Research Topics

The New Deal and Postwar France Experiments

By the beginning of the 20th century, the possibility and efficacy of economic planning was believed to have been proven by totalitarian experiments in Germany, the Soviet Union, and, to a lesser degree, Fascist Italy; however, the possibilities and limitations of planning in capitalist democracies was unclear. The challenge in the United States in the 1930s and in postwar France was to find ways to make planning work under capitalism and democratic conditions, where private agents were free to not accept its directives.
 
This paper begins by examining the experience with planning during the first years of the New Deal in the United States, centered on the creation and operation of the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA), and continues with a discussion of the French experience with indicative planning in the aftermath of World War II. A digression follows, touching on the proximity between the matters treated in this paper and Keynes’s view that macroeconomic stabilization could require a measure of socialization of investments, following James Tobin’s hunch that French indicative planning, as well as some social democrat experiences in Northern Europe, could be playing precisely that role. The paper concludes by identifying the lessons one can draw from the two experiences.

The Vested Interests, Limits to Reform, and the Meaning of Liberal Democracy

I subject some aspects of Roosevelt’s “New Deal” to critical analysis, with particular attention to what is termed “liberal democracy.” This analysis demonstrates the limits to reform, given the power of “vested interests” as articulated by Thorstein Veblen.
 
While progressive economists and others are generally favorably disposed toward the New Deal, a critical perspective casts doubt on the progressive nature of the various programs instituted during the Roosevelt administrations. The main constraint that limited the framing and operation of these programs was that of maintaining liberal democracy. The New Deal was shaped by the institutional forces then dominant in the United States, including the segregationist system of the South. In the end, vested interests dictated what transpired, but what did transpire required a modification of the understanding of liberal democracy.

With the anti-austerity Syriza party continuing to lead in polls ahead of Greece’s election on January 25, what is the outlook for restoring growth and increasing employment following six years of deep recession?   Despite some timid signs of recovery, notably in the tourism sector, recent short-term indicators still show a decline for 2014. Our analysis shows that the speed of a market-driven recovery would be insufficient to address the urgent problems of poverty and unemployment. And the protracted austerity required to service Greece’s sovereign debt would merely ensure the continuation of a national crisis, with spillover effects to the rest of the eurozone—especially now, when the region is vulnerable to another recession and a prolonged period of Japanese-style price deflation.   Using the Levy Institute’s macroeconometric model for Greece, we evaluate the impact of policy alternatives aimed at stimulating the country’s economy without endangering its current account, including capital transfers from the European Union, suspension of interest payments on public debt and use of these resources to boost demand and employment, and a New Deal plan using public funds to target investment in production growth and finance a direct job creation program. 

Did the New Deal Prolong or Worsen the Great Depression?

Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal–era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937–38; 1933’s National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery.

Unemployment was singled out by John Maynard Keynes as one of the principle faults of capitalism; the other is excessive inequality. Obviously, there is some link between these two faults: since most people living in capitalist economies must work for wages as a major source of their incomes, the inability to obtain a job means a lower income. If jobs can be provided to the unemployed, inequality and poverty will be reduced—although such policy will not directly address the problem of excessive income at the top of the distribution. Most importantly, Keynes wanted to put unemployed labor to work—not digging holes, but in socially productive ways. This would help to ensure that the additional effective demand created by government spending would not be exhausted in higher prices as it ran up against bottlenecks or other supply constraints. Further, it would help maintain public support for the government’s programs by providing useful output. And it would generate respect for, and feelings of self-worth in, the workers employed in these projects (no worker would want to spend her days digging holes that serve no useful purpose). President Roosevelt’s New Deal jobs programs (such as the Works Progress Administration and the Civilian Conservation Corps) are good examples of such targeted job-creating programs. These provided income and employment for workers, actually helped increase the nation’s productivity, and left us with public buildings, dams, trails, and even music that we still enjoy today. As our nation (and the world) collapses into deep recession, or even depression, it is worthwhile to examine Hyman P. Minsky’s comprehensive approach to resolving the unemployment problem.