New Deal for the Great Depression
Hoover Dam
Masters of Money
Nicholas Wapshot “Keynes did have enormous trouble trying to persuade the Treasury, the so-called ‘Treasury view’ that you should borrow at the bottom of a business cycle. But in economic terms what you need is more demand in the economy and you can do that in the ways Keynes suggested.”
Philip Booth “Naive Keynesian prescriptions of simply responding to recession by raising the budget deficit, as if this had no effect, no adverse effect, on other economic variables, I really think are very dangerous policy prescriptions.”
In the Thirties, Keynes found that most British politicians had a similar view – high borrowing was dangerous. He thought he might have a more receptive audience in America. After all, he was now a celebrity on both sides of the Atlantic, and the economic situation in America was desperate.
David Woolner, Roosevelt Institute “Gross National product was down to almost 70%. You had unemployment nationally at 25%. In places like Chicago and Detroit, unemployment was up to 50%. Over half the population unemployed.”
President Hoover’s solution to the Great Depression had been spending cuts and tax rises. He’d made an argument we’ve heard others make more recently. Balancing the country’s books would create confidence and encourage investment.
Professor Joseph Stiglitz “Didn’t happen. Never has happened. When you cut back on government spending in a situation such as a recession or depression, demand goes down, unemployment goes up, and it’s a vicious circle. Confidence isn’t restored when unemployment was up and when business goes down. Confidence is eroded.”
Hoover’s successor, Franklin Delano Roosevelt, had a different approach. Again, echoing arguments made today, he thought the government should spend its way out of trouble.
Roosevelt “This nation is asking for action and action now!”
When John Maynard Keynes arrived in America, in 1934, there is no evidence that he persuaded the US government to adopt Keynesianism. They were doing it anyway. Keynes had his one and only meeting with President Roosevelt. By all accounts, it didn’t go very well. John Maynard Keynes thought the president was no economist. The president thought Keynes was a bit too clever for his own good. But they did agree on the most important thing. This was no time for government to sit on its hands. It was time for an historic experiment.
New Deal to put a nation back to work
The New Deal, a vast program of government-funded projects to put armies of jobless to work. Ever since, it’s been the celebrated example of a Keynesian effort to boost flagging economies. And there’s no more iconic project of that era than this one. Hoover Dam. Built across the Colorado River, bordering Nevada and Arizona, it was the biggest construction project in the world.
Denis McBride “I would call it a Keynesian project, absolutely. The government stepped in with money. Built a deficit, and out of that came Hoover Dam, which gave thousands, tens of thousands of people, a new life, money to spend.”
Armies of workers from across America tunnelled for five years through mile upon mile of mountain rock to build, what was in effect, a vast power generator, providing electricity for huge swathes of the country.
Denis McBride “It primed the economy. 165 million investment, which produced millions in growth, economic growth.”
Just 8 miles away is Boulder city, built to house the workers building the dam.
Roger Shoaff “All these houses along these avenues are what we now call ding-bat houses. They were the homes built for the workers. They were put up to last through the construction of the dam. Very quickly built. But because people stayed, which they didn’t anticipate, families still lived in them.”
Roger Shoaff runs the town’s hotel. He thinks Boulder city shows how in a depression extra government spending CAN trigger private spending and investment, too, adding to the economic benefits. It’s what John Maynard Keynes called “the multiplier”.
Roger Shoaff “By the end of the second year, they lived in the town, a full town, fully operating town with the retail stores and restaurants and medical facilities and recreational facilities. It happened in less than two years.”
Critics of Keynesian spending plans often say the benefits are fleeting and the costs permanent. But Boulder city took root and thrived. Those who still live here say if it hadn’t been for the New Deal, this would still be desert. Hoover Dam might have helped the local area, but it’s actually a myth that the New Deal ended the Great Depression. It took a world war and all the extra government spending that went with that, finally, to bring the economy out of the doldrums.
You might wonder whether the World War was really the best test of Keynes arguments. But ever since then, so-called Keynesian policies have been what governments do when faced with emergencies. And the crisis of 2008 was the biggest emergency anyone had seen for a long time.
