WAS THE NEW DEAL REALLY NECESSARY?
Paul Krugman, on his New York Times blog ("New Deal Economics, November 8, 2008), posted a graph showing that recovery from the New Deal began in early 1933, possibly before FDR took office and definitely before any of his initiatives had time to play out through the economy which, though much smaller than it is today, was large and complex. Gross domestic product grew 17 percent in 1933, still before any of his New Deal initiatives had time to play out through the economy. In any case, two of his most important laws that year – the National Industrial Recovery Act and the Agricultural Adjustment Act – both promoted contraction, not expansion. The NIRA authorized cartels that fixed wages, prices and output. The AAA reduced farm acreage.
During the first five years of the New Deal, from 1933 to 1937, the gross domestic product grew more than 60 percent. This was the New Deal's biggest expansion.
Krugman and others say that none of FDR’s budget deficits were big enough to qualify as Keynesian “stimulus.”
So, if the economy expanded more than 60 percent in 5 years without any Keynesian stimulus – why do Keynesians continue to say that the economy needed government spending stimulus back then, and we need it now?
In any case, of course, the issue most concerning everyone back then wasn’t how to stimulate the economy. The issue was why did double digit unemployment rates persist for so long, despite the dramatic expansion.
Look to the New Deal business tax hikes and
uncertainty that discouraged investors from investing, and the labor laws that made it more expensive for employers to hire people.
The New Dealers never did make the recovery of private sector employment their top priority.
-- Jim Powell
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Keith Halderman - 2/25/2009
I think that any growth that occurred during the early months of FDR reign could be due to raised business expectations created by his campaign. If you look at what he said he was going to do there is a startling divergence from what he actually did.
Mark Brady - 2/25/2009
"Gross domestic product grew 17 percent in 1933." The full story is not as simple as that. GDP in 1933 was 4.0 percent lower than in 1932 (current dollars) and 1.3 percent lower (chained 2000 dollars). Go here for the data.
The fact is that GDP fell in the first quarter of 1932 and then began growing about the time FDR was sworn in. Which is not to say, of course, that the recovery was due to FDR!