“Obama is re-running the FDR’s attempt to spend our way out of economic downturn. It failed then, and it will fail now. “
— Matt Cunningam, in a comment posted last week on the LiberalOC.com
I always have to give credit to people like Matt Cunningham and assemblyman Chuck DeVore; their claims of facts on issues of the day always seem to require some homework when the words they say “don’t sound right to me.”Â So I spent considerable time this weekend researching some facts behind the success or failure of FDR’s “New Deal.”Â I prefer finding non-partisan or partisan sources, simply because they have no dog in the hunt other than the truth.
My research led me to this terrific post from economist Charles McMillion.Â He’sÂ the president and chief economist of MBG Information Services, a former associate director of the Johns Hopkins University Policy Institute, and a former contributing editor of the Harvard Business Review.Â I also encourage folks to go to the New York Times sitre and read up on several recent Paul Krugman articles.Â But McMillion’s post deals with the New Deal.
Hewrites to expose, “a dangerous popular myth regarding the efficacy of President Rooseveltâ€™s actions: that it was not the programs of the New Deal, but only the placing of the nation on a wartime footing years later, that restored the health of the nationâ€™s economy.Â This belief, though widely held, cannot stand up to even the most basic economic analysis. Yet the mainstream corporate media, which abound with anti-government ideology, seek to reinforce this myth.”
McMillion writes:Â The basic economic facts from the 1930sâ€”according to the Department of Commerce, the Federal Reserve, and other official sourcesâ€”are fundamentally different from the unsupported claims put forward by (conservative author Amity) Shlaes and prominent in popular myth. The monthly data for industrial production show a near three-year collapse under President Hoover, ending when FDR came to office in March 1933. Production rocketed by 44 percent in the first three months of the New Deal and, by December 1936, had completely recovered to surpass its 1929 peak.
McMillion continues with:
GDP, only available as annual averages, plunged 25.6 percent from 1929-1932, including by 13.0 percent in 1932. It stabilized in 1933, and then soared by 10.8 percent, 8.9 percent and 12.0 percent, respectively, in 1934, 1935 and 1936. Real GDP surpassed its 1929 peak in 1936 and never again fell below it. After-tax personal income, consumer spending, real private investment and jobs all reached or surpassed their 1929 peaks by late 1936.
In fact, like every decade between 1850 and 1990, the 1930s suffered two distinct downturns. The official U.S. Business Cycle Dating Committee established that the downturn that began in August 1929 ended in March 1933 with the remarkable economic expansion that started within days of FDRâ€™s boldâ€”if trial and errorâ€”New Deal programs. By any normal definition, the Great Depression had ended by late 1936, with all major indicators surpassing their previous peaks.
A second cyclical downturn officially began in May 1937 when FDR, always a fiscal conservative, mistakenly thought the economy had become self-sustaining and slashed public spending programs to balance the budget. These harsh and premature spending cuts caused another severe recession that ended after 13 months in June 1938.
Even in this severe downturn, annual GDP did not fall back below its 1929 peak. And although many suffered and most economic measures did fall back below their 1929 levels, not one fell anywhere close to its March 1933 low. For example, although industrial production fell sharply in the 1937-38 recession, at its low point, in April 1938, it remained 49 percent above its level of March 1933.
Myth and ideology aside, the data show that from 1933 through 1936 the New Deal produced double-digit annual growth in GDP, production, after-tax income and private investment, with strong consumer spending and job growth exceeding their peaks in the 1929 bubble. The Great Depression ended by late 1936. ”
But that all said. don’t count McMillion as a supporter of the stimulus bill.
“I personally believe the recent and current bailout and stimulus packages are grossly misdirected and inadequate when compared with the remarkable trade and industrial policy strategies being implemented elsewhere, particularly in China.”
So while we continue to debate the merits of Obama’s stimulus plan, which is supported by Pimco executive Bill Gross of Newport Beach, debate over the success or failure of FDR’s New Deal should be a closed book based on the statistics offered by McMillion.