Thursday, November 1, 2012

A Challenge to the Obama Narrative of 20th-Century Economic History

According to Brian Domitrovic, the chair of the history department at Sam Houston State University, Barack Obama needs a lesson in economic history.  Here is a taste of his piece at Forbes with some of my thoughts interspersed.

“Governor, when it comes to our foreign policy, you seem to want to import the foreign policies of the 1980s, just like the social policies of the 1950s and the economic policies of the 1920s.” So said President Obama to his Republican challenger Mitt Romney, in the debate last week.

How odd all of this is. The foreign policy of the 1980s was stellar. It ended the Cold War, one of the singular accomplishments in the history of American leadership.

As for the social policies of the 1950s, lest we forget, these were precisely the ones so progressive and overbearing that they convinced Ronald Reagan to launch a career in politics. Federal spending on “Human Resources,” as the government calls it, on health, education, “income security,” and the like went up 95% in real terms from 1949 to 1960.

Reagan watched the march of federal do-goodism in the 1950s and felt compelled to push on from his job at General Electric and look for a foothold in politics. Reagan explained as much in his political debut, his noted speech at the 1964 Republican convention, “A Time for Choosing.”

Then there are “the economic policies of the 1920s.” Which would be the economic policies that accompanied the single most celebrated decade of American prosperity of them all.

Just a couple of thoughts/questions:

1.  I largely agree with Domitrovic when he says "the foreign policy of the 1980s was stellar. It ended the Cold War, one of the singular accomplishments in the history of American leadership." But we are not fighting the Cold War anymore.  I think that was Obama's point.

2.  On the 1920s:  Didn't some of these economic policies lead to the Great Depression?


Tom Van Dyke said...

On the 1920s: Didn't some of these economic policies lead to the Great Depression?

The argument is that both Hoover and FDR overreacted to the Crash, and while much of the world recovered from it in a timely fashion, the US prolonged it with misguided government intervention.

In her meticulously researched new history of the Depression, The Forgotten Man (HarperCollins), journalist Amity Shlaes describes the received catechism of the era:

“Roosevelt made things better by taking charge. His New Deal inspired and tided the country over. In this way, the country fended off revolution of the sort bringing down Europe. Without the New Deal, we would all have been lost.…

The attitude is that the New Deal is the best model we have for what government must do for weak members of society, in both times of crises and times of stability.”

But that conventional account, she writes, fails to capture “the realities of the period.” Shlaes shows how both Hoover and Roosevelt “overestimated the value of government planning” and intensified and prolonged the very problems they were seeking to fix.

James LaGrand said...

To piggy-back on the post above, the question of what caused the Great Depression is quite complex.

John, you’re drawing on the structuralist interpretation of the Great Depression, advocated by many in Roosevelt’s administration, by economists like J. K. Galbraith and historians like Schlesinger, and seemingly by Obama. This view sees the main problem as maldistribution of purchasing power in the 1920s. But this isn’t the only convincing explanation. There’s also a strong case for the monetarist interpretation of the Depression mostly famously offered by economist Milton Friedman. He argued that New Deal policies were either irrelevant or counter-productive (similar to Shales recently), and that expanding the money supply would have reduced the effects of the Depression. Finally, there’s a third major interpretation that points to a lack of economic diversification and not any policies. The crash came at just the wrong time--right in the middle of the transition from a durable goods economy to a consumer economy. Several economic historians, including Michael Bernstein, see this as the key factor.

In any case, the historical question of what caused the Depression remains quite open.

Joshua Wooden said...

Tom, you're not thinking of the economic policies of the 20's - those are the economic policies of the 30's. The economic policies of the 20's are the ones that led to the boom, and in turn, to the bust, in the first place.

The response may very well have been misguided, but the deregulation or poorly managed regulation of the markets are generally the agreed upon understanding for the bust, no?

James LaGrand said...

The answer to your question is in fact no. Among economic historians, there is no "generally agreed upon understanding" about the causes of the Depression that focuses exclusively on structural factors such as unregulated markets. If you're interested in learning more about this, there's a long list of books you can consult including Friedman (1963, etc.), Bernstein (1987), and Shlaes (2007), among others.

Tom Van Dyke said...

Thx for asking Joshua. My point would have been---and this is not an area of my expertise---that the Crash of 1929 need not be synonymous with the onset of the Great Depression.

Some argue that it was Hoover and FDR's meddling that caused it and perpetuated it, The Fed under Hoover by strangling the money supply and FDR's soup-to-nuts statism.

Me, I don't know, but it seems a viable argument.