Sunday, 23 November 2008
RE-EVALUATING THE FDR YEARS
The New York Times is scared. Its stock has fallen through the floor,
its financial health is nearly on life support and electronic media are fast
overtaking whatever else is left.
So, suddenly, it isn't ok to just reflexively spout all those slogans that
please the paper's leftward stalwarts.
Here is a piece in today's paper, by Tyler Cowen, that you just
don't expect to see in the Times. Partly this is because it isn't what
passes for logic in today's left, and (sad to say this about the Times).
And partly because it makes sense -- which hasn't always been a valued
commodity during the years "Pinch" Sulzberger has run the show:
The New Deal Didnt Always Work,
By TYLER COWEN
MANY people are looking back to the Great Depression
and the New Deal for answers to our problems. But while we can learn important
lessons from this period, theyre not always the ones taught in school.
David G. Klein
The traditional story is that
President Franklin D. Roosevelt
rescued capitalism by resorting to extensive government intervention; the truth
is that Roosevelt changed course from year to year, trying a mix of policies,
some good and some bad. Its worth sorting through this grab bag now, to
evaluate whether any of these policies might be helpful.
If I were preparing a New Deal crib sheet, I
would start with the following lessons:
MONETARY POLICY IS
KEY As Milton Friedman and
Anna Jacobson Schwartz argued in a classic book, A Monetary History of the
United States, the single biggest cause of the Great Depression was that the
Federal Reserve let
the money supply fall by one-third, causing deflation.
Furthermore, banks were allowed to fail, causing a credit crisis.
Roosevelts best policies were those designed to increase the money supply, get
the banking system back on its feet and restore trust in financial institutions.
A study of the 1930s by Christina D. Romer, a
professor at the University of California, Berkeley (What Ended the Great
Depression?, Journal of Economic History, 1992), confirmed that expansionary
monetary policy was the key to the partial recovery of the 1930s. The worst
years of the New Deal were 1937 and 1938, right after the Fed increased reserve
requirements for banks, thereby curbing lending and moving the economy back to
dangerous deflationary pressures.
Today, expansionary monetary policy isnt so easy
to put into effect, as we are seeing a shrinkage of credit and a contraction of
the shadow banking sector, as represented by forms of derivatives trading,
hedge funds and other investments. So dont expect the benefits of monetary
expansion to kick in right now, or even six months from now.
Still, the Fed needs to stand ready to prevent a
downward spiral and to stimulate the economy once its possible.
GET THE SMALL
THINGS RIGHT Its not just monetary and fiscal policies that are
important. Roosevelt instituted a disastrous legacy of agricultural subsidies
and sought to cartelize industry, backed by force of law. Neither policy helped
the economy recover.
He also took steps to strengthen unions and to
keep real wages high. This helped workers who had jobs, but made it much harder
for the unemployed to get back to work. One result was unemployment rates that
remained high throughout the New Deal period.
Today, President-elect Barack Obama faces
pressures to make unionization easier, but such policies are likely to worsen
the recession for many Americans.
DONT RAISE TAXES
IN A SLUMP The New Deals legacy of public works programs has
given many people the impression that it was a time of expansionary fiscal
policy, but that isnt quite right. Government spending went up considerably,
but taxes rose, too. Under President Herbert Hoover and continuing with
Roosevelt, the federal government increased income taxes, excise taxes,
inheritance taxes, corporate income taxes, holding company taxes and excess
When all of these tax increases are taken into
account, New Deal fiscal policy didnt do much to promote recovery. Today, a tax
cut for the middle class is a good idea and the case for repealing the Bush
tax cuts for higher-income earners is weaker than it may have seemed a year or
WAR ISNT THE
WEAPON World War II did help the American economy, but the gains
came in the early stages, when America was still just selling war-related goods
to Europe and was not yet a combatant. The economic historian Robert Higgs, a
senior fellow at the Independent Institute, has shown in his 2006 book,
Depression, War, and Cold War, just how much the war brought shortages and
rationing of consumer goods.
While overall economic output was rising, and the
military draft lowered unemployment, the war years were generally not prosperous
ones. As for today, we shouldnt think that fighting a war is the way to restore
YOU CANT TURN BAD
TO GOOD The good New Deal policies, like constructing a basic
social safety net, made sense on their own terms and would have been desirable
in the boom years of the 1920s as well. The bad policies made things worse.
Today, that means we should restrict extraordinary measures to the financial
sector as much as possible and resist the temptation to do something for its
In short, expansionary monetary policy and wartime
orders from Europe, not the well-known policies of the New Deal, did the most to
make the American economy climb out of the Depression. Our current downturn will
end as well someday, and, as in the 30s, the recovery will probably come for
reasons that have little to do with most policy initiatives.
When you're the one suffering the consequences, you stop being
clever, theoretical and ethereal. You start getting real. Maybe
this article is the start of The New York Times' crossover. At
the very least, it's a nice change from the months of Obama worship at
all costs, isn't it?
I'll keep watching, to see if this is a trend or a one-day
BETTY JAMES, R.I.P.
Sad news from the world of important people who media ignore. Ms. Betty
James passed away.
Here is a short piece on who she is and what she did, from www.allheadlinenews.com:
Betty James, Co-Founder
Of Slinky Dead At 90
2008 6:30 a.m. EST
Linda Young - AHN Editor
Hollidaysburg, PA (AHN) - Betty James - the
co-founder of the company that made the Slinky - and a single mother who broke
the glass ceiling to become a successful executive in the 1950s has died. She
James co-founded what would become the Slinky
empire in 1945 with her husband, the late Richard James.
But when her husband left to join a religious cult
and follow it to Bolivia, she took over control and management of the company,
James Industries Inc., along with raising the couple's six children
She initially commuted to Philadelphia to run the
company and stayed there from Sunday through Thursday during the week, leaving
the children with her mother. James eventually moved the factory closer to her
home so she could be home at night with her children.
James was inducted into the Toy Industry Hall of
Fame in 2001 for the Slinky. She was one of the first women to have a
Unlike media darlings such as Hillary Clinton, whose paths were eased
every step of the way by a powerful, charismatic man, Betty James really
was a true ceiling breaker for women. And countless women who
never knew her name (and never will unless they read allheadlinenews.com or this
blog) owe much of their ability to compete in business today to her.
May she rest in peace.
WHY THE ISRAEL-HAMAS TRUCE ENDED
Days ago I blogged that hamas calls truces when it needs to re-arm, and ends
them when it is strengthened enough so that it feels able to fight effectively
and kill lots and lots of Jews.
Here, from www.pajamasmedia.com, is
Michael Sharnoff's analysis. As you will see, we have a lot in common:
Gaza Powder Keg Set to
Posted By Michael
Sharnoff On November 23, 2008 @ 12:00 am In . Column2 02, .
Positioning, Israel, Middle East, World News | 13 Comments
At least 90 rockets have been launched from the
Gaza Strip, including  35 on November 5, since the June 19 tahdiyeh (calm) was announced
between Hamas and Israel. According to  recent analysis, terror
groups in Gaza have undergone a massive buildup in training and arms, and have
expanded their tunnel networks for smuggling.
One representative for the Palestinian
Popular Resistance Committees told
the London newspaper Asharq al-Awsat that terrorists have used the
tahdiyeh to train in the abduction of [Israeli] soldiers and martial
arts, and he threatened Israel with unpleasant surprises.
Israeli authorities have no illusions about the
tahdiyeh. They understand that Hamas is practicing the  Islamic concept of sabr (patience), which
permits and even recommends Muslims to suspend jihad until they are in a
position of strength. As  Hamas
leader Khaled Mashal told one al-Jazeera journalist, The
tahdiyeh is a tactical means. It is a step within the resistance. It
is a process of ebb and flow, going up and down. This is how you run a
 Hamas is now believed to have stockpiled thousands of rockets and to have
trained some 20,000 fighters. It also possesses sophisticated anti-tank devices
and roadside bombs to target Israeli vehicles. So, as renewed conflict draws
nearer, Israel is analyzing the threat Hamas poses and evaluating three
Iron Dome: Israel may soon
deploy a defensive missile shield. Last December, Israeli Defense Minister Ehud
Barak surmised that a new and sophisticated anti-rocket system, Iron Dome, could
stop Qassam rockets and other short-range Palestinian missiles. 
Barak claimed that the
defense shield would cost Israel over $200 million but would not be deployed
until late 2009.
Last year, however, Israeli Prime Minister Ehud
Olmert lamented that Iron Dome could not successfully defend Sderot from
Qassams.  Olmert told
the Israeli newspaper Haaretz that the system was effective
against rockets fired from more than four kilometers away, but not against those
fired from closer range. Thus, Iron Dome would protect major cities including
Ashkelon and Ashdod, but not Sderot. Sderot is approximately four miles from
Hanoun, an area in Gaza where rockets are regularly
Over the summer, the Israeli Air Force announced
further setbacks. Officials stated that Iron Dome would not be ready until the
first half of 2010. However,  it is now
unclear if Jerusalem will continue to develop the system if it can
only serve as a temporary relief for Israelis living beyond a four-mile radius,
and not even defend the 24,000 citizens of Sderot who bear the brunt of rocket
tahdiyeh: Israel could also attempt to extend the ceasefire
after it officially expires on December 19. As  Defense
Minister Ehud Barak recently stated, We have an interest in
perpetuating the calm. His deputy,  Matan Vilnai, also stated on Israeli radio, We hope the
truce can again be applied.
However, an extension of the ceasefire, much like
the development and deployment of Iron Dome, would only provide temporary
security and would not end Israels rocket problem.
Gaza operations: The third
option is for Israel to launch a ground offensive in the Gaza Strip. This option
would be very unpopular among the Israeli public, as it would be dangerous and
almost certainly result in many casualties.
Public sentiment notwithstanding, Israels
internal security agency,  Shin
Bet, argues that a military offensive in Gaza should be undertaken if
rocket fire persists. Even Israeli political leaders, who typically agree on
virtually nothing, can agree on this point. Likud leader  Yuval Steinitz surmised earlier this year, The only way
to eliminate rocket attacks is for Israel to launch a military operation. He
added that because Gazans elected Hamas, this gives Israel the full right and
duty to react. In May, Labor leader  Binyamin Ben-Eliezer agreed, stating that Israel has no
choice but to destroy all the nests of terror.
In the end, it must be underscored that Hamas
raison dtre is to destroy the Jewish state. This is
repeatedly called for in the Islamist groups speeches and sermons. It is also
articulated in Hamas charter. It is an undeniable fact that Hamas sees its
struggle with Israel as a zero-sum conflict. Thus, Israel can employ the first
two options to temporarily protect civilians living in the south, but the
attacks will almost certainly continue. While it is the least appealing, the
third option will ultimately be necessary for Israel to experience a lasting
quiet on the Gaza border.
How many times must this happen before Israeli President Ehud Olmert catches on and acts
decisively? Apparently the number is limitless.
How many times do you think it would happen under
someone like, say, Benjamin Netanyahu? Trust me, the number is a tad more
finite. My best guess is somewhere in the neighborhood of
Now the key question: Which of these two philosophies will keep Israel
safer? With elections coming up months from now, Israelis better think
long and hard about the answer.