Wednesday, 16 January 2008

The New Deal Jobs Myth

Amity Shlaes, author of The Forgotten Man: A New History of the Great Depression, has an article, The New Deal Jobs Myth, on the AEI website.

Shlaes contention is that New deal policies, at times, got in the way of recovery, rather enabling it,
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.
Part of the problem, according to Shlaes, was that
... the public jobs did their work inefficiently. That was because the jobs were scripted to serve political ends, not economic ones.
Another part of the problems was that the government took all available investment and undermined private enterprise,
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.
Overall an interesting essay.

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