There’s a fairly constant debate in American politics– how the New Deal impacted the economy during the Great Depression. Did the New Deal help the recovery, have no effect, or extend the Depression? Those on the left generally believe the New Deal helped improve the economy while those with a more market friendly orientation believe it extended the depression.
This debate was recently reignited by a Ben Shapiro tweet.
Mr. Shapiro’s tweet linked to a Wall Street Journal op-ed by economists Harold Cole and Lee Ohanian talking about their seminal paper on the Great Depression. Their paper found New Deal labor policies held back economic recovery by seven years. Mr. Shapiro’s tweet incited a ruckus as progressive Twitter clutched their pearls. “How could any reasonable person believe such crazy revisionist history! The New Deal clearly saved the economy!” Except there is lots of evidence for the position– even ignoring the research of Cole and Ohanian. For example, per capita GDP did not return to trend until after 1940. This evidence is reflected in the opinion of economists. Half either fully agreed or agreed with reservations that the New Deal– on the whole– worsened the Great Depression.
A few weeks later Noah Smith added onto the debate with a column responding to the research of Cole and Ohanian. He characterized their research as “revisionist” and a “minority view”. Mr. Smith’ argued that Cole and Ohanian was based on questionable New Classical theory and hence could be dismissed. Of course, he was wrong.
Nine days later, Mr. Ohanian responded on Twitter. He pointed out Mr. Smith’s argument was patently false. The economic model employed by Cole and Ohanian was “light-years” different from New Classical theory. When you actually look at the paper’s findings, I’m not sure what about it would be a “minority view”– outside the magnitude of the effect which can be debated. Who are the economists that think labor cartels help or have a neutral effect on an economy? As Mr. Ohanian notes, their paper is the only paper that explains “why labor remained so depressed until WWII, despite end [sic] of deflation, low real interest rates, and stabilization of banking system [sic] , all in 1933.”
The New Deal and Great Recession are extremely complex topics– over 70 years later and we are still debating them! The New Deal consists of a variety of policies– some good and others bad. Painting the entire program with a single brush stroke is flawed and pretending it was unquestionably successful is obviously wrong.
Debunking Progressive Cliches, Entry 1: “We need more Democracy”
Debunking Progressive Cliches, Entry 2: “Cuba is actually really good”
Debunking Progressive Cliches, Entry 3: “America was never great”
Debunking Progressive Cliches, Entry 4: “Conservative Justices are so partisan”
Debunking Progressive Cliches, Entry 5: “Socialism can be democratic”