in the Spring of 1929 within ... well, he doesn't say does he/she. She/He just asserts because, because, because...he/she, John Galt, Ayn Rand, Larry Kudlow,and Alan Greeenspan all believe it. Because we are talking religious dogma here evidence unnecessary, and contrary evidence in the record (say the entire 19th century and its boom and bust cycle ...) is dismissed.

As for the why Depression hurt the U.S. and Germany so much worse than say France and the U.K. Well, first, the both France and the U.K were far more interventionist in response to the Depression and had a larger state role in their economies so I don't think offering them as counter-examples really help the laissez-faire case. Second, the U.S. and Germany were both the big export economies of the day (which made Smoot-Hawley a particularly stupid policy at the time although it appears to be one our Chinese friends are repeating). Right now, Japan, China, and the rest of East Asia is cliff diving as the U.S. consumer and his European cousins close their pocket book. Again, a surprising arguement for protectionism rises because in 1931 in response to Smoot-Hawley and the depression the U.K went off the gold standard and increased and enforced its "Imperial Preference" tariff system, both to the benefit of itself and surprise, Canada! (although as free trade theory would predict, their productivity declined relative to the U.S. during the 1930s with long term consequences that haunted the U.K. and Canada into the 1950s and 60s as the Empire went the way of all flesh.)

By the way, it would be interesting to see some books about how and why recoveries took place after the busts in the 19th century when orthodox classical economics held sway and Government was so much smaller (perhaps because the economies were still substantially agricultural gave them more resilence and also the role that wars may have played, say the Civil War after 1857 and the Spainish American and Boer wars after 1893 - examples of unintentional Keynsianism before Keynes).

Finally, I know of one real time, actual experiment conducted on human beings testing the principles of laissez-faire. It is called the Irish Potato famine of 144-1850. I don't think it worked out to well, at least from my ancestors point of view, even those that survived. See Cecil Woodham-Smith's "The Great Hunger" and the policies of Charles Treveylan http://en.wikipedia.org/wiki/Sir_Charles_Trevelyan,_1st_Baronet

"She/He just asserts because, because, because...he/she, John Galt, Ayn Rand, Larry Kudlow,and Alan Greeenspan all believe it. Because we are talking religious dogma here evidence unnecessary, and contrary evidence in the record (say the entire 19th century and its boom and bust cycle ...) is dismissed."

Absolutely right Rick - this is the part of libertarianism that always gets me - they have no case studies for anything they say, yet they think that it will improve the world. It always seems that this line of logic relies on the idea that humans and therefore markets are rational and that information is equally available - when we know from history that these are not true.

Here's a great example: school vouchers - they were supposed to bring market economics to the education system, yet they didn't, and the system didn't work. More on this here:

http://www.washingtonmonthly.com/features/2008/0804.anrig.html

I refer to Amity as the "English Major" because that is what she is, magnum cum laude from Yale, but still, English, not economics. I am a history major by the way (and not magnum cum laude), but at least I know I am not as smart about economics as Dean, Krugman, Greg Mankiw, or Tyler Cowan.

Dean Baker will be my guest on News Talk Online on Paltalk.com at 5 PM New York time Wednesday February 4.

To talk to him please go to http://www.garybaumgarten.com and click on the Join The Chat button.

Thanks,

Gary

I'm a little late to the party, but let's just reverse the FDR government spending experiment. If, say, GDP went up substantially (5 - 10 percent higher) when top marginal tax rates were lowered during the depression and GDP fell by a compariable amount when top marginal tax rates were raised, wouldn't every Libertarian and Republican accept this as evidence that lowering the top marginal tax rate increased GDP? Only a correlation not necessairly causation would have been shown, but it's difficult to imagine that no Libertarian or Republican would use this as evidence that tax cuts spur the economy.

In other words, the deniers are being intellectually dishonest (they just don't like government spending damn the consequences), or they're going to have to come up with better arguments than the government doesn't create jobs, or correlations aren't very meaningful, government spending bad - markets good, , etc.

OTTO MADDOX: You asked why there was a postwar boom after WWII spending ended. Actually, there was a bust first. The following figures are GDP change given by the Bureau of Economic Analyis:

1945: -1.1% 1946: -11% 1947: -0.9% 1948: +4.4%
1949: -0.5%

The postwar boom didn't start until 1950. Through 1953 the stats were:

+8.7%; 7.7%; 3.8%; 4.6%

Hey,you will do better.your posts have inspired me! - I love the way you directly get to the point, and then work outwards. I’ve been trying to do figure out what I want to say about ,that would allow me to do exactly the same thing.