The Economy

[kandrathe]

Your system of analysis a priori rejects government spending as an actual portion of GDP, or of economic growth. By that logic, the Soviets didn't have the second-largest economy in the world, they had the smallest. The entire concept of the New Deal was for the government to prop up the economy through deficit spending, so yes, that is obviously what we see. And it worked! Employment was up. Production was up. Standard of living was up. More or less everything was up, even the deficit, although debt-to-GDP did not increase substantially until WWII.

Looking at your chart, you see this. From 1933, when FDR gained the Presidency, to 1938, after which point WWII might be washing out any effect, you see GDP increase across the board. Private investment was up from 1.7 billion to 7.1 billion, and even up to 12.2 billion at its 1937 peak. Consumer spending was up almost 50% from the 1933 minimum. That's growth, no matter which way you slice it. Things had completely tanked by 1933. FDR had no magic wand that would restore the economy to 1929 levels after a crash that spectacular (look at your own numbers for just how spectacular it was... private investment dropped by more than the total government spending!). Factories were idle, money was no longer circulating, the whole thing was a mess.

Well, if you measure from the bottom everything looks great. The 1938 economy was still not nearly what the economy was in 1929.

Besides, 1929 levels for private investment were unsustainably high: that's why there was a crash! Maybe you believe the Keynesian 'animal spirits' story, or maybe you believe the Austrian 'easy credit' story, or the Friedman 'great contraction' story. But whatever it was, 1929 is not a reasonable benchmark year for measuring recovery. At least 1933 has 2 advantages as a base year: It was the minimum, and it was the year FDR took office.

I'll concede that 1929 may have been the top of the hill, but also 1933 was the bottom of the valley. Neither is probably the correct position to view the entirety.

Or let's look at employment. Unemployment peaks in 1933, and drops more or less steadily from there. Again, things improve under FDR, before the war has even started. Unemployment may have been around 18% even as late as 1938, but that's because it had shot up to 25% by 1933. And that's if you don't include WPA jobs, which were almost certainly not as productive as ordinary jobs, but did put people to work who otherwise would have been doing absolutely nothing. The mess left by the depression was enormous, and FDR's policies have to be judged in terms of cleaning up that mess, not compared to some hypothetical fully functioning economy.

The PWA and the CWA employed over 4 million people within 2 months. I kind of look at them as unemployment compensation with some dignity.

However, FDR made some serious mistakes. First, he didn't spend enough. Trying to keep budgets roughly balanced was antithetical to the point of the stimulus, and Keynes told him so at the time. He didn't listen, and so, the recovery was not a fast as it could have been, and there was the recession of 1937. Second, many of his social reform policies were misguided and heavy-handed. (Others were brilliant, but it was a mixed bag.) But, on the whole, the numbers speak for themselves: Economy crashes under Hoover, 1929-33, economy recovers somewhat 1933-1939, economy recovers strongly during WWII due to massive government programs, then prospers for almost thirty years afterwards. You can draw a counterfactual where the economy does even better after the crash, but you can't argue away actual growth, in private investment, in employment, in output, across the board.

It's hard to measure how much of the US growth after 1944 was due to WWII positioning the US as the one remaining untouched industrial producer. In fact, the auto industry was a direct result of building peace time rather than war time vehicles.