A Brief Peek At UCLA's Anti-FDR Propaganda

by: Paul Rosenberg

Sun Dec 28, 2008 at 16:57


Something from David's recent diary "Fox News: 'Historians Pretty Much Agree' That FDR Prolonged the Great Depression" really stuck in my craw, above and beyond the fact that the whole line of rightwing BS sticks in my craw.  And that was the paper from UCLA that David referenced:

Now, it's true - back in 2004, two UCLA professors published a little-noticed report claiming the New Deal's government intervention prolonged the Great Depression. But that assertion has been subsequently eviscerated by, ya know, actual data.

What this immediately reminded me of was a UCLA "study" from 2005, (I wrote about at MyDD here), purporting to show that there really was leftwing bias in the media, a study that included, along the way, the identification of both the ACLU and the NRA as centrist think tanks.  Since neither of them are either centrist or think tanks, there was an obvious problem with the study, and it seemed the height of irresponsibility for an academic institution of UCLA's stature to allow itself to be used to promote such obviously shoddy "research" with such an obvious propaganda value.  Indeed, as I dug into it further--and others did as well--the total lack of effective peer review became quite obvious.  It was "peer-reviewed", it turned out, in a journal devoted to a disciplinary approach that had no competence whatever in the field of media studies.

This smelled a whole lot the same to me, particularly when I actually clicked the link and took a look. Ho boy!  I had no idea!

Paul Rosenberg :: A Brief Peek At UCLA's Anti-FDR Propaganda
The authors claimed the Depression should have ended in 1936, but that would have meant FDR being responsible for completely reversing, and obliterating the negative effects of almost 3 ½ years in only a slightly longer period of time.  This struck me as such an incredibly high growth rate requirement any competent economist would have to object to it as completely unrealistic.  More precisely, here is the UCLA announcement about what they wrote:

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

....

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933....

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

I've cut out a good deal of detail, about which a good deal else might be said, simply to focus on the big picture here: Cole and Ohanian claim the Depression was over by 1943, but it could have been over by 1936, if only FDR hadn't mucked things up.  In fact, they say:

The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

This is, quite simply, ludicrous.  And it's easy to show why. So easy that any competent undergraduate in economics ought to laugh this out of court.

Put simply, if we take 1943 to set the level of having recovered from the Depression, and wind that back to a 1936 level that would have been out of the Depression, then the growth rate required to get there from 1933 would have been entirely unrealistic-much stronger, in fact, than the growth rates observed in the late 1920s, which the authors claim to be projecting from.  The growth rate from this "lost opportunity" scenario, as I like to call it, is simply inconsistent with anything we know about US economic history.

Now, of course, I didn't check their detailed work.  I didn't do a sector-by-sector analysis.  I didn't look at detailed productivity figures.  I just looked at GDP levels.  The GDP gains that their "lost opportunity" scenario required would have averaged 16.9% for four consecutive years, from 1933 to 1936-a totally unprecedented growth rate, for a cumulative 86.7% increase in four years.  Indeed, the only years in US history with such growth rates were 1941-43, with growth rates of 17.1%, 18.5% and 16.4%.  Even so, the best 4-year run, 1940-1943 fell more than 10% short of their projection-75.8%.

So, in essence, Cole and Ohanian are claiming that if only FDR hadn't mucked things up, the US would have experienced the spectacular growth rates of 1940-1943 seven years earlier, plus another 10.9%.

At this point, the question one wants to ask Cole and Ohanian is "What are you smoking, and where can I get some?"  And the question one wants to ask UCLA is, "When did Forest Gump take over running this place?"

Backup Chart and Explanation

The chart below is useful as a framework for further clarifying that above. An explanation follows it.

YearGDP ChangeGDP Index
(1929=100)
4.816%
Growth
9.06%
Growth
16.9%
Growth
7.7%
Growth
1929 --100.00100.00 -- -- --
1930 -8.691.40104.82 -- -- --
1931 -6.485.55109.86 -- -- --
1932 -1374.43115.1574.4374.4374.43
1933 -1.373.46120.7081.1787.0180.16
193410.881.40126.5188.53101.7186.33
19358.988.64132.6196.55118.9092.98
193613.0100.16138.99105.29139.00100.14
19375.1105.27145.69114.83 -- --
1938 -3.4101.69152.70125.24 -- --
19398.1109.93160.06136.58 -- --
19408.8119.60167.77148.96 -- --
194117.1140.05175.85162.45 -- --
194218.5165.96184.31177.17 -- --
194316.4193.18193.19193.22 -- --

Instead of actual GDP levels, I use an index set to 100 for 129, to make the comparisons as transparent as possible, with the changes in GDP in the first column following the years.  I also have four columns showing what GDP levels would have been with constant GDP growth covering various periods of time, which allow us to make various observations or comparisons.

The 4.816% growth column shows what a constant growth would be from 1929 to 1943.  Since the authors cite 1943 as the year we emerged from the Depression, this presumably represents the level of economic activity in each year that would have been sufficient to get us out of the Depression in that year.  The level for 1936 then becomes the figure that their "lost opportunity" scenario would have to hit.

The next column, 9.06% growth, represents that average growth rate needed from when FDR took office in 1933 to reach the actual GDP in 1943.

The 16.9% growth represents the growth rate required to get out of the Depression in just 4 years (minus three months), which the authors claim would have happened if FDR hadn't mucked things up.

The last column, 7.7% growth, is the constant growth rate matching FDR's actual record from 1933 to 1936, before he cut back on his proto-Keynsian stimulus approach.  

Finally, it's worth noting that the actual 4-year growth from 1932 to 1936 (which was not constant) amounted to 34.6%, an extremely high growth level.  There were only six earlier periods of higher growth in US history, actually composed of just three different 5-year periods.  However, 1933-36 was itself part of a similar 5-year period, and the other 4-year period from that stretch, 1934-1937, was the fastest-growing period of GDP of them all, until the growth spurt that followed after the recession of 1937/38.  

Of course one does expect rapid growth in recovering from a severe recession or Depression, so this is not to claim any spectacular achievement on FDR's part.  On the other hand, this was not the only time we had experienced a financial downturn in our history.  Yet, no other recovery period was as strong as 1934-1937. That surely counts for something, and helps explain why FDR was overwhelmingly re-elected in 1936.


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"Peek" not "peak" (4.00 / 1)
Former editor; can't help it, especially in a headline.

Ah, and "UCLA" as others saw (4.00 / 1)


[ Parent ]
Peek and UCLA (4.00 / 1)
Otherwise, great.

Yeah, Well (0.00 / 0)
At least I caught the one instance in the text where it said "UVLA".

Look, how come "teh" is cool, but everything else earns you nothing but raspberries?

In fact, where are raspberries?  I like raspberries!

Mmmmmmmm!

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
It's geek talk (0.00 / 0)
Actually something called leetspeak.  Frankly, I don't understand how certain deliberate mispellings like "teh" and "pr0n" are cool and others are just typos, either.

Let's beat up on Reagan and the Bushes.  Even though the right re-engineers the stats when in power, Reagan's performance ain't that great.  There was a real big recession deliberately engineed at the start of his Presidency to break the back of inflation on the backs of the little guys.  In other words benefit the lenders and the haves at the cost of the workers, middle class, etc.

The Bushes of course don't even look that good.

In my adult lifetime, I've seen a huge campaign against JFK and Bill Clinton and now FDR while Ronnie gets made into something greater than great (which he's not).


[ Parent ]
Setting the record straight (4.00 / 2)

Thanks for pushing back against this nonsense, Paul. The idea that the New Deal was contractionary is a figment of classical economists' imagination. If the classical model were in any way an adequate description of how economies work the Great Depression never would have happened in the first place.

A couple of recent academic papers show that when you make realistic assumptions, not only was the New Deal as a whole expansionary, but also the very programs that the UCLA economists claim set the economy back actually helped the recovery.  

Gauti Eggertson, Great Expectations and the End of the Depression

. . . the US recovery from the Great Depression was driven by a shift in expectations. This shift was caused by President Franklin Delano Roosevelt's (FDR) policy actions. On the monetary policy side, FDR abolished the gold standard and - even more importantly - announced the explicit objective of inflating the price level to pre-depression levels. On the fiscal policy side, FDR expanded real and deficit spending. This made his policy objective credible. These actions violated prevailing policy dogmas and involved a policy regime change . . .

Gauti Eggertson, Was the New Deal Contractionary?

Can government policies that increase the monopoly power of firms and the militancy of unions increase output? . . . these policies are expansionary when certain "emergency" conditions apply. These emergency conditions - zero interest rates and deflation - were satisfied during the Great Depression in the United States. Therefore, the New Deal, which facilitated monopolies and union militancy, was expansionary . . .

Further,

This conclusion is contrary to the one reached by a large previous literature, . . . that argues that the New Deal was contractionary. The main reason for this divergence is that the current model incorporates nominal frictions so that inflation expectations play a central role in the analysis. The New Deal has a strong effect on inflation expectations in the model, changing excessive deflation to modest inflation, thereby lowering real interest rates and stimulating spending.

Menzie Chinn, Back to the Great Depression Debates, explains that a critical issue is whether or not prices immediately and flexibly adjust to changes in demand. If they don't, the UCLA model is not appropriate:

a lot hinges upon one's feelings regarding the stickiness of prices. . . . I'm on the side of nominal rigidities, and hence the model that re-establishes the conventional wisdom regarding the New Deal policies. But, if you feel that prices are fully flexible (i.e., somehow you've missed the fact that the prices at your local restaurant are not moving around day by day), then you should side with [UCLA's] Cole and Ohanian's perspective.

Here's a plot (h/t Eric Rauchway, Edge of the American West) showing the timing of the recovery in investment demand, exactly coinciding with the Eggertson story and refuting the UCLA perspective:



Thanks For The Leads (0.00 / 0)
Not being an economist, I had never heard of these guys before.  I'm just a general math guy who knows that 2+2=/=5.  So I appreciate the leads into a closer look at what their argument is all about, and an understanding of what's wrong with it in economists terms.

So, thanks for the new reading list!

But I still can't get over the fact that they could make such a ludicrous claim, no matter how hypnotized they are by their own assumptions.

I've actually posted Raughway's chart here before, and never tire of seeing it.  But I sort of think it's not quite on point, as they are claiming the Depression should have been over even before FDR cut back spending and got us into the 37/38 recession.

What they're saying, in effect, is that the recovery should have been so fast and so steep that it's slope would have been twice that of the first blue arrow, at least.  Sort of like a superball.

What?  The price of coffee didn't just drop by half since I sat down and ordered?  Would you believe 30%, maybe?  Well, can't fault a guy for trying...

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
Hey, now... (4.00 / 1)
How about some props for the great debunking? Do you write books, Paul? If so, we can get you a proofreader, not to worry. In the meantime, the substance is great, the analysis is even better, and we can live with the rest, more or less -- my nitpicks excepted, of course....

Funny You Should Mention This (0.00 / 0)
I have a whole shelf full of potential book projects and I'm trying to decide which to commit to.

On the typo front, the irony as an editor is not lost on me.  But my sister told me this story many years ago, when she was doing Aikido in San Francisco.  There were these two guys in her dojo who were very pleasant, good-natured and energetic.  Their house was sort of a hangout for a lot of the students, but the kitchen was always a total mess, and it just seemed rather incongruous.

Then, one day, she went to see them at work---and they were in this huge restaraunt kitchen, arms and hands flying through the air, washing this incredible stream of dishes, cups, glasses utensiles, etc. while gaily chatting away.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
WTF?? (0.00 / 0)
The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Does anyone ever write anything like that first sentence in an academic paper?  Unless one is in the dramatic arts.


I Was Pretty DUmbstruck Myself (0.00 / 0)
It's a press release really, not an academic paper.  But it's a press release about an acdemic paper.  And it makes it seem more like a comic book.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Ohanian and the Fed (4.00 / 3)
Ohanian has been doing work for the Federal Reserve since 1993.  When the Bushies took over he developed a series of presentations about the failings of FDR prolonging the Depression.  One of his co-authors in an earlier piece was, get this, Ben Bernanke who took top credit (perhaps as the biggest name).  During the Bush period he also worked for the National Bureau of Economic Research.

Harold Cole seems less established and more anonymous.

Looks like a political hatchet job paid for by your tax dollars (directly or indirectly).


Thanks For Filling Me In (0.00 / 0)
I knew that Ohanian's name was vaguely familiar, but that's about it.

What a low-grade hack!

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
Is this really the argument made? (4.00 / 1)
First, I can't find the UCLA paper online, but the authors do have this online which appears to be the same argument:

http://www.minneapolisfed.org/...

And if you look at page 3, left column, last paragraph, you'll see that they are claiming that real output, except purchases of government goods and services, remained weak.  In other words, they claim that government activity didn't stimulate private activity.  

The measure of when the Depression ended, to conservative critics, isn't usually GDP or real output, but unemployment.  The unemployment figures, as seen by conservatives, are explained a little more fully here:
http://www.marginalrevolution....

The same question is raised in both analyses: do work-relief jobs count as employment, and does deficit government spending count as legitimate gdp growth?  This is a tricky measure, because there always is government activity that creates economic growth, but it is logical to try to separate the two when determining whether the temporary crutch of stimulus programs have had the desired effect on the private sector.

I think a more cogent criticism of the conservative storyline is the one that Krugman made in response to Will recently - that the recession of 1938 wiped out progress in reducing unemployment, and that recession was caused by conservative policies.  I'm no economist, but I don't think this paper argues that GDP should have been 17%, but rather that private investment remained low and unemployment high.


Thanks (4.00 / 1)
Exclude the footnotes and the paper is ten pages of total and infuriating crap.  That's the amount of research behind this theory.  Ten pages.

Mistakes?  Well, who actually believes that the "standard definition of the Great Depression, which is the 1929-33 decline" is actually the standard definition of the Great Depression?  Which planet are these guys living on?  And to state, "We treat this as a long and severe recession" is nuts.  They do acknowledge that the Depression in the US hit harder than in any other country on earth.  Recession only.  I think not.

The entire scope of economic theory used is something the authors call "neoclassical theory" from the late 1960s and early 1970s.  The recognizable name in this mess is that master of disaster, Milton Friedman.

They round up the usual suspects .  It doesn't make the summaries but one of the principle villains is, gasp, organized labor.  Organized labor is called a cartel.  They argue that anti-Trust should have been applied against organized labnor (like in the low growth late 1800s).  Although there is no evidence that this slowed down growth, "inflexible nominal wages" are trotted out as a possible villain. Now my father worked throughout the Depression for the same company and the wages were hardly inflexible.  His salary was cut repeatedly and, believe it or not, hours were pushed.  A half day on Saturday was standard.  

Nothing in the ten pages addresses falling demand.

The usual share for capital is a stunning 33%.  I thought labor got 70%, I guess they pared off a few points and didn't pay management.  Btw, the return on capital should have fallen like a rock.  There was much lower demand and hugely excess capacity.  The amount of capital (which, surprise, surprise did not fall as fast as output) chasing few investment opportunities should in real, classic theory have earned a very low return.  I guess "neo classic" has nothing to do with Adam Smith.

The "pre-1929 steady state growth path" was no such thing.  The pre-FDR economy was never steady state being a string of boom and bust cycles with the busts hittting incredibly hard at times. The Panics of 1837, 1858, 1873, and 1894 come to mind as well as recessions under Theodore Roosevelt, Wilson and Harding. I may have missed something and it is possible that the Wilson-Harding thing was one long event.  

Oh, and public works projects are no invention of FDR.  The Parthenon was a public works project to create jobs for the people of Athens under Pericles.  It was followed by a "more effective" and more destructive jobs policy: the Pelopenesian War.  That little sucker destroyed the economies and eventually the independence of both Athens and Sparta.  The winner, Sparta, was so stretched by its losses in money and manpower it no longer was a great power in short order.

Government investment in infrastructure like canals, and railroads is never mentioned, either.

All in all this was an incredibly shoddy piece of work or as Paul put it, a hack job.  


[ Parent ]
Interesting That They Didn't Clearly State That In The Press Release (4.00 / 1)
The issue of private investment has already been well-answered by Krugman Raughway, and DeLong, among others, which I've cited myself in the past.  I've even front-paged the last chart in TGeraghty's post above.  And what's that a chart of?   "Gross Real Privte Domestic Investment in the Great Depression."

But, even trying to use the "employment, not GDP" argument doesn't get these guys off the hook.  Look, WWII didn't bring low employment because private investment had recovered.  That's just absurd.  It brought low employment because of massive government spending and investment, and massive government employment in the armed forces.

So, if they really were making that argument, then there's no way that 1943 should qualify as being out of the Depression.  Not by the means that were supposed to end the Depresssion.

More tellingly, though, if you think about the implications of saying that GDP doesn't matter, only employment does, then one thing is obvious: they want to keep workers poor. Because that's what mainatining high employment with low output has to do.

And that's the bottom line of what really has them steamed about the New Deal--the fact that it was a New Deal, one that included those who had previously been "included out," as Samuel Goldwyn would have put it.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
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