[Marxism] Was the New Deal too small?

Louis Proyect lnp3 at panix.com
Tue Dec 9 07:05:04 MST 2008


Was the New Deal too small?
A lesson from Great Depression, historians say, is that Roosevelt didn't 
spend enough to jolt economy into recovery.
By Alexandra Marks | Staff writer of The Christian Science Monitor

from the December 9, 2008 edition

New York - In announcing the biggest public works spending in 50 years, 
President-elect Obama takes a page from the Great Depression that is 
both model and cautionary tale.

Model, because the programs put paychecks into workers' pockets and laid 
a concrete and electrical foundation for America's postwar boom. 
Cautionary tale, because the effort did not jolt the Depression economy 
back to health.

One big reason is that President Roosevelt didn't spend enough to really 
boost the economy, historians say. But US history offers no guide on how 
much stimulus is too much, especially since the timing of today's crisis 
and the Depression are so different.

The Great Depression had been in full swing for three years when 
Roosevelt came into office and proposed his massive work relief program. 
Obama will enter the White House as the economy is still unraveling, 
which may help him.

"This time we're trying to have the bailout and rescue as the crisis is 
unfolding before our eyes; there's a sense that 'Can we prevent this 
before it really gets rolling?' " says Jason Smith, author of "Building 
New Deal Liberalism." "The Roosevelt administration was experimenting – 
they were kind of operating blindfolded and in the dark – they didn't 
have the kind of economic expertise that's available to us today."

The infrastructure component of the still-evolving Obama 
economic-recovery plan would inject billions of dollars into repairing 
old roads and bridges and constructing new ones, upgrading the nation's 
schools with new technology, and making public buildings energy efficient.

When Obama announced those "few key parts" of his plan on Saturday, he 
called them "the single largest new investment in our national 
infrastructure since the creation of the federal highway system in the 
1950s." That's when the federal government invested $25 billion and 
built more than 41,000 miles of roads, highways and bridges over a 
20-year period. In today's dollars, that would be the equivalent of $197 
billion investment.

How much Obama will spend on infrastructure is unknown. His economic 
team is still "crunching the numbers," in his words, on the 
economic-recovery package, which would include far more than 
infrastructure and could end up costing $700 billion or more. Much will 
depend on Congress.

But US governors say they already have $136 billion dollars in projects 
that are "shovel ready," which means they could be under way within 
months of the new administration taking office. Each $1 billion of 
infrastructure is expected to create 25,000 to 40,000 jobs.

Still, some critics point to the Depression and note that infrastructure 
spending did not create enough of a stimulus to revitalize the economy. 
It took World War II to get it back on track. Depression historians 
contend that's because the Roosevelt administration didn't spend enough.

"There was a kind of crude sense that generating economic activity was 
what you needed to do to get the economy going," says Alan Brinkley, a 
professor of history at Columbia University. "But they didn't spend 
nearly enough. They were constrained by all kinds of traditional ideas 
about balanced budgets and austerity."

There is a consensus today among economists, even many conservative 
ones, that the government needs to inject some Keynesian stimulus to 
keep the economy from spiraling further downward. But some conservatives 
do disagree.

The consensus is "bad theory and bad evidence," says Robert Higgs, a 
senior fellow at the Independent Institute, a libertarian think tank in 
Oakland, Calif. Government spending in the 1930s crowded out potential 
private investment, he says.

Government infrastructure projects "are inherently wasteful because they 
are designed with political objectives in mind," he says "The [Works 
Progress Administration], which was probably the major New Deal 
infrastructure building program, was an enormous vote-buying scheme for 

Some conservative economists also argue that injecting massive 
government spending now will only make the deficit worse without 
providing the promised stimulus. But other economists point out that 
during the first three years of the Depression, when there were far 
fewer major spending programs, gross domestic product (GDP) continued to 

Timing is key, because the scale of today's problem looks much smaller 
than the Depression. While today's 6.7 percent unemployment rate looks 
bad from a modern perspective, it's practically vibrant compared with 
the 24.9 percent in 1933, when the Roosevelt administration came into 
office. At last measure, today's GDP is down half of one percent after 
increasing during the first half of the year. In 1933, it had declined 
almost 30 percent from its 1929 peak.

That's why some analysts conclude that some infrastructure spending now 
may work as an effective stimulus. "The standard objection to public 
works spending – that it takes too long to get going and arrives after 
the economy has already begun recovering – really doesn't seem operative 
this time," says Mr. Smith.

Others disagree, and contend it could take many more months than 
predicted to get projects started because of the complications of 
contracting out the projects.

"There are some practical realities that don't support the expectation 
of 'Oh, just give us the money and we can go,' " says Richard Little, 
director of a public finance institute at the University of Southern 
California. "Over time we will start to see some projects rolling out 
and once that momentum builds up we'll see more of it. The only problem 
is that it's like mobilizing for war, once you get all geared up, don't 
cut the money off."

Today's crisis is also different because of the size of the federal 
deficit. Republicans in Congress are balking at increasing it even more. 
Here the New Deal does not offer much help.

"When Roosevelt came in there was some deficit spending in the 1930s, 
but he was committed to a balanced budget so the deficits were never 
extraordinary," says Margaret Rung, director of the Center for New Deal 
Studies at Roosevelt University in Chicago.

In the 1950s and 1960s, the last time there was a major investment in 
infrastructure, the US economy was thriving and deficit was negligible.

Obama acknowledges that a projected trillion-dollar deficit is 
problematic. But on NBC's "Meet the Press" over the weekend, he argued 
that the need to stimulate the economy outweighs immediate concerns 
about the deficit.

That has prompted many people to hope that today's stimulus package will 
work better than Roosevelt's did in the Depression.

"In the long run, you have to hope that the recovery is robust enough to 
deal with this enormous deficit which has been run up – which is scary 
and has repercussions beyond the immediate fiscal health of the 
country," says Professor Rung.

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