Courtesy of Larry Eubanks of the University of Colorado/Colorado Springs et al, a picture of where this past year fits in the history of markets.
For some reason I have the Schechters on the brain. They are the family of chicken butchers who stood up to the New Deal. I’m also teaching them this week in my NYU class. My Schechterism is shared by least one reader, an Austrian, apparently. Thank you, Austrians. I’m gaining more respect for you every day. I can feel myself turning into an Austrian.
Paul Krugman responds to both THE FORGOTTEN MAN and a Bloomberg column that I wrote recently. He’s contesting the smallest of details in a very general picture of the period — TFM is a panorama book, not a data book. Nonetheless, in the spirit of debate, it seems worthwhile to address his questions:
George Will is being attacked for pointing out that net domestic private investment was negative at many points in the 1930s. But as Russ Roberts points out, George is right.
Why do we care? Because negative net domestic private investment in human language says:
“we have no hope.” And that was the attitude of business in much of the 1930s. Those New Yorker cartoons of people crying into their drink at their second home were accurate. They were not creating jobs.
Over at the Arizona Republic, Doug MacEachaern suggests it is humiliating for conservatives such as yours truly to in turn suggest that Democrats might conceivably cut top taxes. He says we are begging.
I just don’t think tax cutting or ending tax increase plans are impossible. Democrats went along with such a tax cut under President Clinton, the capital-gains tax cut. Over in the UK, this very weekend, Gordon Brown of Labour is busy announcing a Christmas package of stimulative tax cuts. It should not be totally excluded that Democrats here might drop some of their most egregious tax increases, including those that hit the wealthy. Economic circumstances are different enough today to change the conversation.
For some reason the debate around the top levels of unemployment in the 1930s has been particularly hot. The question has been whether you take the official data, as John Kenneth Galbraith did in his Great Crash book and the federal government has (“Lebergott”) or whether you also count the part-time make work jobs of the New Deal. Even if you include those you get unemployment rates we would find incomprehensible — over ten percent, lots of the time. It’s hard to see therefore why many observers have therefore spent so much energy on that. Eric Rauchway, whose own book is pretty good, for some reason feels very defensive about all this. Rauchway’s book I’ve listed in my NYU Stern School course. He’s even criticizing Jon Stewart.
I’ve had my hesitations about fooling around with the make-work New Deal jobs. One reason is that they were often jobs for just a few months. We are not talking about jobs teaching school, but rather true project-to-project tasks.
On the question of the reason for the unemployment, as opposed to the precise datum, I recommend Richard Vedder . Vedder early on, in Out of Work explained that unemployment of the 1930s was probably due to unusually high wages. Read: Wagner Act. NRA. Boosterism. Fordism.
But the big issue: was the unemployment under Hoover and FDR truly severe? Maybe it is time for another measure. Lee Ohanian of UCLA looks at the whole problem by different data and finds the answer is truly clear.
…. with the high quality of their posts on the Great Depression debate. MR’s Alex Tabarrok et al really get into the topics.
I see that at the Atlantic Megan McArdle’s discussion includes some queries on the importance of Higgsian regime uncertainty. This is the theory that says the very discretion that Roosevelt derived from his landslide in 1936 scared markets. They just didn’t know what the president would do next.
For me the most convincing part of the regime uncertainty argument for the later 1930s is that the people of the time believed it.
To wit, an example from a headline in the New York Times of Oct 23, 1937:
Capital ‘Strikes’ Laid to Tax Laws; W. O’Neil, Head of General Tires, Says They Explain Present Business Uncertainties; Cites Labor Agitation
Over at Carpe Diem host Mark Perry has two revealing graphs on the marginal tax rate that TFM confronted in the Great Depression. Prof Perry (University of Michigan/Flint) has both top marginal rates and lower rates. In this period the income tax was not a “mass tax” it was a “class tax” but what you can see from this is that just about anyone beginning to succeed paid and paid.