UCLA on FDR, stimulus packages in 2004

posted at 8:04 am on March 15, 2009 by Ed Morrissey

Hot Air reader Manuel K forwards a 2004 study from UCLA, written as the post-9/11 recovery had gotten into full swing, about the failure of another recovery plan.  Two economists at the unversity reviewed FDR’s efforts and their effects, and come to a much different conclusion about the New Deal than our current administration holds.  In fact, they have reached a clear conclusion on stimulus packages such as those proposed  by Barack Obama:

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.

After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

Oh, crud.

Update:  Here’s the money quote:

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

Yes, which we have discovered repeatedly since; the 1970s practically gives a how-to on that lesson.  So why do politicians intervene?  Two reasons.  They have to answer to constituents who collectively understand economics very poorly.  That pushes politicians to think that, in Mel Brooks’ immortal words, they have to do something “to save their phony-baloney jobs”.

Update II: The boss had this back in January, as Steve from Radio Vice Online reminds me.


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Comments

These two wrote about their conclusions in the Wall Street Journal back in February.

http://online.wsj.com/article/SB123353276749137485.html

JamesB on March 15, 2009 at 1:18 PM

I saw this study ages ago and I’ve quoted from it more than once before, as well as mentioning the editorial they did. Other here have made long comments with their insights about the Depression.

You bloggers need to skim the comments.

INC on March 15, 2009 at 1:36 PM

unclesmrgol on March 15, 2009 at 12:05 PM

Re-tooling and re-training of factory workers from Sherman tanks and B-24 production to washing machines and Buicks. Took a bit of time until the recovery after WWII took off, as you mention.

coldwarrior on March 15, 2009 at 1:53 PM

coldwarrior on March 15, 2009 at 1:53 PM

Additionally, war production goals were set expecting the war in the Pacific to last well into 1948…turning on a dime was not possible when the war ended “suddenly” in August 1945.

coldwarrior on March 15, 2009 at 1:57 PM

the more the economy is transformed from an entrepreneurial/corporate economy into a political economy, the more incompetently managed it will be, since the skill sets of business managers and politicians are quite different. Just look at the psychological and intellectual makeup of the typical Kennedy School of Government graduate versus the typical Harvard Business School graduate.

venividivici on March 15, 2009 at 11:51 AM

If your point is that the Harvard business school produces better managers than the school of government, I would just point out that George W. Bush holds an MBA from Harvard — Mr. “I abandoned free market principles to save the free market” (or whatever it was he said) is not my idea of a competent market manager.

AZCoyote on March 15, 2009 at 2:01 PM

Stephanopoulos this morning, trying as best he could to defend Obama’s bailout of AIG before his panel of economic pundits …..

Get ready, this is funny ….

If the government forces AIG to throw out existing contracts that award multi-million dollar bonuses to top executives, the best people will leave the company in droves, and then AIG could go under.

Hey Snuffy, are you referring to the same AIG executives who got us here?

Told you it was funny.

fogw on March 15, 2009 at 2:03 PM

“Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

Very ironically.

Aronne on March 15, 2009 at 2:03 PM

This Recession (or Depression) will be a real teachable moment for the “tax cuts for the rich” crowd. A few will actually get it but most will continue being ignoramuses.

Mojave Mark on March 15, 2009 at 2:17 PM

Yes, which we have discovered repeatedly since; the 1970s practically gives a how-to on that lesson. So why do politicians intervene?

Ed, you’re talking about a very limited number of studies- most economists don’t agree with this conclusion in its entirety. There was a time when the US economy suffered from very little government interference- look at our economic history before 1940. Recessions were deep and brutal. The reason that recessions have been b controlled and brief post WWII is the high level of federal regulation and tight control over monetary that has been instituted.

The reason that the economy hasn’t cratered today as in the 1930’s is the policies of activist government. It may be true that the stimulus plan isn’t key to a recovery- as many other government actions have already prepared the economy for that- but it’s not clear that the stimulus is a bad thing. In fact, if it has the only consequence of reducing fear, then it will be a success.

bayam on March 15, 2009 at 2:20 PM

The reason that the economy hasn’t cratered today as in the 1930’s is the policies of activist government. It may be true that the stimulus plan isn’t key to a recovery- as many other government actions have already prepared the economy for that- but it’s not clear that the stimulus is a bad thing. In fact, if it has the only consequence of reducing fear, then it will be a success.

bayam on March 15, 2009 at 2:20 PM

You wanna buy some oceanfront property, cheap? Call me.

hillbillyjim on March 15, 2009 at 2:25 PM

Those who fail to learn from history are doomed to repeat it.

At what point can we start calling Obama dumb?

R.J. MacReady on March 15, 2009 at 2:27 PM

my father lived through the depression, worked in the WPA, rural electrification..went out west and picked fruit and veggies…he told me the government just made it worse…

right4life on March 15, 2009 at 2:52 PM

This Recession (or Depression) will be a real teachable moment for the “tax cuts for the rich” crowd. A few will actually get it but most will continue being ignoramuses.

Mojave Mark on March 15, 2009 at 2:17 PM

you mean cramer and buffet?? I find it interesting that the very ones who supported our new bi-racial messiah the most, the young and upper income, will be hurt the most!!

and I hope they suffer greatly….

right4life on March 15, 2009 at 2:54 PM

Update II: The boss had this back in January

Its ok Ed, this sort of study needs to be republished every week, from now until the 2010 elections.

Zorro on March 15, 2009 at 3:16 PM

That’s MY university. Go Bruins!!! Fight Fight Fight!

Apologetic California on March 15, 2009 at 3:45 PM

My Dad was years ahead of these guys. I remember him talking about FDR before the war. Couldn’t stand FDR and his policies.

Herb on March 15, 2009 at 3:56 PM

If the economy does improve, but has nothing to do with all of this government spending, it will reinforce in people’s minds that this kind of thing does work.

I just can’t see how it can.

It’s like having your parents give you money every time you get yourself in financial trouble. You will never learn to address the root causes yourself. And when they’re gone what then?

Dr. ZhivBlago on March 15, 2009 at 5:43 PM

If your point is that the Harvard business school produces better managers than the school of government, I would just point out that George W. Bush holds an MBA from Harvard — Mr. “I abandoned free market principles to save the free market” (or whatever it was he said) is not my idea of a competent market manager.

AZCoyote on March 15, 2009 at 2:01 PM

I’m well aware of Bush’s MBA, but I don’t think Bush is representative of the typical HBS grad, so I’m not sure your one counterexample disproves my point.

venividivici on March 15, 2009 at 7:21 PM

Yes, which we have discovered repeatedly since; the 1970s practically gives a how-to on that lesson. So why do politicians intervene? Two reasons. They have to answer to constituents who collectively understand economics very poorly. That pushes politicians to think that, in Mel Brooks’ immortal words, they have to do something “to save their phony-baloney jobs”.

*sigh*

Yep.

We can blame the politicians ’til the cows come home. Ain’t gonna change a thing.

Until the general public understands fully the import of the American Revolution, the original intent of the Constitution, basic economics, and that capitalism is simply the natural extension of individual liberty, we’ll continue to breed snakes, charlatans, and prostitutes in Washington.

And to think that we’d need a couple of economics professors to point out the obvious…

reminds me of a sign I saw the other day in a public restroom:

“These are low flow toilets, please hold the handle down longer than normal.”

Saltysam on March 15, 2009 at 10:38 PM

Geez Ed-
This is NEWS? I’ve been posting about an article “Great Myths of the Great Depression” here in Hot Air and in chat on your ustream show for a year or more.
It shows that the Fed Res brought on Black Tuesday, then Hoover and FDR and Congress took a market correction and made it a recession then took it to a depression and made that into the Great Depression.
And we never, ever learn.
And listening to Austan Goolsbee (WH Council Econ Advisors) on Fox News Sunday we are all SKRUED!

Amendment X on March 15, 2009 at 11:26 AM

And a very useful article it is, too. I’ve passed it on to a few others, including one woman with a High School age son who had gotten interested in the subject.

Well worth reading, and redistributing.

ThereGoesTheNeighborhood on March 16, 2009 at 12:55 AM

bayam on March 15, 2009 at 2:20 PM

Um, what? Very little governmental intervention? In the single most corporatist period in our existence you’re suggesting that it was a period of little governmental involvement in the economy? In a period of time where massive businesses kept most of the political establishment in their pockets, and subsequently when tariffs pushed an average of 40%, very little intervention? A different sort of intervention, perhaps, but it would baffle me if you were to suggest that there was very little intervention of any kind.

If a government is to be effective as an activist in the economy it has to be apolitical, or else under the best of circumstances the economy enters a political business cycle, or in the worst of circumstances (like ours) it becomes completely self destructive. Detaching trade from supply and demand causes recessions, and detaching trade from supply and demand is all that an activist government can do. It can trick you in the short run how much money is worth, it can keep better goods from competing with you in the short run, it can borrow money from foreign countries and spend it domestically, but all of this is short term, even Keynes knew this. Our fiscal and monetary policy has been absolutely retarded, there is no way of explaining that away, nor is there a way to argue that it’s anything short of pure naivity to believe that a government can be apolitical and technocratic enough in managing fiscal and monetary policy to ever use things like central banks and deficit spending with the responsibility and moderation necessary to never cause the disasterous recessions we’ve experienced twice in the 70’s, twice in the 80’s, and the one we’re going through right now. Balanced budgets and a basket of commodities backed currency are the only things that government can realistically handle, and if you think otherwise I’ve got a bridge to sell you in San Francisco.

galenrox on March 16, 2009 at 3:27 AM

Who is John Galt? A very mysterious person wrote in 1997 that “all paper will burn” and I find it hard to disagree that that what we are seeing is an indication that it has started. Accounts can not be rolled forward forever, just like housing prices can’t soar forever. A debt based global society needs a transparent clearing mechanism and because it is long overdue, it is painful. The wrong intervention in this process can make it much worse.

rhodeymark on March 16, 2009 at 6:16 AM

Obooba doesn’t think for one minute that anything he’s doing is going to help the economy. What he’s doing is designed to destroy our capitalist economy, independence, and basic freedoms. Check it out.

Akzed on March 16, 2009 at 9:11 AM

They have to answer to constituents who collectively understand economics very poorly. That pushes politicians to think that, in Mel Brooks’ immortal words, they have to do something “to save their phony-baloney jobs”.

Reminds me of last year, and Allahpundit supporting McCain and castigating those of us who oppossed the bail-out on the grounds that it was more important that the ignorant masses see the Republican party as trying to do something, rather than worrying about trying to do the right thing.

MarkTheGreat on March 16, 2009 at 10:08 AM

Oh, crud.

Quote of the day.

ladyingray on March 16, 2009 at 10:56 AM

UCLA on FDR, stimulus packages in 2004

Deja vu in a nutshell:
1930s and FDR = Failures
2009 and Barry Soetoro = Failures

byteshredder on March 16, 2009 at 11:27 AM

Old news, Rothbard knew this 35+ years ago.

Tim Burton on March 16, 2009 at 12:23 PM

Surely someone prior to 2004 noticed FDR prolonged the recession of 1931-33 by 12 years due to idiotic policies.

angryed on March 15, 2009 at 8:09 AM

There have been a number of studies that reached the same conclusion. It has also been common wisdom amongst most economists for many years.

The problem is getting the truth past the gatekeepers of our culture, the teacher’s unions, the MSM, etc.

MarkTheGreat on March 16, 2009 at 2:26 PM

Tried clicking on the linked text in Ed’s comments above, but it continually times out. Can someone check to see if its still a valid link please?

Here’s the actual path.

http://www.newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?

44Magnum on March 16, 2009 at 2:31 PM

Never mind. Its working now.

Oy!

44Magnum on March 16, 2009 at 2:32 PM

i thought we didnt trust academics. especially from UCLA.

ernesto on March 15, 2009 at 10:25 AM

Nice use of strawman there. You must practice a lot to get that good.

1) It’s not academics we distrust, it’s left wing academics.
2) When a left wing academic gets something right, and has the courage to publish that fact, it’s noteworthy.

MarkTheGreat on March 16, 2009 at 2:35 PM