ONLY MASSIVE GOVERNMENT INTERVENTION...:

The New Deal Jobs Myth: The candidates keep touting Depression-style public works programs. Why? (AMITY SHLAES, December 31, 2007, Opinion Journal)

[W]hat really stands out when you step back from the picture is not how much the public works achieved. It is how little. Notwithstanding the largest peacetime appropriation in the history of the world, the New Deal recovery remained incomplete. From 1934 on--the period when the spending ramped up--monetary troubles were subsiding, and could no longer be blamed alone for the Depression. The story of the mid-1930s is the story of a heroic economy struggling to recuperate but failing to do so because lawmakers' preoccupation with public works rather got in the way of allowing productive businesses to expand and pull the rest forward.

What was wrong with those public works jobs? Many created enduring edifices--New York's Triborough Bridge, for example, the Mountain Theater of Mount Tamalpais State Park outside San Francisco, the Texas Post Office murals, which were funded by Henry Morgenthau's Treasury. But the public jobs did their work inefficiently. That was because the jobs were scripted to serve political ends, not economic ones.

One of the saddest accounts of the public-works job culture I came across involved a model government farm in Casa Grande, Ariz. The men were poor--close to "Grapes of Wrath" poor--but sophisticated. They knew that the government wanted them to share jobs. But they saw that the only way for the farm to get profits was to increase output and to stop milking by hand. Five dairy crew men approached the manager to propose purchasing milking machines to increase output. They even documented their plea with a shorthand memo:

"Milking machine would save two men's labor at five dollars per day . . . Beginning in September would save three men's wages or $7.50 on account of new heifers coming in."

The men were willing to strike if they didn't get the machines, though they feared they might lose their precious places on the farm if they did strike. Their fears proved justified. "You're fired," the workers later recalled the manager replying when he saw their careful plan. The government man was horrified at the idea of killing the jobs he was supposed to create. "You're jeopardizing a loan of the U.S. government, and it's my job to protect that loan. You're through, everyone of you, get out."

A related problem was that the New Deal's emergency jobs were short term, lasting months, not years, so people could not settle into them. This led to further disruption. In the very best years of Roosevelt's first two terms, unemployment still stood above 9%. Nine percent is better than horrendous, but it hardly is a figure that induces hope.

One could interject that such arguments do not take into account the context--the paucity of other jobs, the dust storms, the deflations, the homelessness, the incomprehensible real privation of the period. But in the later part of the 1930s, the same model infrastructure projects did their part to prolong that privation. The private sector, desperate, was incredibly productive--those who did have a job worked hard, just as our grandparents told us. But the government was taking all the air in the room. Utilities are a prime example. In the 1920s electricity was a miracle industry. There was every expectation that growth in utilities might pull the country through hard times in the future.

And the industry might have indeed done that, if the government had not supplanted it. Roosevelt believed in public utilities, not private companies. He created his own highly ambitious infrastructure project--the Tennessee Valley Authority. The TVA commandeered the utility business in the South, notwithstanding the vehement protests of the private utilities that served that area.

Washington sucked up much of the available capital by selling bonds and collecting taxes to pay for the TVA or municipal power plants in towns. In order to justify their own claim that public utilities were necessary, New Dealers also undermined private utilities directly, through laws--not only the TVA law but also the infamous Public Utilities Holding Company Act, which legislated many companies out of existence. Other industries saw their work curtailed or pre-empted by government as well.

What about that oft-cited rising industrial production figure? The boom in industrial production of the 1930s did signal growth, but not necessarily growth of a higher quality than that, say, of a Soviet factory running three shifts. Another datum that we hear about less than industrial production was actually more important: net private investment, the number that captures how many capital goods companies were buying relative to what they already had. At many points during the New Deal, net private investment was not merely low, but negative. Companies were using more capital goods than they were investing in.

...could have prolonged the depression for so long that it became Great.

Posted by Orrin Judd at December 31, 2007 6:17 PM