The Definition of InsanityPaul Krugman's
description of the New Deal is so simplistic it doesn't even make sense to call it wrong.
About the New Deal's long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation's economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn't insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security.
A common fallacy. "If the government isn't doing it, no one will." The very existence of credit default swaps, which are one of the biggest issues in this whole mess, is a strong counterexample.
Krugman ignores the fact that our govenrnment's excessive willingness to bail out failing companies likely contributed to the severity of this crash. When people don't think they'll have to pay for their mistakes (and why would they, given the $700 billion we just allocated to save them the trouble), they start taking greater risks. No surprise.
Now, there's a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it's important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.
Roosevelt did make the Depression worse, as Krugman describes later on in his own damn article. Here is another huge mistake which the great French economist Frédéric Bastiat called the "broken window fallacy". It is true that the New Deal helped most Americans, but that tells us nothing about what it cost. If we bought most Americans a brand new house, that would indeed qualify as "real relief." But as we've noticed, giving everyone a house has had some drastic consequences for our economy, and by the end of all this it will have hurt everyone more than it helped. Krugman is ignoring these unseen costs.
That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the '30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful "not because it does not work, but because it was not tried."
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My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It's much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.
In short, Mr. Obama's chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.
Is there any limit to how much we can help the economy? Hell, why do we only talk about helping the economy when things are going badly? Why can't the government just print trillions of dollars every year, thereby stimulating constant and permanent growth?
We can't do that, because laws can't create wealth. Only people create wealth, and laws just move it around. Japan tried printing money, and look where it got them. The USSR was full of "boldness" and "audacity." That wasn't their problem. Their problem was that they wanted something for nothing, a quick fix, and a free lunch. There is no such thing.
