Beyond gray photographs of bread lines and barren prairies, the Great Depression conjures an image of a line bending downward. Sharply at first, then painfully flat and prolonged. Whether the line signifies social well-being, the country's standing in the world, or simply economic growth isn't important - the measure of our worth felt then and feels now to have diminished. And that feeling runs contrary to America's national character.
It's no surprise then that the Great Depression has become a common trope of today's political debate. Nor is it surprising that both sides disagree about what the lessons of that time are. What confounds is that both sides make the same argument while still disagreeing on the core lessons of the era.
This non-agreement agreement stems from the Depression's million dollar question. Which is of course: what ended it? If we know how we got out of the last hole, maybe we can find a similar path this time around. [What caused the crash in 1929 is also a point of major debate, but the cause of our current rut has a more distinct explanation.]
To one party, the Great Depression was ended through government spending, while to the other side it was ended through, well, government spending.
The era's major government enterprise of course was Roosevelt's New Deal, a huge undertaking of public finance aimed at shrinking unemployment and investing in a strong infrastructure base. This undertaking is the classically 'liberal'/Democrat position on what ended the Depression. Composed of various acronym-heavy programs like the CCC, WPA, TVA, and others, the New Deal took to heart a central view of economist John Maynard Keynes: that consumers and employees are one in the same.
The circularity of that thought explains the core of what is referred to as 'Keynesian' or 'Demand-Side' Economics. If circumstances lead firms to lay people off, those people have less income to spend, which in turn means less sales for the firms and a subsequently worse employment landscape. According to Keynes, this decline in 'aggregate demand' could be temporarily boost by government spending and the economy could be lifted from this vicious cycle. While the view requires a somewhat closed system, either economy-wide or firm-wide in the case of Ford, it also provides a powerful perspective on the Great Depression and offered the central underpinning of the New Deal.
So, did it work? Did the New Deal end the Great Depression?
Well, it's unfortunately not terribly clear, though the recession didn't end until nearly the nation's entrance into World War II. In fact, that very timing of the recession's end (and our post-war prosperity) informed the typical conservative/Republican position that the war ended the Depression. Whether or not it directly managed to do so requires a longer, less straightforward parsing out (the state of which Megan McArdle summarizes succinctly in a 2009 article).
The academic debate continues today however. The former chief economic advisor in President Obama's CEA, Christina Romer, wrote an influential paper which argued that the strong annual growth rates (8% from 1933-1937, 10% from 1938-1941) were due to aggregate demand stimulus, but the source was more monetary than fiscal. Gold inflows, in particular, played a huge role given their major impact on interest rates. Ben Bernanke, the current Chairman of the Federal Reserve and a Republican appointed by President George W. Bush in 2006, also focused much of his research on the Great Depression. The unfortunate problem of studying the Great Depression is its huge scope and unique circumstances - any phenomenon that rarely repeats itself is tough to understand on its own. Factors like commodity prices, international competitiveness against a Europe focused on war, as well as the simple passing of time post-crash all complicate the question tremendously.
The academic middle, that unsatisfying gray area of probabilities and causal tests, is not comfortable territory for a politician on either side of the aisle. And so, if you're a Democrat, we need another New Deal today. If you're a Republican, the Great Depression was ended by World War II and not a Washington dole, so we should shrink government rather than grow it.
In the end though, both methods boil down to the government spending more cash. Unless there is something uniquely magical about dollars spent on military goods rather than on infrastructure goods, the WWII-as-Depression-ender position is effectively a Keynesian argument, much to the right's chagrin. Rick Perry for one is without question in that contradictory camp. In his book, Fed Up!, he writes that: "Recovery did not come until World War II, when FDR was finally persuaded to unleash private enterprise."
The quote comes from a section where Perry excoriates the New Deal (as a preamble to the Social Security volley that's gotten him in so much trouble). More importantly though, he doesn't detail what 'unleashing' private enterprise means when the economy's issue wasn't an overly strong public sector, but rather a weak private one. The particular irony of the line is that 'unleashing' the private sector practically meant a growth in government spending. War demanded not only planes, guns, and uniforms, but also that the hinges of industry turn to the US military's needs. Maytag factories that once built washing machines instead assembled bomb components. Chrysler plants that once made luxury sedans instead rolled out Sherman M4 tanks.
And all these new factory lines led to one solitary customer: Uncle Sam.
Ultimately, war spending and the New Deal both amount to government spending. Their direct ends, defending against authoritarianism and building a foundation for growth, are Keynesian efforts but need not be valued only on their merits as economic policy. The value of entering World War II is apparent, but given a somewhat beaten reputation these days, it's good to remember what the New Deal gave us.
As Michael Hiltzik, the author of the new book The New Deal, writes in a illustrative passage:
"The New Deal physically reshaped the country. To this day, Americans still rely on its works for transportation, electricity, flood control, housing, and community amenities. The output of one agency alone, the Works Progress Administration, represents a magnificent bequest to later generations. The WPA produced, among many other projects, 1,000 miles of new and rebuilt airport runways, 651,000 miles of highway, 124,000 bridges, 8,000 parks, and 18,000 playgrounds and athletic fields; some 84,000 miles of drainage pipes, 69,000 highway light standards, and 125,000 public buildings built, rebuilt, or expanded. Among the latter were 41,300 schools."
Today's recession exists in a climate of long unemployment rolls, cheap credit, and crumbling infrastructure. The opportunity for Keynesian policy is and was ample, no matter how toxic it may be in Congress. Willfully ignoring the reality of the situation and the reality of past lessons is plain crazy, a word that itself actually used to describe recessions.
The Great Depression's image of a slumping line, like a 'depression' in the ground, actually wasn't the term's original meaning. 'Depression' was a piece of 1930's political framing meant to spin the recession in a more positive light. Markets then were seen to operate by irrational mood swings that every so often devolved into 'panics.' Think: "Panic of 1873!" and the like. If the economy typically has panicky bouts of madness, then being only depressed was considered an improvement.
These past eras of hardship often sound bygone and almost quaint, their stark images graying into the reductive realms of quiet nostalgia. Nonetheless, they represent a time when the economic and political forces that governed our lives seemed fundamentally divorced from reality. Far off as those times may be, that brand of madness doesn't sound too distant these days.
Photo credits: Flickr Creative Commons, United States Library of Congress