FDR's policies prolonged Depression by 7 years, UCLA economists calculate (2004)

This is a revisionist history.

"How can one make this claim? Unemployment reached 25 percent in the Great Depression, and fell steadily until World War II (although there were some bumps up along the way). Ah, but the revisionist position is that unemployment did not fall as much as it should have. And this argument is based on an interesting interpretation of the available data. As Amity Shlaes, currently the premier anti-New Deal historical revisionist writing for a popular audience, explained proudly in her own Wall Street Journal opinion piece in November, “The Krugman Recipe for Depression,” a necessary step is to not count as employed those people in “temporary jobs in emergency programs.”

That means, everyone who got a job during the Great Depression via the Works Progress Administration (WPA) or Civilian Conservation Corps (CCC), or any other of Roosevelt’s popular New Deal workfare programs, doesn’t get counted as employed in the statistics used by Cole, Ohanian and Shlaes.

In other words, millions of men and women earned a living wage and self-respect and contributed mightily to the national infrastructure. But, according to the statistics as interpreted on the Wall Street Journal editorial page, they were unemployed."

http://www.salon.com/2009/02/02/the_new_deal_worked/

(Perhaps the [2004] date might be appropriate in the title?)

The key problem with this reasoning is they use a fairly unique measure of unemployment: specifically they don't count those workers who were employed in "New Deal" programs as employed (!).

Here's a good reponse: http://www.salon.com/2009/02/02/the_new_deal_worked/

At a basic level I think I'd agree the New Deal included some bad ideas. But overall the general consensus is that it worked reasonably well in migrating the worst impact of The Depression.

If ever there were an article worth tagging with its year (2004), this is one. We've had another economic contraction as a data point since 2004 and it does not lend support to this kind of claim.

Can someone please explain why an article about FDR written nine years ago is on the front page?

Well, I guess that settles that debate.

No more liberalism, ever, right everyone?

And Obama will prolong this depression by how many years?

This kind of paper (from 2004, before the current recession and stimulus by the Fed) may be well received by those sympathetic to the Austrian economic school. Milton Friedman, a libertarian of a different kind, argued in his book that the Fed didn't do enough. However, what's interesting is that this paper puts the blame on FDR's policies, and not the fed. I haven't read it, so I can't comment on the validity, but this argument certainly could have some merit. Note that it's very different from saying the central bank shouldn't act as a lender of last resort and improve the availability of credit to the banks.

Personally I am partial to an explanation for the great depression that is along the lines of Stiglitz, and has a lot to do with technology than these "Austrian" explanations. Stiglitz noted that, before the great depression, 20% of American workers were employed in FARM related jobs. After the great depression it was 2%. I think this is a HUGE smoking gun. Basically, I believe a lot of the great depression was caused because farm jobs were simply automated away faster than the economy could absorb the supply shock. In fact, we can see this as farmers kept overproducing and were paid to stop, even as their workers left the farms. The dust bowl didn't help, as most of them moved into the cities (read the Grapes of Wrath for instance).

10 years is what it took for the FUNDAMENTALS of the economy to shift from disrupting the primary sector to creating factories and jobs in the secondary sector (manufacturing). http://en.wikipedia.org/wiki/Three-sector_hypothesis . People moved to cities. Factories were built. Marketing was done. Demand went up. People were re-educated and hired. The manufacturing eventually became the dominant industry in america.

And it also happened that the war effort produced additional demand for manufacturing. After the war, when Europe and Japan were bombed out, our automakers were on top of the world (Detroit was booming back then). Manufacturing was king and unions became powerful, until the 70s.

In the 70s, technology started getting better, and other countries caught up, to the point where outsourcing became a growing possibility. It's been growing from the 70s until now. Apple products, once proudly produced in the USA, are now manufactured all around the world.

But the biggest disruptor of workers' wages isn't even outsourcing. It's automation. The jobs are returning -- but to robots. Large companies like Amazon are finally able to pour enough money into R&D to create robots to replace all those warehouse slaves (http://www.motherjones.com/politics/2012/02/mac-mcclelland-f...) who themselves replaced local bookstore employees.

Capitalism works well when the employers need enough employees that people can earn a decent wage. When demand for local human labor drops, so do the average wages across that industry. These people then cut back on their spending, which ripples through the economy. Consumer product companies cut back and even more people lose jobs. Income inequality grows. The money supply shrinks as banks stop lending and there is a credit crunch. A lot of this can be seen in the great depression. A third of the banks failed. The fed didn't help with the credit crunch.

So now that we've had 40 years of growing outsourcing and improving supply chains, the American worker is in a race to the bottom with the average workers of the world, who make $70/day. It's a simple trade deficit problem caused by free trade. The USA is propping up the bubble because of all the ways we create demand for dollars (including possibly http://en.wikipedia.org/wiki/Petrodollar_warfare) but at the end of the day, there is strong downward pressure on average wages.

Income inequality, therefore, is to be expected. The culprits are outsourcing and automation. The way to mitigate some of this is to change the progressive taxation curve to be responsive to income inequality, and LOWER taxes on people earning less. Republicans have it exactly backwards. Let's assume for a second that the GOP lawmakers actually want to help the USA. Then they shouldn't oppose the payroll tax like they did (http://nymag.com/daily/intelligencer/2011/12/why-republicans...) They claim they want to cut taxes for "job creators" only, but the multiplier for regular employees is far greater than for rich businesspeople.

These employees ARE the people who go out and buy stuff they NEED, sending price signals to the economy to divert more resources to the companies that produce stuff people need. Also, it provides much better incentives for investors and banks to put cash into startups. What pitch works better:

1) "Hey Mr Investor sir, your taxes are lower this year, can you please put some of your money into my startup since you have more to play with? No one could afford to buy my product because their taxes were high though."

2) "Hey Mr Investor, I had a few extra bucks to take a risk so I built a prototype and my customers had a few extra bucks so they are now all using my product, so I have an actual product and traction?"

Investors want to see DEMAND. The multiplier is bigger for people who earn less. These are the people whose taxes should be cut. I am in favor of implementing milton friedman's negative tax, but I doubt that's going to happen. But if you're going to cut taxes for people, it should be the working class.

Long term though, I am not sure what to do if there is a growing unemployed class. We will need a universal basic income either through a negative tax or some other scheme.