Last weekend on ABC's Sunday morning talk show George Will, commenting on the Obama administration's promise to create a new "New Deal", opined that the first New Deal, rather than bringing America out of the Great Depression, actually exacerbated it by discouraging capital investment necessary to generate economic growth. Nobel prize winning economist turned partisan hack, Paul Krugman, was there to contradict Will and argue that investment actually rose through the New Deal years so the New Deal actually worked. Democrats immediately seized on the exchange as evidence that conservatives just don't know what they are talking about and are misrepresenting the nation's economic history.
Actually, it was Krugman not Will, who was misinterpreting the past. Russell Roberts, over at Cafe Hayek explains that, while in a very narrow sense Krugman is correct -- both gross and net investment rose after 1932 when FDR was elected to his first term -- but the larger picture tells a very different story.
Will is right on what matters. The sum of all investment in the 1930s is NEGATIVE. (You can see that by looking at the graph [above] and noting that the area below the zero line is much greater than the area above it.) That is, the positive years don't make up for the negative years. Net investment in the 1930s is negative. That is, gross investment between 1930 and 1939 does not make up for depreciation. It's not even close. Will is right--the investment climate in the 1930s was lousy.
So score one for George [the insufferable twit] Will and note that once again Paul Krugman has used his considerable economic skills to support a liberal narrative that is, in the end, a gross and self-serving distortion of the nation's history.
Read Roberts' piece here.
Researchers at UCLA just released findings of a study that blames FDR's policies for prolonging and deepening the depression.
Cole and Ohanian calculate that NIRA [National Industrial Recovery Act] 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.
"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"
"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."
Read the whole thing here.
Note: Nobel laureates are lining up on both sides of the question. We are constantly told to trust the judgment of the "experts", but when the experts cannot agree on the fundamentals, and when their judgment is clearly shaped by partisanship, what is the layperson to do?