As conservative economics collapses disastrously under the weight of its many, many lies, it is only natural that the liars fall-back position is to take aim at the hope of actually cleaning up their mess. And hence the sudden rise of New Deal denialism. It's not as if this comes out of nowhere. It comes out of the same sorts of folks who denied the New Deal as it was succeeding right before their very eyes. And it comes out of the right-wing think tank complex. And it gets spouted by George Will on ABC This Week. And it's a load of bull. Video of Will on the flip. Pride of place to this simple diagram (click to enlarge), which shows the truth: the New Deal was working just fine, until FDR, with a premature sense of relief, and a lingering belief in the old economics, decided it was time to go back to balanced budgets, thus precipitating the recession of 1937/38. It was, in effect, a text-book science experiment: turn the New Deal stimulus policies on, economic goes up, turn them off, economy goes down. But Will--and many others--are trying to pretend the exact opposite, that FDR's policies remained constant, and proved disasterous in 1938:
I have never been able to make any sense at all of the right-wing claim that the New Deal prolonged the Great Depression by creating a "crisis of confidence" that crippled private investment as American businessmen feared and hated "that Communist Roosevelt." The crisis of confidence was created by the stock market crash, the deflation, and the bank failures of 1929-1933. Private investment recovered in a very healthy fashion as Roosevelt's New Deal policies took effect.
The interruption of the Roosevelt Recovery in 1937-1938 is, I think, wel understood: Roosevelt's decision to adopt more "orthodox" economic policies and try to move the budget toward balance and the Federal Reserve's decision to contract the money supply by raising bank reserve requirements provide ample explanation of that downturn.
DeLong posted that after George Will lied about the New Deal last weekend on ABC This Week, and Paul Krugman corrected him:
Then, lying whack-a-mole that he is, Will tried it again this week:
Before we go into a new New Deal, can we just acknowledge that the first New Deal didn't work?
What's more, Eric Rauchway, from Edge of the West, has posted his own illuminatingly annotated version of a letter from Keynes to FDR, February 1, 1938, in which Keynes explains to Roosevelt where he went wrong. This was not some armchair commentary, decades after the fact. This was "in the moment" as they say. An openning snippet:
Because a number of people have asked, and the relevant section-the start of the letter-doesn't seem to be on the Internets elsewhere, I provide here the opening of Keynes's letter to Roosevelt, with some interpolation/translation and historical detail.
... the present recession
- by which he means, the downturn of late 1937-1938, not the Depression-
is partly due to an 'error of optimism' which led to an overestimation of future demand, when orders were being placed in the first half of this year. If this were all, there would not be too much to worry about. It would only need time to effect a readjustment....
But I am quite sure that this is not all. There is a much more troublesome underlying influence. The recovery was mainly due to the following factors:-
(i) the solution of the credit and insolvency problems, and the establishment of easy short-term money;
(ii) the creation of an adequate system of relief for the unemployed;
(iii) public works and other investments aided by Government funds or guarantees;
(iv) investment in the instrumental goods required to supply the increased demand for consumption goods;
(v) the momentum of the recovery thus initiated.
Now of these (i) was a prior condition of recovery, since it is no use creating a demand for credit, if there is no supply.
This is the start of what teachers call the "praise sandwich"-we'll say something nice, before we explain why you get a D....
Go ahead, read the whole thing, and you'll not only know more about the 1937/38 recession than 99.99% of conservative pundits, you'll know more about it than 99.99% of people who are not lying maniacs, either.
