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The Real Story of the Great Depression? 17 February, 2009

Posted by David Anderson in Economic Policy.
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When we try to learn from history, it makes sense to look at what may have actually happened. Michael Barone wrote an interesting commentary which deserves reading.

There’s a fairly broad consensus on policy that some of Roosevelt’s actions made a positive difference but that they didn’t get us out of the Depression. Amity Shlaes in her path-breaking “The Forgotten Man” makes a strong case that some of Roosevelt’s moves blocked recovery, and even his admirers admit that his policies led to a sharp recession in 1937-38. After eight years of the New Deal, unemployment remained at 15 percent in 1940 — double the figure for today. What really got us out of the Depression was World War II.

The total number of employed persons and military personnel increased from 44 million in 1938 to 65 million in 1944.

So it would be unwise to copy the New Deal as a recipe for economic recovery. And the policies that produced the wartime boom are not replicable today. We are not going to have rationing, wage and price controls, government spending nearly half the gross domestic product, 91 percent tax rates and a 12-million-man military (the equivalent today would be 27 million).

There has been general agreement, however, that Roosevelt’s policies were politically successful.

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