Robert Reich: The New Deal and the New New Deal: Countering Conservative Claptrap

[flpoljunkie]

The New Deal and the New New Deal: Countering Conservative Claptrap

The stock market reached a six-year low today. Why? Some blame loose talk (including that of former Fed Chair Alan Greenspan) about nationalizing the nation's banks. Others blame Obama's new plan for helping homeowners who may not be able to pay their mortgages. But the real culprit is the accelerating decline in aggregate demand -- consumers, businesses, and exports. Companies are losing money because their customers are disappearing. That's precisely why the stimulus is so important -- indeed, why many of us fear it's too small.

One of the oddest of right-wing claims is that FDR's New Deal didn't pull America out of the Great Depression, so Barack Obama's "New New Deal" won't, either. While it's true that the New Deal didn't end the Great Depression, three points need to be impressed on the hard-pressed conservative mind:

1. The New Deal relieved a great deal of suffering by establishing social safety nets -- Unemployment Insurance, Aid for Dependent Children, and Social Security for retirees. Most have remained, a worthy legacy. But because the structure of the economy has changed (a much higher percentage of the working population is now employed part-time in several jobs or as independent contractors, for example), there are gaping holes in the safety net which a New New Deal should fill in order that the Mini Depression we're experiencing not cause excessive harm.

2. FDR's public works spending did help the economy somewhat. By 1936, U.S. the economy was showing some life. Unemployment was declining and consumers were beginning to buy. But FDR cut back on public-works spending, and the economy sank back into its former torpor. A warning to Obama: Don't worry about so-called "fiscal responsibility" when aggregate demand still falls far short of the economy's total capacity.

3. The Second World War pulled the nation out of the Great Depression because it required that government spend on such a huge scale as to restart the nation's factories, put Americans back to work, and push the nation toward its productive capacty. By the end of the war, most Americans were better off than they were before its start. Yes, the national debt ballooned to 120 percent of GDP. But the debt-GDP ratio subsequently declined -- not just because post-war spending dropped but because the economy continued to grow as war production converted to the production of consumer goods.

Lesson: The danger isn't too much stimulus, it's too little stimulus.

posted by Robert Reich

http://robertreich.blogspot.com/2009/02/new-deal-and-new-new-deal-countering.html

[ayeshahaqqiqa]

1. Reich made some very good points

ones that the GOP always glosses over when they talk about FDR.

[treestar]

2. What I still don't get is: why is spending on war so much more

effective than spending on positive things?

[ellenfl]

3. perhaps because war uses things up more rapidly?

equipment and armament need constant replenishment. you can't recycle bullets.

it's sorta like the stimulus package. the gov spends lots of money on war.

ellen fl

[Median Democrat]

6. War, Inc. Is The Ultimate Spending Package - Keynes On Steroids

During WWII, the government exercised incredible control over the economy with rationing and war spending, yet cries of socialism were largely drowned out by the need to defend the U.S. If anything, war is the type of spending that Republicans love, since they love to destroy things, rather than create things.

[Bread and Circus]

4. It's not. I don't think we ever really get the real story about what...

pulled us out of the depression.

Partly, I think is because economists don't pay nearly enough attention to the "hard factors" in economies. They love to talk about a lot of abstract economic equations and the shifting of numbers on paper but don't really talk practical enough. It's not that they don't know about these things, it's just that they know they don't sound nearly as smart and mysterious when they break it down to practical terms. It's like how a doc sounds smart when he says you have a "subcutaneous nodule" and how he sounds kind of dumb when he says you have a "lump under the skin" even though he's saying the same thing. So, they love to use words like "aggregate demand" and "contractile defation". Whereas what they really mean is we don't make shit and the rich people steal all the money so nobody has the money to pay for shit.

But back to the original question:

If you think practically, you can focus on some important things that happened from the 1920's to post war 1940's.

In the 1920's a lot of people were literally still in horse and buggies. In the 40's, we had an atomic bomb.
In the 30's, there were huge environmental and agrarian practices that led to widespread drought and erosion. This really fucked up a lot of people relying on farming.
In the 30's and 40's, a lot of women went to work. You had a lot more mules pulling the economic cart.

So it wasn't just the public works program or the social programs. Nor was it "the war". A lot of it had to do with some real nuts and bolts changes to mass manufacturing, the utilization of fossil fuels, technology, labor, and improvements to agriculture. FDR and Public spending aided all that, but it's not just the magical effect of "spending alone".

With that said, I will argue that sometimes public spending is a lot better than private spending.

With public spending you can pool money and buy big things that last and create lasting improvements to the economy (highways are a good example). In private spending, the money is dividing and consumerized where people buy junk that turns into trash (anything bought at walmart is a good example). Also, if you tax the rich and feed it back to the people in terms of public spending on shareable goods, you are in effect fixing the fundamental defect of capitalism, which is the funnelling of all wealth to the rich apex.

[treestar]

5. And we could do public spending to keep people working

We always need more teachers and police officers and counselors and the like.

We also ought to recognize that people's skills won't always match what work is available and refrain from calling people lazy because they don't have jobs and be willing to step in to help people who need retraining or the like. It's the hysterical effort we make to keep everyone employed without organizing that and just hoping the magic hand of capitalism will take care of it.

[Stevepol]

7. Reich could have made the point that 1933-40 was a pd of great growth,

comparatively speaking of course.

I believe RAchel Maddow had a chart showing this recently. The pd from 1933 to about 1940 was the pd of the 2nd greatest % growth in GDP in the country's history. The pd of the greatest growth was WWII of course. It's true that a brief hiccup occurred around 1937 because FDR bowed to Repub calls for a balanced budget, but once he realized the effects that his tightening of the budget had in creating the recession, FDR went back to his spending and the rest of the pd showed steady improvement.

In terms of unemployment, at the beginning of the FDR's administration estimates had the unemployment at around 25%. At the end of the decade, just before WWII, the unemployment was around 14%. But remember unemployment was measure differently then as well. More categories of workers were included. I suspect 14% during that period is close to what we had in late 08 if you included those workers underemployed and those who had quit trying to find work, two categories no longer included in the unemployment figures.

So FDR's programs succeeded in steadily lowering unemployment and raising the GDP. In fact, the period represented the 2nd strongest pd of such growth in American history (though much of the data for earlier pds has to be based on educated guesswork). So while it's true FDR didn't get us out of the depression, he took giant strides in that direction.

Krugman notes that the amt of spending proposed in Obama's stimulus bill represents only about 2+% of GDP while the spending during WWII amounted to 40% of America's GDP. Those are the levels (40% or so) that would be necessary to really lift us out of the pit we've been thrown into.

i.e. what the Repubs say about FDR not getting us out of the depression represents at best skewed logic and at worst pure B.S.

[Numba6]

11. I htink the chart you mean is

@

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8215623#8215709

[Numba6]

8. yes, the facts of the spending & the historical context is essential, but it

won't stop the naysayers -- & the obstructionists aren't all Republicans, the uber-progressives hate it as well

The massive spending passed in the first month of the Obama presidency, and more to come:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8215623

[anonymous171]

9. Yep. People need jobs and wages, not tax cuts.nt

[Cha]

10. "Conservative Claptrap"?

I call it fascist bullshit.

Thankfully, we have Robert Reich's constructive views.