Tuesday, December 02, 2008


Must read

If you've not yet read Amity Shlaes The Forgotten Man: A New History of the Great Depression, which was recently released in paperback, you need to place it at the top of your to-read list. In it, Shlaes correctly posits - as Gary Dean Best did a decade ago in his seminal Pride Prejudice and Politics: Roosevelt Versus Recovery, 1933-38 - that FDR's New Deal make-work schemes and anti-corporate posturing actually helped to prolong the Great Depression.

The reason FDR and his Brain Trust were unable to jump-start the economy and put more Americans to work prior to the start of World War II was the fact that they' bought into the Keynesian notion that wealth is fixed and must be equitably-distributed by elected officials and bureaucrats. Go back and research the New Deal years and count the number of times members of the Roosevelt administration spoke of "economic growth" and "capital formation." Don't be surprised if you have to search for a long, long time.

Why is it important to mention this now? Precisely because President-elect Obama, cheered on by fools in Congress and naves in the Fourth Estate, is proposing FDR-style make-work programs, to get America out of its current economic funk. And just like the Brain Trusters of 75 years ago, tain't a single Obamaniac talking about wealth creation, or "growth," or capital formation, or anything of the like.

In today's Wall Street Journal, Amity Shlaes takes Obama throne-sniffer Paul Krugman to task for suggesting that Obama should take a look at what FDR did in the 1930s, and then seek to outspend him at every turn. To wit:

Paul Krugman of the New York Times has been on the attack lately in regard to the New Deal. His new book "The Return of Depression Economics," emphasizes the importance of New Deal-style spending. He has said the trouble with the New Deal was that it didn't spend enough.

He's also arguing that some writers and economists have been misrepresenting the 1930s to make the effect of FDR's overall policy look worse than it was. I'm interested in part because Mr. Krugman has mentioned me by name. He recently said that I am the one "whose misleading statistics have been widely disseminated on the right."

Amity Shlaes, senior fellow at the Council on Foreign Relations, explains to Dow Jones Newswires' Simon Constable why the New Deal didn't work in the 1930s and why Nobel laureate Paul Krugman is wrong to think a similar stimulus will work this time.

Mr. Krugman is a new Nobel Laureate, teaches at Princeton University and writes a column for a nationally prominent newspaper. So what he says is believed to be objective by many people, even when it isn't. But the larger reason we should care about the 1930s employment record is that the cure Roosevelt offered, the New Deal, is on everyone else's mind as well. In a recent "60 Minutes" interview, President-elect Barack Obama said, "keep in mind that 1932, 1933, the unemployment rate was 25%, inching up to 30%."

The New Deal is Mr. Obama's context for the giant infrastructure plan his new team is developing. If he proposes FDR-style recovery programs, then it is useful to establish whether those original programs actually brought recovery. The answer is, they didn't. New Deal spending provided jobs but did not get the country back to where it was before.

Read the rest here.

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