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Obama Needs An Argument

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President Obama needs an argument. The economic stimulus plan is already coming under fire from the left and the right, only days after he was sworn in as president (two times, in fact). In The New York Times, my colleague at Princeton Paul Krugman has written that he "ended Tuesday less confident about the direction of economic policy than I was in the morning." Krugman goes on to criticize the "platitudes in his Inaugural Address" as a warning sign that Obama might find his administration "dangerously behind the curve." Republicans are now raising their concerns as well. Republican congressional leaders are complaining that the stimulus bill coming out of the House is big on pork-barrel spending projects and deficient on measures that would actually stimulate the economy in the short term.

The waters are getting rough and Obama has barely stepped into the ocean. The President can't wait too long or he could lose control of the debate. An effective response will depend on many things, with one of the most important being his ability to develop an overriding and compelling argument about how we ended up in this economic crisis and how we can get out.

It is true, as Badger writes, that in the First Hundred Days it was hard to see any coherent philosophical approach to economic recovery: "not even Roosevelt's most ardent defenders would argue that the legislation of the first Hundred Days was coherent and carefully thought out." But, over the next few years, historians, including Badger, have shown that the New Dealers did make certain key arguments that provided an ideological framework for voters to understand the logic behind the Alphabet Soup that was gradually created. New Dealers argued that under-consumption was at the heart of the economic crisis and that by boosting the wages of working and middle class Americans, the nation would be able to achieve higher economic ground. As Badger writes in a wonderful essay in his edited book Contested Democracy, "what linked both these voters and policy makers was the importance of mass purchasing power--a strategy that called for high wages and low prices, a strategy that linked them to middle-class consumers. One of the distinctive features of political discourse in the 1930s was, as Meg Jacobs [a historian at MIT who wrote a prize-winning book on the subject] emphasized, that labor and the middle class were not seen to be at odds. It was this common cause between workers and consumers that gave the new Democratic Party its reforming thrust and dynamism...."

President Obama and Democrats need to find their argument. As Americans struggle through this turbulent economy, watching their savings disappear and home prices plummet, they are scared. They will also be nervous as they learn about more proposals for large and expensive government programs. If they thought the Wall Street bailout was big, they ain't seen nothing yet. One of the most important jobs of the president is to sell programs and not just propose them, to justify government intervention and to build support for what is needed. A president has to act a bit like a professor, helping create order out of chaos by explaining the causes of the situation a nation faces and by providing a roadmap to a healthier future. Unless Obama develops an argument comparable to the New Dealers, which thus far he has not, Obama won't enjoy the kind of political success achieved by FDR.

On a side note, I think there is a healthy debate now taking place in Washington and the media about whether the New Deal or World War II ended the Great Depression. But just as some conservative pundits dismiss positive accounts of the New Deal as "leftist" interpretations, in recent days some commentators have been dismissing arguments that the New Deal was not able to end the Depression as coming right out of "right-wing" talking points.

That claim about this historical argument is wrong. Many liberal scholars, who believe the New Deal had a huge effect and improved economic conditions in the 1930s, also conclude that the programs did not end the Great Depression. Columbia historian Alan Brinkley, in his masterful account of the New Deal, recounts how the 1937 recession indicated to many in the administration that the problems from 1929 were still at work. In an interview for PBS, Brinkley said: "Contrary to some of its own mythology, the New Deal did not end the Depression. It moderated the Depression at least during some periods of the 1930s; it kept the Depression from getting worse perhaps. But the Depression didn't end until 1940, and it was World War II that brought it to an end, by increasing government spending for war materials so dramatically that people were brought back into the work force in enormous numbers very quickly." Stanford historian David Kennedy, another prominent historian who few would characterize as a child of the Reagan Revolution, wrote in his Pulitzer Prize winning account of the New Deal and World War II, "Roosevelt himself stood before the world in 1938 as a badly weakened leader, unable to summon the imagination or to secure the political strength to cure his own country's apparently endless economic crisis. In the ninth year of the Great Depression and the sixth year of Roosevelt's New Deal, with more than ten million workers still unemployed, America had still not found a formula for economic recovery." This is not even to mention the library shelves that are filled with books by left-wing historians from the 1960s and 1970s who went much farther in their critique.

My point here is just to offer a small suggestion that scholars should not dismiss those who believe that it took World War II to end the Depression as an ideologically motivated analysis or one grounded in a conservative perspective. Moreover, saying that the New Deal did not end the Great Depression is not the same as saying that it did not have an enormous impact on the economy. The Great Depression offered huge relief to struggling Americans, dramatically improved economic conditions from where they had been in 1932, and created a solid infrastructure for economic growth in the coming decades. Just as important, none of this could have been accomplished politically without some good arguments.


30 Comments

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I am curious as to how World War II is categorized as an economic "instrument". I would guess that it was a stimulus package financed by deficit spending. But I would certainly appreciate a response from more knowledgable parties.

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A couple of points:

1. The New Deal's deficit spending programs reduced unemployment during the depression, but as Roosevelt's budget balancing recession in the late 1930's showed, it did nothing to hasten its end. Government spending is like Tylenol. it might make you feel better, but it doesn't treat the underlying cause.

2. World War II spending was different. The government did a massive spending effort on infrastructure, technology, and transportation projects, all on a crash basis and with strong public participation and support.

There was, as Paul Krugman is fond of saying, a war on.

More to the point, it changed the economic debate. Instead of businesses worrying about how they would cut costs to stay afloat, they worried about how they could produce more to kill foreigners.

Which is as good an excuse to ramp up production as any. New people joined the workforce because the young men were in the Army, and wage demands moderated (given the frenzy of activity) for ideological reasons. World War II ended up being a frenzy of public and private investment spending; when it was over, the United States was a changed economy, suddenly the most advanced in the world.

In the 1930's there wasn't a clear path for economic growth: World War II inaugurated the age of mass production and electricity.

Hopefully we'll decide what to do soon now that that age is shuddering to a halt.

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El Presidente you say contradictory things although you might mean something else. You say "Government spending is like Tylenol. it might make you feel better, but it doesn't treat the underlying cause." Then you contrast this to World War II spending: "The government did a massive spending effort on infrastructure, technology, and transportation projects, all on a crash basis and with strong public participation and support." Both WERE government spending right? So some modifier is needed in your first denigration of government spending. What I guess I am trying to understand is: why can't the example of World War II spending "on infrastructure, technology, and transportation projects" be emulated in peacetime? If so I do not understand the formulation that "World War II" ended the Depression. It sounds like it was massive government spending ( on infrastructure, technology, and transportation projects) that ended the Depression.

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I didn't make that clear, you're right.

Public spending itself, in WWII or otherwise, didn't pull us out of the Depression. However, it absolutely increased output both during and after the Depression. The Depression ended when private entities started ramping up production during the war. By the end of the war the country was ready to reabsorb the Armed Forces (somewhat) and get back to making babies.

That is, get back to normal functioning.

It also helped that we printed some money in the meantime.

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Still 'arguing' about WWII, the Depression, the New Deal...? I remember them all well and I also remember that with the war came men put to work killing and being killed and every other half-way able American adult going to work 'for the war effort.' Work means pay and pay means consumption and consumption means...

At least 70 percent of our economy depends on a consuming public and when 10 percent of the public is unemployed guess what happens.

How many times are we going to hash and rehash these run-of-the-mill knowns. It's getting really wearisome.

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Until we can all agree that increasing jobs and GDP -- before and after 12/7/1941 -- at the cost of lowering the nation's living standard to one not seen in two generations (wage and price controls and rationing) does not signal an end to the Great Depression.

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. . . is necessary but not sufficient to "signal an end to the Great Depression."

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Is there any measure of how the austerity imposed by wage and price controls and rationing compares with the ambient austerity of the Depression itself (i.e. the drop in living standards caused by wartime austerity).

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Well, wage controls vs. no wages, and food rationing vs. no food on the table was a non-issue. As far as a drop in the living standard, yes, but for the millions for whom living alone had become a battle which they were losing, the 'drop' was irrelevant.

The Great Depression may not have ended with the onset of the war and massive government spending - the economy may not have returned to its pre-depression level - but for the hungry and homeless it ended when jobs became available.

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Amelioration of hardship (today, extending unemployment insurance, bolstering Medicaid and SCHIP, for example) is always desirable. But --

The question is what should be done to get an underperforming economy back up to speed. The fact that some program acted to ameliorate some people's hardship doesn't tell us anything whatever about whether the program helped or hurt the recovery ultimately desired.

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I get what you're saying but I think it's impossible to know whether the economy was, in the long run, harmed or helped by the programs other than by running the programs in the time frame of the '30's and not running the programs in the same time frame and then studying both outcomes. Neat trick if it could be done.

Hooverites continue to argue for their solution to the Depression while New Dealers continue to argue for theirs. They can never get beyond conjecture so why not drop it.

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So what you are sayign is that the pundits and prognosticators are merely muddying the waters of our history to make Americans believe that black is not black anymore because white was there to and it had something to say about it. Come on spending is spending is it not. It sounds to me like what you are really trying to say is that the New Deal provided the framework so that when WWII happened the Gov't was able to ramp up spending and the public was a willing participant. Ultimately the New Deal was the foundation which supported the long=term growth through the 40's through the ealry 70's.

Whether WWII helped us out seems a very interesting thins to state by the very fact that we have two wars going on right now yet our economics do not seem to be swayed in its current downturn. Is someone suggesting we go to War with the world to get us out of this thing, or is the more substantial thing to talk about the general embrace by the public of the New Deal policies and then the large public support following our entrance into WWII. (I realize not all Americans were supportive of the uS intervening in WWII, nor were all Americans supportive of the New Deal. However it would seem apparent to me that the facts speak for themselves as History has provided us and new students with those very conclusions. But of course now it is up to Historians to tell us if what the US experienced collectively was in fact reality.

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In 1917-1918 "the Gov't was able to ramp up spending and the public was a willing participant."

What makes you think New Deal programs had anything whatever to do with the fact that 25 years later "the Gov't was able to ramp up spending and the public was a willing participant"?

N.B. The U.S. didn't exactly have a choice of whether to enter WWII. War was declared upon it by among others Germany and Italy on December 11 and Japan on December 7 (per Roosevelt on December 8 -- "a state of war has existed").

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Republicans grabbed the money and ran already. Why argue with a stone?

Franklin D. Roosevelt provides something better than arguments:

"But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings."

"It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something."

That's right, do something without fear of its failure.

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Except that right and left both agree that confidence -- the belief that one can plan for the future -- is a necessary component of a sound and growing economy and --

That a government which runs around like a chicken with its head cut off (FDR, then; Paulson, today) does not breed confidence.

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Comparing Paulson to FDR? It's the government that's been running around like a chicken with its head cut off? I think you're suffering from psychosis. Confidence? You need and enema, because you're so full of shit that eye of yours is turning brown. I think the word I'm looking for is obfuscation. The government is listening to the you, "Masters of the Universe", who are the ones that fucked up. Then you get on this site and tell us that the way out is to do nothing. You know why you want the government to do nothing, Ellen, because that would leave you as the last one standing. If FDR had listened to you, the very idea of freedom and human rights forged in the "Age of Enlightenment" would have ended by 1960 because America and the Allied Powers would have lost WW2. The Nazis ideals live on through globalized corporations that curtail democracy at every turn, using free market rhetoric to leach off of the weaker.

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Actually, Ellen, I lived in the U.S. when FDR and Truman were running things. Everybody was getting New Deals and Fair Deals. Greed was not in vogue. Neither was fraud or false advertising promises.

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As Lord Keynes is reported to have said to Secretary of Labor Francis Perkins after he met with President Roosevelt on May 28, 1934, "I don't think your president knows anything about economics." The Next Left: History of a Future, Michael Harrington, p.29

Explains the running around with his head cut off, I guess.

N.B. Of course some say Lord Keynes didn't know much about economics, either.

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If this is economics:
http://en.wikipedia.org/wiki/Economics
then all it takes is a little reasoning.
If the bridge falls down, it is the civil engineer's faulty design. If the economy falls down it is the economic engineer's faulty design.
Would you hire the civil engineer to make another bridge for you? How about the economic engineer?
It was time for a change...

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i don't know about david kennedy. his review of paul krugman's conscience of a liberal was full of rightwing b.s. perhaps he's not a reaganite but i wouldn't cite anything he says as evidence that lefties think the new deal didn't work as well as it could have.

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And I say, someone's in need of a chill pill!

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A question on the merits. I recently made the argument to a conservative friend that WWII was, in effect, a giant public works program -- suggesting that if that's what ended the Depression, the New Deal should have been larger, not bigger. He replied that WWII (and the preceding years when we were producing goods for the Allies) brought an influx of FOREIGN spending in our economy, which is more like a REALLY massive spike in tourism than a domestic public works program that we pay for ourselves. I didn't have a good answer to that. Any thoughts?

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In case you’re wondering how your tax dollars are being partially spent from the first 3.5 billion dollar Bailout, here is the shopping list. Merrill Lynch’s CEO was shown the exit door yesterday and Bank of America’s CEO is projected next in line to be shown the boot by investors…

"....When John Thain became Merrill Lynch’s CEO in early 2008, he hired Michael S. Smith to revamp his office suite, spending approximately $1.22 million according to documents"; (Santa Monica designer Michael Smith was commissioned to redecorate WH living quarters for President Obama and his family). The following is a list of the items in his suite:

— Area Rug: $87,784
— Mahogany Pedestal Table: $25,713
— 19th Century Credenza: $68,179
— Pendant Light Furniture: $19,751
— 4 Pairs of Curtains: $28,091
— Pair of Guest Chairs: $87,784
— George IV Chair: $18,468
— 6 Wall Sconces: $2,741
— Parchment Waste Can: $1,405
— Roman Shade Fabric: $10,967
— Roman Shades: $7,315
— Coffee Table: $5,852
— Commode on Legs: $35,115

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But Stan O'Neill's taste was so outre!

My dear, it wasn't as much a case of redecorating as of undecorating. What else was one to do?

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........was able to locate a photo of what all the fuss is about when it comes to taking a dump on Wall Street.... this link for photo and accompanying article....
http://news.lalate.com/2009/01/22/commode-on-legs/

"Thain also paid his driver $230,000 for one years work, which included the driver's $85,000 salary and bonus of $18,000, and another $128,000 in over-time pay, documents show. Drivers of top executives are often paid about half that amount.

Regarding the $35,000 "commode on legs", it's not a honey bucket but rather a chest of drawers on legs introduced by the French in the early 18th century.

Back in the day the "commode on legs" were used to store chamberpot in the drawers underneath. Then when they developed enclosed rooms to do your business, though there was no indoor plumbing so you were basically sitting on a giant removable chamber pot, these were also called commodes.”

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" In The New York Times, my colleague at Princeton Paul Krugman has written that he "ended Tuesday less confident about the direction of economic policy than I was in the morning."

Your colleage - Hahahahaha

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Does sharing a glass of beaujolais at Prospect House qualify them as colleagues?

Or strolling the grounds together?

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Did Paul Krugman and Julian Zelizer share a bong hit together? Ellen wants to image they did.

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Julian Zelizer,

So Obama needs an argument, a plan. How about this one? Have you read it? The title is an understatement, but it is The Plan.

Remarks of President-Elect Barack Obama
As Prepared for Delivery
American Recovery and Reinvestment
Thursday, January 8, 2009

http://www.whitehouse.gov/agenda/economy/

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What is meant by stimulating the ecomomy? This is what de-stimulated the economy. They grabbed the money and ran just like in the thirties.

http://www.bloomberg.com/apps/news?pid=20601213&refer=home&sid=aHYVLN8ZJtsc

This is not a malfunction of the economy as much as it is a deliberate psychological operation on the market. Psyops. The ultimate poker game thrill with real wealth at stake. This requires strategy and action. Arguments were settled on November 7, 2008.

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