Go to www.testandtrace.com 🐇+ Your Authors @Noahpinion Bloomberg Opinion writer. Writes about economics, tweets about rabbits. Doesn't actually look like William Butler Yeats. May. 15, 2020 1 min read + Your Authors

1/Today's @bopinion post is about the New Deal.

Some folks, like @benshapiro, claim that the New Deal prolonged the Depression. They are wrong.


2/Shapiro and other New Deal revisionists tend to base their arguments on the research of economists Harold Cole and Lee Ohanian.

But, as many other economists have pointed out, Cole and Ohanian's research is not right.


3/Cole and Ohanian base their arguments on Real Business Cycle theory. But this theory has been generally debunked as a description of economic fluctuations.


4/The Great Depression did not result from a slowdown in technological progress, as RBC theory would have us believe cause all recessions.


5/So how did the New Deal help get us out of the Depression? The first way was by getting us off the gold standard, in 1933.


6/In addition to providing needed monetary stimulus, abandoning the gold standard and declaring the policy objective of price reflation probably boosted confidence.


7/Fiscal policy's impact was more muted, since FDR was actually very cautious about deficit spending.

But as economist Price Fishback writes, “public works and relief spending…increased consumption activity".


8/A large payment to veterans in 1936 stimulated some spending as well.


9/In general, the problem with the New Deal's fiscal policy was that it *didn't go far enough*. The turn to austerity in 1937 was especially damaging. But overall, it did help relative to what Hoover was doing.


10/How about the New Deal's microeconomic policies? Many now agree that the National Recovery Administration, which supported monopoly power as a way to raise prices and profits for business, was a mistake. But the NRA may have helped fight deflation.


11/So even the New Deal's worst mistake might have had some positive macroeconomic side effects.


12/Overall, the case is clear: The New Deal helped America out of the Depression, even if it didn't go far enough.

Don't listen to the revisionists.



You can follow @Noahpinion.


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