The failures of the New Deal

One of the favorite memes of this electoral season has been comparing Obama to Franklin Delano Roosevelt. Paleocon Chris Buckley put it in these terms: "Roosevelt was a successful president because, even though he had a second rate mind, he had a first rate temperment. Well, Obama has a first rate mind and Roosevelt's temperment." Buckley then went on to breech the levee which was, at that point, barely holding back a flood of republican endorsements for Obama. And where he went, others followed, while the comparisons to Roosevelt gained traction.

So what does that comparison actually mean, for better or for worse? Paul Krugman takes a look at it in today's Times:

But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.

More...

F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?

Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.

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What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.

Now I don't think that Krugman is advocating the invasion of Europe or the reconstruction of Japan. What I do think he's advocating is Obama doubling-down on domestic New Deal projects in the vein of the WPA. Given that rebuilding America's infrastructure was one of the planks of Obama's platform, this seems to dovetail nicely.

Elsewhere in the times, Billy Kristol also makes an FDR comparison in what is, I have to say, one of the most inane columns ever to grace The Paper of Record. Good lord.

In the midst of all the back-slapping on the left (Krugman's column is about the only serious one since last Tuesday) and the self-flagellation on the right (lol@Kristol), the Bush Junta is looting the national coffers on their way out the door.

Fed Defies Transparency Aim in Refusal to Disclose - Bloomberg
Bear Stearns Risk Manager to Guard New Henhouse - Bloomberg
A Quiet Windfall For U.S. Banks - WaPo
U.S. Throws New Lifeline to AIG, Scrapping Original Rescue Deal - WSJ

So on top of the $700 billion bailout, we have another $140 billion in tax breaks for banks. We have AIG getting another $150 billion, but having their interest rate actually drop by 5%. We have, in total, 1.2 trillion dollars of new liabilities on the fed budget, most of it backed by junk.

Obama's going to have a lot to undo.