Friday, February 20, 2009

Lehigh update

Readers of this blog may recall that earlier this week I wrote about Scot Lehigh's column in the Boston Globe that attempted to defend the New Deal, which I found rather unconvincing. I also included the contents of a brief email he sent to me.

Today I received a follow-up, which said the following:
I've had so much response to my recent column on the New Deal that I wanted to send around a longer piece by Bruce Bartlett, who worked at treasury at the end of the Reagan administration and during George H.W. Bush's administration. If one is interested in this topic, his analysis is well worth reading. (I apologize for the group-list nature of this email.)


I had actually already read this column, which was featured on realclearmarkets some days ago, and was familiar with its contents. Essentially Bruce Bartlett argues that the New Deal failed because budget deficits were too small under FDR.

I really don't know what to make of this given that Bartlett argues from the perspective that the New Deal was a failure while Lehigh attempted to defend it. Has Lehigh now changed his mind? Or is he oblivious to the fact that the very column he is now citing takes issue with his central thesis that the New Deal worked?

Update: I emailed Lehigh to ask him the above questions and he responds:
I think I said it was a success but a limited success, no? That one criticism is that it was too small a stimulus? And that the war, economically speaking, can be seen as a bigger stimulus?
It's true, at the conclusion of his column he did say these things, ultimately calling the New Deal a "success, but a limited one" and stating that "reality also argues for the efficacy of Keynesian remedies; economically, the war constituted a huge government stimulus, financed by massive deficit spending."

As I wrote to Lehigh in my response, to even call the New Deal a limited success one has to demonstrate that unemployment went down by an amount than would otherwise be the case if nothing was done. Also, separating the impact of government spending from unemployment and economic recovery is difficult to do since so much of the New Deal was much more than simply shoveling money out the door.

Quite simply the New Deal was a massive government intervention in the economy. If the government had simply spent a bunch of money to hire people to plant trees and build bridges that would be one thing, but that's not the case.

Indeed, the first New Deal of 1933 included the establishment of the National Recovery Administration. This is how wikipedia describes the NRA:
The NRA allowed industries to create "codes of fair competition," which were intended to reduce "destructive competition" and to help workers by setting minimum wages and maximum weekly hours. It also allowed industry heads to collectively set minimum prices. In 1935, the United States Supreme Court unanimously declared the NRA as unconstitutional in the court case of Schechter Poultry Corp. v. US, on the grounds that it violated the Constitution's separation of powers.[1] The NRA quickly stopped operations, but many of its labor provisions reappeared in the Wagner Act of 1935.
Clearly this is a government means of reorganizing the economy. Other key elements of the New Deal include the establishment of Social Security, the Federal Housing Administration, the Securities and Exchange Commission and Fannie Mae.

Lehigh uses the New Deal as a justification for Obama's spending spree -- even though he can only bring himself to call it a limited success -- but I am increasingly wondering if he even knows all that the New Deal really was.

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