FDR's failure, Obama's opportunity

How many times does Amity Shlaes' revisionist history of the New Deal have to be refuted for the Post to stop publishing her? This is kinda, as they say in poker, The Tell:

But Roosevelt the economist is unworthy of emulation. His first goal was to reduce unemployment. Of his own great stimulus package, the National Industrial Recovery Act, he said: "The law I have just signed was passed to put people back to work." Here, FDR failed abysmally. In the 1920s, unemployment had averaged below 5 percent. Blundering when they knew better, Herbert Hoover, his Treasury, the Federal Reserve and Congress drove that rate up to 25 percent. Roosevelt pulled unemployment down, but nowhere near enough to claim sustained recovery. From 1933 to 1940, FDR's first two terms, it averaged in the high teens. Even if you add in all the work relief jobs, as some economists do, Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice -- as a nightmare.

So, unemployment is reduced from 25% to just over 10%. That's some kind of failure. And, as the above link shows, she doesn't count emergency relief work, so called "make-work jobs."

She writes that the depression should have ended by 1936 instead of 1940, but we know that it was the success of FDR's programs through 1936 that led to his decision to try to reduce the deficit, thus stopping the steady rise of GDP. Something she later admits, but again positions it as a failure of FDR's overall plan, rather than a mistake that was probably inevitable since FDR was performing Keynesian experiments before Keynes' General Theory had even been published.

In other words, FDR was simply not bold enough, as David Leonhardt writes in the article you should read today.

The economy will recover. It won’t recover anytime soon. It is likely to get significantly worse over the course of 2009, no matter what President Obama and Congress do. And resolving the financial crisis will require both aggressiveness and creativity. In fact, the main lesson from other crises of the past century is that governments tend to err on the side of too much caution — of taking the punch bowl away before the party has truly started up again. “The mistake the United States made during the Depression and the Japanese made during the ’90s was too much start-stop in their policies,” said Timothy Geithner, Obama’s choice for Treasury secretary, when I went to visit him in his transition office a few weeks ago. Japan announced stimulus measures even as it was cutting other government spending. Franklin Roosevelt flirted with fiscal discipline midway through the New Deal, and the country slipped back into decline.

This is an opportunity, Leonhardt writes, to correct FDR's mistake and to invest in our nation's infrastructure in ways we haven't since immediately after WWII.

ONE GOOD WAY TO UNDERSTAND the current growth slowdown is to think of the debt-fueled consumer-spending spree of the past 20 years as a symbol of an even larger problem. As a country we have been spending too much on the present and not enough on the future. We have been consuming rather than investing. We’re suffering from investment-deficit disorder.

You can find examples of this disorder in just about any realm of American life. Walk into a doctor’s office and you will be asked to fill out a long form with the most basic kinds of information that you have provided dozens of times before. Walk into a doctor’s office in many other rich countries and that information — as well as your medical history — will be stored in computers. These electronic records not only reduce hassle; they also reduce medical errors. Americans cannot avail themselves of this innovation despite the fact that the United States spends far more on health care, per person, than any other country. We are spending our money to consume medical treatments, many of which have only marginal health benefits, rather than to invest it in ways that would eventually have far broader benefits.

Along similar lines, Americans are indefatigable buyers of consumer electronics, yet a smaller share of households in the United States has broadband Internet service than in Canada, Japan, Britain, South Korea and about a dozen other countries. Then there’s education: this country once led the world in educational attainment by a wide margin. It no longer does. And transportation: a trip from Boston to Washington, on the fastest train in this country, takes six-and-a-half hours. A trip from Paris to Marseilles, roughly the same distance, takes three hours — a result of the French government’s commitment to infrastructure.

These are only a few examples. Tucked away in the many statistical tables at the Commerce Department are numbers on how much the government and the private sector spend on investment and research — on highways, software, medical research and other things likely to yield future benefits. Spending by the private sector hasn’t changed much over time. It was equal to 17 percent of G.D.P. 50 years ago, and it is about 17 percent now. But spending by the government — federal, state and local — has changed. It has dropped from about 7 percent of G.D.P. in the 1950s to about 4 percent now.

The daunting trouble is, Leonhardt continues, is that there is often a friction between short-term stimulus and long-term growth, nowhere better illustrated than in the investment in "green" energy technology and raising the cost of carbon-based fuels and the effect that that will have on coal mining and oil exploration in this country.

And, of course, there is a Republican Party (and a few Blue Dog Democrats) who are biologically opposed to federal investment into any technology that doesn't involve blowing things up. Worse, many of them just want the Obama administration to fail.

UPDATE: More on Shlaes inchoherency from Dean Baker.