I've been pretty skeptical of Amity Shlaes' The Forgotten Man. I think it's well worth reading as political/economic history, but her thesis--that the uncertainty created by FDR's various regulatory adventures was a dominant cause of the Great Depression--seems wildly overblown.
Via Bryan Caplan, however, comes evidence that I may have been too hasty:
In November 1941, just before the Japanese attack on Pearl Harbor propelled the United States into total war, the Fortune pollsters asked a sample of business executives a question that bears quite directly on the regime uncertainty at issue in this article. The question was “Which of the following comes closest to being your prediction of the kind of economic structure with which this country will emerge after the war?” The respondents were presented with four options, as follows (the percentage of respondents selecting that option as the closest to their own prediction is shown in brackets):(1) A system of free enterprise restored very much along the prewar lines, with modifications to take care of conditions then current. [7.2 percent]
(2) An economic system in which government will take over many public services formerly under private management but still leave many opportunities for private enterprise. [52.4 percent]
(3) A semi-socialized society in which there will be very little room for the profit system to operate. [36.7 percent]
(4) A complete economic dictatorship along fascist or communist lines. [3.7 percent] (Cantril 1951, 175)
...If these poll data are even approximately indicative of the true expectations of American investors, then it is astonishing that the recovery of investment had proceeded as far as it had.
I still don't think Shlaes is right, and it's also not clear that you can simply blame FDR for the results in this pol. Collectivism was on the march throughout the world, and almost everyone thought it was The Future--even in those benighted parts of the world that had never heard of social security or the Hoover Dam. But I'm willing to assign a greater role to investment uncertainty than I was before.
Doesn't saying that FDR's new regulations were a cause for the Great Depression indicate that those regulations came first?
Um, how could that poll be evidence of uncertainty among the business class that may have caused the great depression, when that poll was taken in 1941?
That's not evidence. Sorry.
"Not only did the NRA regulations conflict with Jewish practice, but, Shlaes writes,
The NRA code did not make sense. The clash came in several areas. The first was prices. The code forbade setting prices too low, in part to combat a general “low price problem” – deflation. But one could not drive up prices generally by ordering a specific business to charge more.
Nevertheless, the Schechters (and many other small businesses across America) were prosecuted for charging too little for their products.
The coverage of the case in the leftist media was repugnant and tinged with anti-Semitism. Writers such as Drew Pearson cheered on the government, which, after all, stood for enlightened social regulation for the common good, and sneered at the “grubby” Jewish defendants and their lawyer. The trial court found the Schechters guilty, imposing a fine that would have taken them many years to pay and sentencing them to jail terms lasting up to three months. They hadn’t hurt anyone (despite sensational statements that they had sold diseased chickens, a charge shown to be untrue), and yet were looking at a ruinous penalty and criminal records merely for doing business as they always had. That was the crucial way in which America had changed: it was now easy to get into trouble over nothing.
When the Supreme Court heard the case on May 2, 1935, the government’s lawyer argued that upholding the law was essential to fighting the Depression and that the justices shouldn’t bother about individual freedom, which was merely “the liberty to starve.” Joseph Heller, who had been counsel for the Schechters all along, argued that Congress had exceeded its powers, since his clients’ business did not involve interstate commerce. Frederick Wood, a lawyer with one of the prominent Wall Street firms, contended that the increase in government power was dangerous and illegal. Shlaes writes, “He argued that it might be all right to go the way of Mussolini or Hitler, but a constitutional amendment was necessary for that, not merely an act of Congress.”
The Court’s decision was quickly reached and announced on May 27. The NRA was unanimously declared to be unconstitutional. Roosevelt grumbled that the Supreme Court was stuck in “the horse-and-buggy age,” but the stock market staged its biggest rally since 1930."
http://www.lewrockwell.com/orig3/leef8.html
Megan:
Maybe you should actually read Liberal Fascism (IIRC, you dismissed it without having read it) -- that will explain a lot about that poll. ..bruce..
I thought her central argument was that arbitrary government economic policy prolonged the Great Depression for a decade, not created it. Does she actually try to take Hoover off the hook for Smoot-Hawley and early economic intervention?
Megan,
There seems to be a missing argument here, or are you just going with your gut?
Since the NRA and other non-relief programs were intended to reduce competition (and the winners were preordained to be new Gov't agencies in many industries) how could business not hold back on investment. Couple this with a changable monetary policy and no one would invest!
It's a poll, not a pol. Proofread!
Also, did you read the book? I think you're misstating her thesis. I don't think even Jonah Goldberg could get a book published arguing that FDR (who was elected in 1932) caused the Great Depression, which began in 1929.
bfwebster:
Are you serious? Are you pimping for Doughy Pantload? If you think his work is scholarly then I suggest you report to the nearest mental hospital.
What would be the results of a similar poll carried out in 1950, 1960, 1970, 1980, 1990, 2000?
Aren't cranky business executives constantly predicting that the ignorant masses are about to socialize everything and ruin us all? Is it particularly surprising that one-third were cranky that way in 1941? And given that answer 2 was the correct answer, and ushered in a period of unparalleled prosperity and profit, and that this was the majority-endorsed view of the likely outcome...what exactly is the problem here?
The NRA was in effect for around 18 months and was declared unconstitutional in 1935.Over this period real GDP growth was averaged 10% -- 10.8 in 1934 and 8.9% in 1935.
While I am not going to argue about its effectiveness, but to blame it for a poll taken six years later seems to be stretching the point.
The real question seems to be the validity or representative of the poll. It was published in a magazine very strongly opposed to FDR. Moreover, it was a self selection poll where people had to send in their response. To accept that this is a valid unbiased poll is really open to question.
This is just another example of the school of though opposing the New Deal willing to accept any little bit of evidence then can be used to support their case.
Try to use some good economic analysis and quantify the impact. Yes, investment was weak in the 1933-37 economic recovery, but given the massive level of excess capacity and low level of profits it was almost exactly what should have been expected. You do not have to include some dummy variable for anti-FDR bias to fully explain the level of business investment in the 1930s.
Jonah Goldberg's Liberal Fascism examines some of this as well. You should read it sometime.
Hey Charlie! Don't forget the part of Goldberg's book where he claims the Nazi's weren't really that hard on gays!!!!!1 Holocaust Denial forever!
Liberal Fascism will take its place beside Mein Kampf and The Protocols of the Elders of Zion in the "examples of how not to think" section of the library of Western Civilization.
The appropriate criticism, "how can a 1941 poll bolster an argument about what was to happen in 1929-32" has been adequately raised by others, and I add myself as co-sponsor. WTF*, Megan? Even the poll in question only gave a 3.7% chance of a command economy! How does that bolster Shlaes' "wildly overblown" thesis and indicate "investment uncertainty?"
(*-What The Frack, family-friendly BSG-ism)
rickm wrote: Hey Charlie! Don't forget the part of Goldberg's book where he claims the Nazi's weren't really that hard on gays!!!!!1 Holocaust Denial forever!
That doesn't sound like something he said.
aMouseforallSeasons-
Yes it does. I will let Goldberg speak for himself. He writes: "Nazi attitudes toward homosexuality are a source of confusion. While it is true that some homosexuals were sent to concentration camps it is also the case that the early Nazi Party and the constellation of Pan-German organizations in its orbit were rife with homosexuals...Scott Lively and Kevin Abrams write in The Pink Swastika that 'the National Socialist revolution and the Nazi party were animated and dominated by militaristic homosexuals, pederasts, pornographers, and sadomasochists.'"
Here is what the US Holocaust Memorial Museum says about homosexuals and the Holocaust:
"The Nazi campaign against homosexuality targeted the more than one million German men who, the state asserted, carried a "degeneracy" that threatened the "disciplined masculinity" of Germany. Denounced as "antisocial parasites" and as "enemies of the state," more than 100,000 men were arrested under a broadly interpreted law against homosexuality. Approximately 50,000 men served prison terms as convicted homosexuals, while an unknown number were institutionalized in mental hospitals. Others-perhaps hundreds-were castrated under court order or coercion. Analyses of fragmentary records suggest that between 5,000 and 15,000 homosexual men were imprisoned in concentration camps, where many died from starvation, disease, exhaustion, beatings, and murder."
Even the poll in question only gave a 3.7% chance of a command economy! How does that bolster Shlaes' "wildly overblown" thesis and indicate "investment uncertainty?"
A command economy is not the only form of economic organization that would have adverse impacts on investors. For instance, if the government took over only some services, as in option #2, then the owners of businesses which formerly provided those services would be out of work. And in all probability, out much of their investment as well; the government probably isn't going to pay market rates to buy you out; indeed, it might not buy you out at all, but rather bankrupt you by simply providing subsideized services.
Unless you could predict which services the government will take over, you'd be taking a big risk by investing in any one thing.
Maybe the government will nationalize health care. Maybe it will start building cars. Maybe it will take over aviation. It will do something, but you don't know what. You pick option #2 in the poll, but when it comes to your own money, you're not likely to bet it on an industry that may very well soon collapse.
Hence, investment is stunted by uncertainty, even if the expectation is for a relatively free market in the end.
rickm,
Isn't what Goldberg wrote actually, well, correct? Some gays went to concentration camps, some went to prison (as they did in many other countries), others headed up the SA. Granted he could have pointed out the oppression more forcefully, but "weren't really that hard" and "Holocaust denial" are not really fair.
Come on, Rob, don't get in the way of painting a conservative jew as a holocaust denier. It's fun for all the leftists.
Röhm, Count Du Moulin, Eckhart, George Bell, Stabsführer Uhl didn't really exist.
The language and context of that survey shows a lot. I don't know if it's fair to excuse FDR by saying that he was only responding to broader trends at the time. Yes, socialism was popular, but it was an assault on freedom as has been pointed out above.
Rob-
No. The Nazi party was not rife with homosexuals, and citing 'The Pink Swastika' as a source betrays Goldberg's complete lack of scholarly scruples.
Freddie - Re:
Depends on what you meant by causing the great depression. If you mean causing the initial economic downturn, well than obviously they where not a cause. If you mean prolonging the downturn long enough for it to be the great depression, than a reasonable argument can be made that they where one of the reasons for the great depression.
"Nazi attitudes toward homosexuality are a source of confusion. While it is true that some homosexuals were sent to concentration camps it is also the case that the early Nazi Party and the constellation of Pan-German organizations in its orbit were rife with homosexuals..."
Similarly, Nazi attitudes towards Jews are a source of confusion. While it is true that some Jews were sent to concentration camps it is also the case that some of the most militant authors of Nazi ideology were themselves wholly or partly Jewish.
Yes, it "seems overblown" I would suspect because FDR has been so enshrined in our history by hagiographers such as Arthur Schlessinger, and as such, seems as unquestionable at the tender age of 12 as George Washington might have been as a public servant. Similarly, any recorded history colors men and events in order to mitigate the collateral damage done for the purpose of preserving our virtue for youngsters. For instance, we never fully recovered from the depression until the economy was mobilized by WWII, a draft war, and one in which the necessity of our involvement I'll reserve the grueling speculation for Gore Vidal. Nevertheless, the one collectivist society which had any kind of economic prosperity was Nazi Germany, and the only reason they did was because they were in a perpetual state of warfare which, as Hitler rightly pointed out is "the health of the state".
It serves as an interesting aside in regards to the cannonization of FDR, that even some of the most conservative politicians, notably the patron saint of the coalition, Ronald Reagan, spew forth Roosevelt's name in praise, in an almost generic sense, as though it were synonymous to virtue and honor, and detached from specific actions or deeds, amorphous as the virtue of God himself.
No, but it's the only one that is 100% guaranteed to adversely impact all investors- in that environment there most likely wouldn't be any.
I can understand that there would be "investment uncertainty" in a state-owned enterprise, but "[a]n economic system in which government will take over many public services formerly under private management but still leave many opportunities for private enterprise" doesn't mean most services become state-owned. Only those where government control is necessary for efficiency or sufficiency would be taken over by the state. There would still be "many opportunities" for private investors to invest without the "uncertainty" of nationalization hanging over them.
Of course I realize that the real concern you have is government regulation, not out-and-out nationalization. It may be true that regulated industries suffer from "investment uncertainty" that would not be a concern absent such regulation; nevertheless, that regulation is there for a reason. You may quibble about the reasoning behind those regulations or question to just what extent a regulation is actually popularly demanded; but the regulation is there, regardless. A judgment has been made that regulation is desirable, therefore regulation exists. If that deters investment, so be it.
Personally, I think regulation should lead to smarter investment, not necessarily less investment. But that's assuming that investors don't have unregulated foreign markets and businesses to turn to, and that they have no sense of social responsibility (or dare I say patriotism) that would lead them to invest in domestic industries despite such regulation. And we all know social responsibility is a hippie 60's radical thing, don't we?
Getting back to the poll, the market is fragile indeed if even the possibility of some limited future regulation drives investors to the sidelines to such an extent as to provoke or prolong recession or depression. I find that extremely hard to accept.
NO, NO, NO Tim Fowler
The economic downturn that you are referring to bottomed the very month that FDR took office according to the official data put out by the NBER.
The depression term is generally applied to the entire 1930s that consisted of a massive drop from 1929 to 1933; a strong recovery from 1933 to 1936; a second recession in 1937-38 and a very strong recovery after that Obviously from your comments you know nothing about it.
Didn't your Mother ever teach you that it is better to keep your mouth shut and let people think you do not have any idea on the subject then to open you mouth and demonstate you do not know anything.
Only those where government control is necessary for efficiency or sufficiency would be taken over by the state. There would still be "many opportunities" for private investors to invest without the "uncertainty" of nationalization hanging over them.
a) You are pretty optimistic if you think the government would only take over industries which it could make more efficient, and
b) you've zoomed right past my point. If a decision maker believes that some limited number of industries will be taken over, but is uncertain which or those might be, he is less likely to invest in his own industry, fearing possible takeover. He will prefer to vote himself a large bonus or dividend rather than keep the capital in the company.
A speculator can manage this risk with a diverse portfolio. A CEO of a given company can't, and he's the one who actually allocates resources.
So even given a widespread belief that government takeover is going to be limited, investment is likely to contract because nobody wants to be the sucker who loses his shirt.
It may be true that regulated industries suffer from "investment uncertainty" that would not be a concern absent such regulation
I didn't bring up regulation, and I wasn't thinking of it, and there's no evidence that the poll responses had anything to do with regulation. I don't know how you determined that that was my "real" concern, or why it matters given that I am not now, nor have I ever been, a captain of industry in 1941.
Having said that, I disagree anyway. Regulation in and of itself need not increase uncertainty if enforcement is reasonably uniform. The threat of changes in regulation increases uncertainty. (The regulation itself may depress returns, which will of course depress investment, but not because of uncertainty.)
All of this discussion is subject to the point raised above that there was lots of idle capacity during the depression, so that investment wasn't likely to be all that high anyway.
Joe Klein's conscience:
Ah, ad hominem, the first (and often only) resort of the knee-jerk Left (and I speak as a lifelong [since 1971] registered Democrat).
(A) Have you actually read the book? (I have)
(B) Can you put together a creditable critique of his historical cites? (I have yet to read a single critical and substantive [or substantiated] review of Liberal Fascism; they all pretty much devolve into ad hominem and "that's not what I mean by 'fascism', so he's wrong!")
(C) How much history have you actually read? (I have two 6' x 3' bookshelves, all full, that are just for books on history, the majority of which I've read.)
Just wonderin'.
..bruce..
I have childlike faith. Also, don't forget that my criteria were not only efficiency but sufficiency. Services requiring the nationwide reach of government to provide in sufficient quantity to be effective should be nationalized.
This happens anyway, even absent such concerns. How then could it be any worse?
OK, but will it contract enough to prolong a recession or depression? That's the thesis here. And in an environment where that contraction has already happened and the economy is already stagnant, what could be the harm?
I prefer (naturally) the Keynesian analysis that you use government spending to "prime the pump" and get the economy going again; then take government back out of the loop once activity is restored. This second step was what was probably lacking in 1937-38 when economists say the recovery faltered; when you are starting your car, you have to let off the ignition switch after the engine catches. Instead, these anti-New Deal economists point to 1937-38 and say "Aha! The New Deal obviously didn't work, because the economy started to falter again and was only saved by WWII! We win!" and proceed to agitate against every piece of the New Deal- even those that are still working well.
No, you didn't; but it inevitably would have come up so I wanted to deal with it. The broader argument behind this poll (and Megan's waffling in her final sentence of her post) is that any kind of controlled economy, be it full command or partially socialized or even simply somewhat regulated, discourages investment which then prolongs recessions and depressions. The only economic arrangement that maximizes investment by minimizing "uncertainty" is laissez-faire which therefore is the only logical arrangement to support. I'm objecting to that formulation; unstated as it may be, it is implied. Megan's instinct to reject Shlaes' thesis is correct, and I want to encourage her to be more confident in that regard.
I want to point out for the link-averse that the post Megan linked to is titled "American Mugabe, Revisited"- referring to an earlier post positing a doctrinal equivalence between FDR and Zimbabwean tyrant Robert Mugabe. Ugh.
OK, but will it contract enough to prolong a recession or depression?
Probably yes, given the right conditions. Whether this is applicable to the Great Depression, I have no idea. I confine myself to the point that uncertainty can (but need not) depress investment, and that one need not fear a literal command economy to have "uncertainty."
I'd disagree that laissez-faire minimizes uncertainty; monopoly or oligopoly, preferably instituted by government regulations written by lobbyists, will be far less uncertain.
"I have two 6' x 3' bookshelves, all full, that are just for books on history, the majority of which I've read.)
Just wonderin'.
..bruce..
Posted by bfwebster | April 7, 2008 6:29 PM
..bruce..
how, on this Earth, do your 2-d 'bookshelves' contain any books, whatsoever?
Just wonderin'.
Spencer - Sure growth started up again, but later on you had another drop. A strong recovery often follows a steep downturn. But the economy fundamentally wasn't healthy and in 37 after tax increases it dropped again.
Who was president in 37? FDR.
Now presidents often get to much credit or blame for the economic conditions during their presidency. But with the high and increasing tax rates, massive increase in regulation, price controls, intentional destruction of agricultural products, pressure to hold up wages in a deflationary downturn, and all the other senseless economic policies FDR pushed through, I don't think its wrong to blame him in this case.
Which isn't to say that none of his programs or policies helped. For example, deposit insurance, even though it might create a degree of moral hazard, prevented bank runs. But FDR had so many new policies them it would be hard not to have some good ones.
Liberal Rob - I agree the Mugabe refrence is to much. FDR had a lot of poor economic policies but nothing as bad as Mugabe's, and also generally he wasn't the thug Mugabe is.
No the argument doesn't go quite that far. Its that price controls, a massive increase in regulation, and a fear of the possibility of nationalization discourage investment. I think that's a quite reasonable, and not even all that controversial of opinion.