It’s been a perennial argument on BC Politics as to what were the causes of the Great Depression and why it lasted so long. The conservatives blame FDR and the liberals defend him. So I decided to look again, and I found a few interesting, indeed disturbing, parallels between the political worlds of then and now.
Now most of us realize that the Great Depression was actually a double-dip depression. We were largely out of it by 1936 with the implementation of FDR’s New Deal. Here’s a description of what drove the initial recovery…and why it didn’t last:
The common view among mainstream economists is that Roosevelt’s New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt’s words and actions portended. However, opposition from the new Conservative Coalition caused a rollback of the New Deal policies in early 1937, which caused a setback in the recovery.
Hm. A “new” political coalition, and a conservative one at that, forced a rollback of New Deal policies. What kind of conservatives were these who belonged to this
In the United States, the conservative coalition was an unofficial congressional coalition bringing together the conservative majority of the Republican Party and the conservative, mostly Southern, wing of the Democratic Party. It was dominant in Congress from 1937 to 1963 and remained a political force until the mid 1980s, eventually dying out in the 1990s.
Okay, so they were the conservative wing of Congress, and this was in the days when there were liberals and conservatives in both parties. But what kind of policies did the Conservative Coalition support? Well it was something called a “Conservative Manifesto” issued by one of the leaders of the CC. It called for the following:
1. lowering taxes on capital gains and undistributed profits,
2. reducing government spending and balancing budgets,
3. restoring peace to the relationship between labor and industry,
4. resisting government competition with private enterprise,
6. protecting collateral as a prerequisite for credit,
7. reducing taxes,
8. maintaining states’ rights,
9. aiding the unemployed in an economical and locally responsible manner, and
10. relying on American free enterprise.
Now these are rather sugar-coated as political statements and goals are wont to be, because the earlier reference to the Conservative Coalition states that the Manifesto included several statements of conservative philosophical tenets, including the line “Give enterprise a chance, and I will give you the guarantees of a happy and prosperous America.” The document called for a balanced federal budget, state’s rights, and an end to labor union violence and coercion.
Now this is where I started holding my head in my hands. A liberal president is elected to clean up an epic economic mess left by the preceding conservative administration, and he passes policies to fix the mess. A new conservative movement that is strongly opposed to the liberal president’s policies, and they are dead set in their support of things like tax cuts (and capital gains cuts), states’ rights, union marginalization; and even though the Republican core of their organization is the minority party in Congress, they are able to get conservative Democrats to support them and use procedural obstruction to get their way in Congress!
Is this sounding familiar yet? But what follows is really what bothers me, because FDR was never able to ever fully implement his New Deal policies thanks to the Conservative Coalition. It took WWII to do that!
America’s entry into the war in 1941 finally eliminated the last effects from the Great Depression and brought the unemployment rate down below 10%. In the U.S., massive war spending doubled economic growth rates, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts.
I’ve said for some time that WWII was the greatest taxpayer-funded stimulus in history and as such it was quite successful, and the reference seems to validate my claim. Of course, not all economists agree about all this. But the Keynesian view fits the entire process much more closely than the view of the Austrian school that has to tap-dance to explain away this or that problem.