More Nonsense on the Economy
Amity Shlaes surfaces at the Post.
… Readers may recall the memorable Donald Luskin piece of September 14th telling readers that the economy was just fine. In keeping with this proud tradition, the Outlook section has a front page piece from Amity Shlaes telling readers that the New Deal didn’t work. According to this story, the economy would have quickly recovered from the depression, if only Roosevelt had the good sense to do nothing.
While the basic argument has the form of a no evidence counter-factual assertion (e.g. the good fairy of the market would have set things right, if only Roosevelt didn’t get in the way), the discussion is contradicted by the known facts of the era. Roosevelt’s New Deal Agenda lowered the unemployment rate from 25 percent in 1933 to 10 percent in 1937. None of us would be happy with 10 percent unemployment, but it is difficult to complain about policies that reduced the unemployment rate by an average of almost 4 percentage points a year. The annual growth rate over these four years averaged 13.0 percent. It is always possible that the magic of the market would have done better, but there is no reason that we should believe so.
Schlaes is correct in pointing out that things turned bad again in 1937. The Blue Dogs of the Roosevelt era won sway and got Roosevelt to cut spending and raise taxes. This threw the economy back into a serious recession, just as any good Keynesian would have predicted. …
More entertainment on the subject from Brad DeLong.