Categories:
Economic History
Matt Yglesias joins the attack squad on Amity Shlaes, author of The Forgotten Man, a history of the Great Depression and the New Deal. For me, the main take-aways from the book are:
1. Franklin Roosevelt had no coherent economic strategy.
2. He had a very coherent political strategy, which was to use government spending to forge strong links with electoral constituencies, in a way that was analogous to urban machine politics.
I think that those two points are very important, typically overlooked, and extremely relevant today. As far as I know, none of Shlaes’ critics have challenged these points. That is why those of us who have read her book are not impressed by the critics.
READER COMMENTS
Mark Vaughan
Mar 11 2009 at 7:28am
I assigned THE FORGOTTEN MAN in a intro macro course I taught last semester (to force me to read and think hard about the book). A few reactions…
– I agree with Mr. Kling’s assessment of the book.
– Much of the criticism has taken the form of cheap shots at Ms. Shlaes’s character, motives, etc. rather than serious attempts to debate the central thesis of the book. [I don’t know the circumstances of her departure from the FINANCIAL TIMES, but what difference would that make? Others have taken her to task for not using the Darby unemployment numbers. Ms. Romer cited the same pre-Darby numbers in her Brookings talk (i.e., unemployment peaked at 25% rather than 22%). Should we not take her arguments seriously?]
– The book is far from perfect. Ms. Shlaes tone is disappointingly less than objective. In many places she speaks of FDR’s true motives which are impossible to know. She frames her argument using a range of New-Deal era characters without clearly connecting them to the her argument. [Exactly why is Wilkie’s extramarital affair crucial to an indictment of New Deal economic policy?] Indeed, many of my students practically gave up on the book after an early chapter on a trip to the USSR taken by many who later ended up in FDR’s brain trust. (“Who are all these people are why are they important?” was the complaint.)
I have not read the other recent books on FDR’s economic policy (FDR’s FOLLY and NEW DEAL OR RAW DEAL), so I cannot comment on the relative contribution of this book. That said, irrespective of how you feel about Cary Brown’s argument (Keynesian AD stimulus did not work in the 1930s b/c it was never tried), it is important to take seriously the growing body of evidence that New Deal policies significantly impaired the growth of potential output by creating (or ramping up) microeconomic frictions. Taking this evidence seriously is important because many of President Obama’s policy recommendations will create (or ramp up) frictions in a similar manner.
Historical Observer
Mar 11 2009 at 9:12am
I also read Ms. Shales book and came away with the same observations that you came to. My impression from the book was that FDR had no clear direction in economic thinking but was fascinated with tinkering around to see what would happen. The continuous fits and starts of various efforts plus his continous ‘populist’ campaign against business only made the suffering longer and more damaging than had he just stopped playing and let the problems work themselves out. I think the only thing that ultimately saved our economic system was that once FDR tired of playing with his new toy, he lost interest and moved on to other things. This loss of interest is what allowed us to return to prosperity.
My final take away from her book is that I no longer consider FDR a ‘great’ president.
My concern today is that the Obama administration is heading down the same dangerous path with it full ignorance of economics despite the presence of Summers and Volker who I believe are just window dressing for the main stream media.
Lauren
Mar 11 2009 at 9:18am
Shaes examines these questions and more in the EconTalk podcast interview on this book.
The widespread view of this acclaimed Amity Shlaes book when it was published in 2007 included none of the new ex-post skepticism or rancor that is currently being laid on its doorsteps. The suddenness of the recent attacks looks self-serving. You can read a book with an eye toward what it says as an independent intellectual contribution, or you can read it with an eye toward what it supports with regard to beliefs you already have. The latter bias contributes to personal understandings, but should be a bias a critic recognizes and tempers himself from before declaiming about someone’s work in public.
Joe
Mar 11 2009 at 9:42am
Like most books that want to argue for a specific point of view, it is history interspersed with editorial. Yes, some New Deal Policies were poorly thought out, and Yes, some New Deal Policies helped. Shlaes likes to say the only measure we should look at is the DJIA to determine economic health and proseperity. Even by that matter, looking at how much deflation there was the DJIA does not seem to perform all that poorply, especially after 32, when rooselvelt takes office, as oposed to 29-31, when hoover was in office.
Ted Craig
Mar 11 2009 at 10:01am
I have come to the conclusion that the New Deal is a subject that has become impossible to have an honest discussion about. Liberal economists view it as a type of religion. But even more skeptical economists tend to focus too much on the U.S. government policy of the ’30s and ignore other factors. That’s because the underlying presumption of their profession is policy can control events. If they didn’t believe this, they wouldn’t be economists.
But here’s just two factors I never hear debated.
One is the natural healing, as it were, of society. People tend to overcome a major crisis, such at the October 1929 stock market crash, in time, but it usually takes a while. By 1933, this process was well under way, regardless of who was president.
The other is the massive demographic shift from an agricultural society to an industrial society that started in 1929. In this area, government policy did play a role (through rural electrification), but there were many other more important causes, such as the widespread incorporation of mass production.
Gary Rogers
Mar 11 2009 at 10:14am
I would add another very important point, that Herbert Hoover was not a laissez-faire president. I think the book does an excellent job of describing Hoover’s belief that government can and must do everything in its power to solve problems, and in so doing turned an ordinary recession into a depression.
Josh
Mar 11 2009 at 10:21am
I haven’t Amity’s book, but one gets the same two takeaways in Arnold’s post (plus hundreds of pages of good historical writing) from the very good _Freedom from Fear_ by David Kennedy. I don’t think any good historian would dispute them.
Tim
Mar 11 2009 at 10:41am
I agree with Gary and I would add one other point. I was struck with Hoover’s seeming willingness to work with the incoming Roosevelt administration to get some projects started, and equally struck by the incoming Roosevelt administration’s unwillingness to work with Hoover for what appeared to be a desire to not share credit.
The Sheep Nazi
Mar 11 2009 at 10:49am
Worth the price for the chapter on the Schecters alone. Speaking just for myself, I also came away with more sympathy for Rex Tugwell than expected. Other people come off poorly, and deserve to.
John V
Mar 11 2009 at 11:59am
Agreed. As someone who read the book, I’m surprised I don’t see my critique of Shlaes’s book more often:
Long stretches of boring detail and accounts of interaction between key figures in the FDR Administration. It didn’t advance the story any better than if those had been left out or kept more brief.
But yeah…people like Yglesias are simply parroting what they like to hear. I wonder who or how many in his line references he uses to repeat things actually read the book. My answer? Not many…maybe none.
floccina
Mar 11 2009 at 12:58pm
Before one gets too confident that macro economics is advanced enough to say assuredly what to do in a down turn, one must consider not only 1929 to 1942 but also 1919 to 1925 and 1970 to 1985, in fact all of economic history and not just in the USA. Some democrat’s arguments boil down to: FDR was president when the country recovered and FDR was a democrat therefore democrats and democrat party policies pulled us out of the depression and are applicable to every down turn, but there could be other factors. Is it natural to have over 10% unemployment for such a long period of time? I think not but it seems that democrats believe that without government intervention over 10% unemployment would have persisted for even longer than it did. One could logically have thought that decelerating inflation would cause un-employment to rise but in the 1980s it did not, one would think that decelerating inflation would cause a fall in un-employment but in the 1970s it did not.
Of course we libertarians believe something else with little evidence. History is not clear either way. I prefer that they do nothing if they do not know what will work.
Cyberike
Mar 11 2009 at 1:18pm
Not having read the book,I will not hazard a comment. However, I would like to appplaud the excellent comment by Ted Craig, and add my own two cents.
Our economy has been undergoing a tranformation to one of service and away from industry, and my belief is that one of the underlying causes of the poorly performing economy is that we as a society just do not value service. What we need (at a policy level) is for any stimulus package to be aimed at providing the infrastructure for the service economy in the same way that infrastructure improvements in the 30’s (and 40’s etc) smoothed the transition from agriculture to industrial production.
Going forward, perhaps we need to look beyond service as the foundation for our economy. After all, the financial industry is still a service industry, and look at all the trouble that has caused.
Troy Camplin
Mar 11 2009 at 5:22pm
Those two traits are the same as Obama’s.
Mr. Econotarian
Mar 11 2009 at 5:58pm
I don’t understand why people ignore the monetary aspect of this (thus ingoring Bernacke, Friedman, et al.)
Hoover was afraid of leaving the Gold Standard because it would put people in debt in much greater debt because of gold clauses in loans. Thus monetary contraction continued from 1929-1933.
FDR (after a few months in office) came to the conclusion to nullify gold clauses in contracts to get around that problem, and then preceded to devalue, and this (1933) is when you begin to see a slow recovery.
FDR did the important thing, although his later policies may have prolonged the depression, at least he got the ball rolling from a macro view.
Methinks
Mar 11 2009 at 8:01pm
I read the book and I liked it, although I have some of the same criticisms as Mark Vaughan. Although, I think the trip to the Soviet Union was important because it gave us some idea of the how competing ideologies and economic schemes were viewed by people close to the president. Surely, these people’s impressions and opinions were molded by their experiences.
I agree with Floccina’s post. In fact, doing nothing is doing everything. Getting out of the way so that hundreds of millions of people can look for solutions instead of 100 detached bureaucrats in Washington seems like a better idea. Those hundreds of millions of people will look for solutions anyway while the detached bureaucrats thwart their efforts.
Amity Shlaes
Mar 22 2009 at 2:33pm
Thank you everyone for the comments. Of all people Arnold “got” the book best when its galleys were first coming out (spring, 2007).
The goal of TFM is not so much to arrive at a precise economic take on what happened as to give a hearing to long-unheard voices from the 1930s who were saying: “we are not sure what we are doing” or “we are not sure what is happening is right.”
Going back to the period I discovered many sentient people making cogent arguments that simply did not show up in whatever cultural material we received on the New Deal.
My take basically lines up with Kennedy’s, although I found the U.S. farther from the brink of revolution than Kennedy did.
At every point in the 1930s, the participants spoke their concern: “Business is now hesitant about making long term plans, partly because it feels it does not know what the rule of the game are going to be.” –Marriner Eccles. (Polenberg in Kennedy)
Writing a book, one has to choose between analysis (“the six reasons for the Depression within the Depression were…”) and trying to recreate a period in its chaos and inconsistency. TFM opts for the latter, which makes it hard to read for some. But narrative with characters still seemed truer to the reality.
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