Tuesday, April 1, 2008

Shlaes on the New Deal and job creation

With Amity Shlaes recent book, The Forgotten Man: A New History of the Great Depression, I've seen two interviews (with her) and an op-ed (by her) on the topic.

First, excerpts from her WSJ op-ed with its emphasis on job creation/destruction through the WPA....

The New Deal government indeed spent a lot. Nowadays Congress considers a 1% increase in the budget tantamount to treason, or nirvana, or both. President Roosevelt had no time for paltry 1% changes. He nearly doubled the federal budget in his first term...

The New Deal also created a lot of jobs--millions. And the New Deal did cause significant business activity. Industrial production--factory activity, basically--came back to 1929 levels around the time of Roosevelt's re-election. All of these outcomes are taken as evidence of public spending's success.

But what really stands out when you step back from the picture is not how much the public works achieved. It is how little. Notwithstanding the largest peacetime appropriation in the history of the world, the New Deal recovery remained incomplete. From 1934 on--the period when the spending ramped up--monetary troubles were subsiding, and could no longer be blamed alone for the Depression. The story of the mid-1930s is the story of a heroic economy struggling to recuperate but failing to do so because lawmakers' preoccupation with public works rather got in the way of allowing productive businesses to expand and pull the rest forward.

What was wrong with those public works jobs?...But the public jobs did their work inefficiently. That was because the jobs were scripted to serve political ends, not economic ones.


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