Letter to the Editor on the New Deal

I start the day with a little Don Boudreaux imitation.  The linked article is a NYT piece my local paper reprinted this morning.

January 13, 2009

Letters From the People
Watertown Daily Times
260 Washington St.
Watertown, NY 13601

To the Editor:

The Adam Cohen op-ed (“GOP Turns up anti-New Deal Rhetoric,” January 13^th) leaves the impression that those of us critical of the New Deal are ignoring evidence to the contrary in the service of making partisan political points.  As a professional economist and someone who has never voted Republican in his life, I would argue that Cohen himself is guilty of those charges.

Cohen’s refers to “Herbert Hoover and his fellow free-marketers,” despite the fact that Hoover’s reaction to the onset of the Great Depression was to create a large number of new government programs, including the Reconstruction Finance Corporation, and signing the Smoot-Hawley Tariff in 1930.  Hoover had a long record as a skeptic of markets, from his involvement with the World War I Food Administration to his accurate remarks during the 1932 campaign that his Administration “met the situation with … the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”  Hoover’s attempts, later followed by Roosevelt, to keep wages artificially high were the proximate cause of the high and lingering unemployment of the period.  These are hardly the actions of a committed free marketer. 

Cohen rightly points out that unemployment was 25 percent when FDR took office in 1933, but neglects to note that five years later, unemployment stood at an equally intolerable 19.1 percent, despite all of the spending that FDR engaged in.  Cohen also attributes the 1937-38 recession to FDR not spending enough.  The consensus among economists for the last several decades is that the recession was caused by the Federal Reserve’s decision, agreed to by FDR and Congress, to raise banks’ reserve requirements, which led to a fall in the money supply and lending.  The Fed, a government-sponsored entity, was also responsible, according to a majority of economists, for allowing the 1929 stock market crash to drive the economy into the Great Depression. 

Finally, Cohen is evidently unaware of a 1998 survey in which half of the economists and a third of historians agreed, in whole or in part, that the New Deal prolonged the Great Depression.  The view that FDR and the New Deal made matters worse in the 1930s is hardly to be dismissed as “a bizarre claim.”  It is one of the contending views within economic history, put forward by respected scholars with no partisan affiliation, and backed by ample evidence.  Accusing New Deal critics of historical ignorance or playing partisan politics only reveals that the accusers may be guilty of those very sins.

 

Sincerely,

Steven Horwitz
Charles A. Dana Professor of Economics
St. Lawrence University
Canton NY 13617

Comments

[liberty]

Nicely said!!

[Daniel J. D'Amico]

I like how if you claim to "reach across party lines," it awards you the ability to deem any opposition partisan hackery.

[Zachary Kurtz]

good letter... thanks for leading the fight against the mainstream media's war against history.

[Bob Murphy]

Steve,

Regarding the 1937-38 depression within a Depression, Vedder and Galloway in _Out of Work_ make a convincing case that a lot had to do with the Supreme Court 1937 upholding of the Wagner Act. Apparently union membership jumped 40% that year, and real wages jumped sharply.

[Steve Horwitz]

Yup, but that's a lot harder to explain in a sentence in a letter to the editor, plus it remains a minority view. My point in the letter was to note that there are commonly accepted New Deal criticisms, even if I find V&G's to also be persuasive as you do.

[RickC]

Great letter Steve. Unfortunately, here's how I see it. Cohen's editorial in the NYTs went out to millions through that paper and through all the little hometown papers that reprinted it, like Watertown's. Yours went to Watertown's with a readership of how many? Not trying to rain on the parade just remind us how the deck is stacked against our side.
Keep up the fight though.

[C. Ashbaugh]

Prof. Horwitz, what is the 1998 survey you referenced in your letter? I'd be interested in reading it.

[Steve Horwitz]

Here you go:

Thomas F. Cargill and Thomas Mayer, “The Great Depression and History Textbooks,” The History Teacher (August 1998).

If you have jstor access:

http://links.jstor.org/sici?sici=0018-2745(199808)31%3A4%3C441%3ATGDAHT%3E2.0.CO%3B2-4