George Will Blames FDR for the Continuation of the Great Depression

Nobel Prize Winning Economist (NOT) George Will dusts off an old favorite from the rightwing:

Some mornings during the autumn of 1933, when the unemployment rate was 22 percent, the president, before getting into his wheelchair, sat in bed, surrounded by economic advisers, setting the price of gold. One morning he said he might raise it 21 cents: “It’s a lucky number because it’s three times seven.” His Treasury secretary wrote that if people knew how gold was priced “they would be frightened.” The Depression’s persistence, partly a result of such policy flippancy, was frightening…. This transformation was actually assisted by the misguided policies – including government-created uncertainties that paralyzed investors – that prolonged the Depression.

Mr. Will seems to be in love with The Forgotten Man by Amity Shlaes:

Shlaes also traces the mounting agony of the New Dealers themselves as they discovered their errors. She shows how both Presidents Hoover and Roosevelt failed to understand the prosperity of the 1920s and heaped massive burdens on the country that more than offset the benefit of New Deal programs. The real question about the Depression, she argues, is not whether Roosevelt ended it with World War II. It is why the Depression lasted so long. From 1929 to 1940, federal intervention helped to make the Depression great – in part by forgetting the men and women who sought to help one another.

I guess you would not be surprised to learn that Ms. Shlaes used to write op-eds for the Wall Street Journal. Amazon provides an interesting review of her new book:

This breezy narrative comes from the pen of a veteran journalist and economics reporter. Rather than telling a new story, she tells an old one (scarcely lacking for historians) in a fresh way. Shlaes brings to the tale an emphasis on economic realities and consequences, especially when seen from the perspective of monetarist theory, and a focus on particular individuals and events, both celebrated and forgotten (at least relatively so).

Her tale seems to be a very old story indeed. But back to Mr. Will who focused not on monetary policy but on the increase in government spending:

Before Roosevelt, the federal government was unimpressive relative to the private sector. Under Calvin Coolidge, the last pre-Depression president, its revenue averaged 4 percent of gross domestic product, compared with 18.6 percent today. In 1910, Congress legislated height limits for Washington buildings, limits that prevented skyscrapers, symbols of mighty business, from overshadowing the Capitol, the symbol of government.

Where to start? Let’s give the microphone over to Kevin Drum:

Dude: That was 74 years ago. What’s more, there was even a reason for it. Roosevelt scholars should feel free to jump in and correct me if I get this wrong, but my recollection is that FDR wanted to raise the price of gold as a way of inducing inflation — a policy that, correct or not in hindsight, was certainly defensible given the farm crisis he was dealing with at the time — but that he wanted the price to rise gradually and erratically so that speculators couldn’t take advantage of predictable movements. Lots of people were appalled by Roosevelt’s apparent casualness about the gold price, but as usual, there was method to his madness. I, for one, am glad that he was president in 1933 and not George Will.

Yep – the debt deflation theory that economist bloggers debated about six months ago. We mentioned it here with links to a few other posts and readings that George Will apparently cannot follow.

On the size of the government, Will wants to compare Federal revenues under Coolidge to what we are seeing today without admitting to his readers that Federal transfer payments today are higher than they were under FDR. But why don’t we look instead at total government purchases in 1929 (first year of recorded data from the Bureau of Economic Analysis), which was almost 14% of GDP as compared to the somewhat higher level under FDR today or today. But hey – we have a larger defense establishment today than we did in 1929. Is Mr. Will advocating we get rid of the Pentagon?

As we noted earlier in the year, investment demand does not appear to be spooked by FDR’s Administration. But just in case Mr. Will needs a picture – he can check out our graph of investment demand (2000$) from 1929 to 1940, which is taken from this source.

Update: KLo interviews Amity Shlaes and asks her about the books she relied upon when writing her own book on the Great Depression. Not mentioned were Friedman and Schwartz’s A Monetary History of the United States of Charles Kindleberger’s The World in Depression, The General Theory by Lord Keynes, or even Schumpeter’s Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. No mention of any of the academic publications on this period either. No – her main reference seems to have been FDR’s Folly by Jim Powell. While it may be the perfect book for the wingnuts, I’m not rushing out to purchase it myself.