Saturday, January 3, 2015

FDR and the hodgepodge story

From Try Everything by Brad DeLong:
When it became clear in late 2008 that the global economy was headed toward a crash at least as dangerous as the one that had initiated the Great Depression, I was alarmed, but also hopeful. We had, after all, seen this before. And we also had a model for how to mitigate the damage; unfortunately, policymakers left it on the shelf.

For three and a half years following the start of the Great Depression, US President Herbert Hoover’s top priority was to balance the budget, trying – but ultimately failing – to restore business confidence. In 1933, newly elected President Franklin D. Roosevelt changed course, adopting a simple yet radical strategy: try everything that might boost demand, increase production, or reduce unemployment – and then keep doing the things that work.

Roosevelt abandoned attempts to balance the budget, increased the money supply, and initiated deficit spending. He took the United States off the gold standard, had the government hire workers directly, and offered loan guarantees to those in danger of losing their homes. He cartelized the oil industry and instituted aggressive antitrust policies to break up monopolies.

Brad DeLong's model of what FDR did is a hodgepodge. FDR tried everything, DeLong says. I've seen that story before. But I have trouble with the hodgepodge story.

Oh, I don't deny that FDR did all sorts of things. "Bold, persistent experimentation" he called it, if I remember my Leuchtenburg. But it was no hodgepodge.

FDR did one thing. He reduced the debt-per-dollar ratio.

The turning points shown on this graph at 1933 and 1947 correspond remarkably with the beginning and the end of the FDR administration.

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