This morning there’s an op-ed in the Wall Street Journal from a pair of economists laying out the case for how the New Deal prolonged the Great Depression of the 1930’s rather than ending it or mitigating its effects:
Why wasn’t the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.
So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.
Let’s see how long it takes for the counter-negative.
And FDR didn’t have to deal with NEPA on the construction projects. It’s pretty unimaginable that the government could build improvements like the TVA dams today. Smaller projects like new transmission lines take several years to permit. For example, the Arrowhead-Weston transmission project took nine years to go 220 miles largely on pre-existing transmission corridors.
What I don’t see much discussion of is that most of the smartgrid development isn’t a hardware project but a software project. Considering how much of our largescale software development is done in India these days I think it would be a good trick ensuring that’s not where the money goes.
And anything like that is years out anyway.
I did not know that smartgrid was mainly design. I probably support it, whatever it is — how can one favor a stupid grid? But I don’t see design work providing much stimulas or job growth for the unemployed. The energy stuff probably needs to be removed from the bill and appropriated in another package. Part of the package would need to involve some planning on what kind of energy goals we want to set for the next ten years and provide some basis for exempting the projects from some of the planning and permitting requirements under environmental law. One of the benefits of this is that an energy bill wouldn’t be under the same pressure to stimulate all parts of the country and all sectors of the economy.
The authors of the editorial are pointing out what is probably the most uncontroversially bad part of the New Deal, the idiotic cartel-like system that FDR set up through NIRA because he thought there was “too much competition” (we got rid of that, but we’re still stuck with the AAA regulations and agricultural props today). To be fair, FDR had no real precedent for trying to counter an economic depression with state activity, so he did some good things, some mediocre things, and some really bad things, like NIRA and the AAA.