Point Counter Point on FDR's Economic Policy

It appears that among certain parts academia, media, and punditry we may have a debate that only such folks would find interesting. That debate is another analysis of FDR's economic policies. Here is my contribution to the debate. So far, I have mostly seen this debate centered on television, however, I just discovered this defense of FDR's economic policies. The defense comes down to these basic points.

On deeper examination, I discovered that the right bases its New Deal revisionism on the short-lived recession in a year straddling 1937 and 1938. But that was four years into Roosevelt's term -- four years marked by spectacular economic growth. Additionally, the fleeting decline happened not because of the New Deal's spending programs, but because Roosevelt momentarily listened to conservatives and backed off them. As Nobel-winning economist Paul Krugman notes, in 1937-38, FDR "was persuaded to balance the budget" and "cut spending and the economy went back down again."

To be sure, you can credibly argue that the New Deal had its share of problems. But overall, the numbers prove it helped -- rather than hurt -- the macroeconomy. "Excepting 1937-1938, unemployment fell each year of Roosevelt's first two terms [while] the U.S. economy grew at average annual growth rates of 9 percent to 10 percent," writes University of California historian Eric Rauchway.

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According to Federal Reserve chairman Ben Bernanke, "Only with the New Deal's rehabilitation of the financial system in 1933-35 did the economy begin its slow emergence from the Great Depression." In fact, even famed conservative economist Milton Friedman admitted that the New Deal's Federal Deposit Insurance Corp. was "the structural change most conducive to monetary stability since ... the Civil War."

The absurdity of this piece reflects a lot more on the author, David Sirota, than it does on FDR himself. The defense comes down to FDR's New Deal worked because Paul Krugman, Ben Bernanke, and some historian say so. It's as though Sirota is oblivious to the idea that this question has been debated ad nauseum. Both sides can claim plenty of credibility in those that agree with their position.

What's really remarkable is how disjointed the argument is. For some reason Sirota is fixated on what happened in 1937-1938. What happened in those years is not nearly of most importance. Like I have said over and over, unemployment was still at 10% in 1940. How can you say the policy was such a success? Yes, unemployment dropped every year but that's because it started at 25%. Yes, GDP increased every year but it also cratered in 1930-1933. It's like a two hundred hitter boasting that their average has been up every year because he started in the majors as a one hundred hitter.

The intellectual laziness of Sirota is nothing short of obscene. The question of FDR's policies is something that people dedicate books to. Yet, he thinks he can come in, quote a couple important sounding people, isolate a couple years for no clear reason and say the case is closed. The case is nowhere near closed. It will be one of the most fascinating debates in some circles of the next few years.