Ezra Klein vs. Eric Rauchway: Is the Great Depression Relevant?

Ezra Klein in the American Prospect :

Brad DeLong, Tyler Cowen, and Justin Fox all make much of Christina Romer's expertise on the causes of the Great Depression. And, indeed, Romer does seem to be an expert on the Depression. She even wrote the Encyclopedia Brittanica entry on the subject. This is a point you frequently hear in Ben Bernanke's defense, too: He's also an expert on the Great Depression. But can this really be so useful? It's hard to believe that a complex financial crisis in 2008 is so similar to a complex economic crisis in 1929 that you need an incredibly subtle understanding of the latter to effectively apprehend the former. Presumably most economists know enough not to repeat the basic mistakes of the 1930s, and the question is which economists know enough to avoid the possible mistakes of the 2000s. Is there any real reason to assume otherwise?

Eric Rauchway at blog edgeoftheamericanwest:

Granting that I have a vested interest in the position that knowledge of history is relevant, here’s the specific case I’d make on behalf of Romer (and Bernanke) and then the general case.

(1) The Specific Case. The Great Depression remains unique in degree and perhaps in kind. We want to keep it that way. Inasmuch as the present crisis bears some resemblance to the early phases of the Great Depression we want experts of that unique catastrophe to be on the lookout for ways to halt the slide into disaster.

Specifically, Bernanke and Romer have studied how the financial crisis of the late 1920s turned into the broader economic crisis of the early 1930s. It looks like this is where we are now, with the financial crisis beginning to affect consumer spending.

People generally know that this happened, but Bernanke and Romer have specific ideas about why, and are familiar with the historical data supporting those theses. Assuming they have pretty sharp minds they should be able to spot related trends in the current data and formulate or recommend policy accordingly. Which leads to …

(2) The General Case. Ezra’s concluding question seems to boil down to, now that we have the social science, why do we need the social scientists?

Well, to some degree you don’t, of course. The whole point of social science is to draw general conclusions from specific data, and those general conclusions should be able to predict further findings. So Bernanke and Romer sift through the data, and produce a model that explains what happens, and the model should have predictive value no matter who applies it.

But that “incredibly subtle understanding”, which comes from poring over the data, is potentially quite valuable, especially in a complex crisis that may not unfold exactly like those of the past. Someone who’s familiar not only with the model—the “basic mistakes”—but also with the data that went into the model will know all of the caveats and qualifications that don’t make it into the general statement.

And such a person would be the best qualified person to catch exceptions and nuances in current flows of information, so as to say, “wait. We don’t want slavishly to follow the model, here, because….”

For the same reason, I hope the people crafting the president-elect’s infrastructure-investment program have a good empirical understanding of how the New Deal infrastructure-investment programs did and didn’t work. If you want to do more than derive the basic benefit of just paying people to dig holes and fill them again—that is to say, if you want lasting infrastructure as well as short-term stimulus—you need to take into account the weirdnesses of American federalism, the business of contracting and hiring, and the existing state of plans for infrastructure development. It would be good to know the details of how that panned out last time.

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vaughn davis bornet - 12/8/2008

Well, let's see:

I managed to lift volume II of my big Webster to see how I had gotten myself into this mess.

There are many definitions of largess there, and I would say I think I am pretty much in the clear. The word seems to mean benevolence from one to another, most of the time. It doesn't look as though we have to blend "liberal giving" with "condescension"--much less an "ostentatious" action (see definitions). Still, if one concentrates on that patronizing aspect then one might want to select a different word, for sure: perhaps even the inappropriate word "charity" or just "aid."

Chapter II of my Welfare in America (1960) deals with an attempt to invent an airtight definition of "social welfare," by the way. (I wrote it in 1957; maybe our constructive critic would like to demolish it in 2008:

"Social welfare is special services supplied and material assistance given by all or part of society to a human being thought to be in need." (p. 31) (The book's text is in Questia, for what that is worth.)

Disregarding all that, by 1939 I was well past supporting my parents with a huge paper route, and my Father had pretty much recovered from the sheriff selling us out lock, stock, and barrel (even my toys).

I don't object to the rest of the interesting Clayson examples of the Depression's impact on his wellbeing.

I will say, however, that my circle of youngsters may have had a bit more fun than his, even though neither his associates nor mine had any folding money to burn any time in the 1930s.

Vaughn Davis Bornet

Vernon Clayson - 12/1/2008

Pocketed largess? Where did they do that? Not where I lived, I was a child but remember that 50 cents was great pay wherever work could be found while a dollar was something to celebrate. Welfare had to be applied for each time it was necessary and the poormaster acted as if it came out of his pocket. Ours was skeptical when shoes were needed for school, What? Shoes again? Government cheese and dried fruit and two or three dollars a week for the most basic items was our largess. I don't know where Mr. Bornet was in 1939 but it sure wasn't rural western New York.

vaughn davis bornet - 11/29/2008

Since I am not reading anything like the following as I rummage around, I have to assume that such detail doesn't seem too relevant. Yet....

Hoover tried to organize and mobilize the voluntary base of charity and welfare in America. It proved to be too limited in size, even with the churches included. So far, today's base has mainly cried out for additional funds without much mobilization or creative effort; but that will come, I predict.

The New Deal after surveying the situation (and before!) saw an opportunity for changing the rules of the political game and moved here and there to change America.

At the same time, there was realization that large projects were needed to give meaningful employment, so the PWA was activated. Also, there was need for work of any old kind, anything that would give a job and income; thus the WPA and a number of alphabetical projects for writers, youth, artists, whatever, especially in urban areas.

Relief in various forms gradually became vital, so funds were transferred to government entities and to the voluntary area to an extent.

Mention of Social Security must be sophisticated, for the first check went out in 1939 (sic). Mention of new labor laws and activities to guarantee either job tenure or working conditions is pertinent enough, but one must count carefully to check results on masses of people.

I could easily name many groupings of people who "owed" the New Deal at the time: students working for college organizations, CCC youth from inner cities, purchasers of very modest homes who could thank the federal government (to their surprise) for home ownership. I knew a variety of clerks and the lowly whose lives were changed staggeringly in this way.

There was lots and lots of criticism at the time. We didn't think "the Government" knew what the hell it was doing much of the time--and said so, everywhere. But Landon was crushed by the public, then we were mostly astonished when the two term limit was kicked aside for a lot of reasons.

Both convictions and illusions were weakened in those years. Many millions voted for Hoover in 1932 (how would one know?), vast numbers tried very hard to stand on their own two feet and evade living on "government handouts." But the very extent of unemployment and the vast chasm in income and assets created by the conditions of that terrible time meant that even the most fiercely independent caved somewhere along the way and pocketed largess that was obviously essential to life itself.

{It is later than I thought, so that will be it.}

Vaughn Davis Bornet class of 1939

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