Sunday, January 30, 2005

It Wasn't That Great

Daniel Gross's latest piece in Slate, mostly on the Great Depression, repeats a lot of conventional wisdom. I may be imagining this, but I sense a tone of desperation, as if he realizes his arguments are getting less conventional and not considered so wise anymore.

Gross claims FDR was handed an economy in shambles from 12 years of Republican laissez-faire rule, and he saved it through greater regulation. (12 years? Shouldn't he at least give the system credit for 8 good years before the crash?)

We'd had panics before, so the question is why did this one turn into a depression? In fact, the Hoover years were not laissez-faire--he tried all sorts of things--taxes, tariffs, make-work programs--which helped turn the panic into a lengthy and deep recession. Then Roosevelt took over and was able to turn a depression into a double-dip depression.

Gross apparently thinks he's made an important point when he notes that gross domestic product grew 90% from 1933 to 1941. Exactly how hard is it to grow at such a rate when you start from the historically lowest point imaginable? The GDP had been dropping from 1929 to 1933, and had nowhere to go but up. To put it another way, GDP from 1929 to 1936 had no growth, but simply dug a hole then climbed out. (And the GDP dropped again from 1937 to 1938. Thanks, Franklin.)

Gross mocks those who think "new taxes and regulation...inevitably hamper economic growth." Leaving aside the strawman "inevitably" and the specific regulation involved, I don't see how he's shown this generally isn't true. The trouble is there are thousands of things acting on the economy at any time. New taxes and regulations only play a part--often a small one--in the overall picture. Business cycles normally work their way out of recession, so anything anyone in charge does at the time can then be given credit for what would have happened anyway.

Gross will go on upholding the conventional wisdom, but I think he's attending the wrong convention.


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