Do You Believe FDR’s Big Government Investment Efforts in Fact Helped End the Great Depression, And if So, Would Such Efforts Help Now?

BY busadmin  December 24, 2008 at 10:12 AM EST

Wall Street during the Great Depression; file photo

Question/Comment: A friend of mine disputes the notion that FDR’s New Deal rescued the nation from the Great Depression; he argues that the war effort was the major contributor. Do you believe FDR’s big government investment efforts in fact helped end the Great Depression, and if so, would such efforts help now?

Paul Solman: Yes, I do believe they helped. Let me again quote Cornell economist Bob Frank, from an interview we did with him last week:

“You know there is some revisionist history circulating now although the spending projects of the 30s didn’t really put people to work. The best thinking on that question now is that the spending projects had clearly positive effects on employment. Some people don’t want to account for people who are painting the murals in this building as being employed. They were getting salaries; they were doing something that’s stood the test of time. We still enjoy the mural today.”

“The people who are complaining about that sort of missed the obvious fact that many people were employed who wouldn’t have been, and the main lesson that’s come out of the 1930s is that when FDR tried to balance the budget in 1936 and 1937, that created another recession. The true event of the Great Depression was when government demand really spiked upwards from spending during World War II. That’s what we need now – a massive infusion of government spending. To the extent that it didn’t work in the 30s – it’s not because there was some of it – it was because there wasn’t enough of it.”

As John Maynard Keynes wrote at the time:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines . . . and leave it to private enterprise . . . to dig the notes up again, . . . there need be no more unemployment and . . . the . . . income of the community, and its . . . wealth also, would probably become a good deal greater. (It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.)”

Today, BTW, there are those suggesting that houses be BULLDOZED, because the glut of housing is driving down prices, scaring us in the process, and thus putting a damper on the economy.