2009-02-12 For Insight on Stimulus Battle, Look to the '30s

2009-02-12 Steven Mufson Washington Post \US economy\2008 financial meltdown\2009 US stimulus package\Great Depression\New Deal\New Deal made Great Depression worse http://www.washingtonpost.com/wp-dyn/content/story/2009/02/12/ST2009021201325.html For Insight on Stimulus Battle, Look to the '30s For Insight on Stimulus Battle, Look to the '30s  Underlying the partisan division over President Obama's stimulus bill is a dispute over history -- a decades-old debate between liberals and conservatives over the impact the New Deal had in bringing the country out of the Great Depression.

Senate Minority Leader Mitch McConnell (R-Ky.) said flatly last week that "the big-spending programs of the New Deal did not work." Sen. Richard Shelby (R-Ala.) said, "If we look back, even to the New Deal, it's not going to help employment." And two economists argued in the Wall Street Journal that "there was even less work on average during the New Deal than before FDR took office."

But most mainstream economists say the lessons of the Depression, which didn't end until World War II spending kicked in, are different. They say New Deal spending programs instituted by President Franklin D. Roosevelt -- combined with moves to bolster the banking system, loosen monetary policy and end the gold standard -- did help put millions of people back to work. At the same time, they say that federal spending increases under Roosevelt before the war were modest compared with the size of the economy, and not a good test of stimulus spending.

"The Depression at its worst moment had 25 percent unemployed," said Alice Rivlin, former Clinton budget director and former director of the Congressional Budget Office. "Many of those people got back to work. Not all of them. We still had very high unemployment for many years. But to say it didn't work is to say we know what would have happened without it."

Like most disputes about the past, the wrestling match over the lessons of the Depression has everything to do with the present. If Roosevelt's New Deal programs -- such as the Civilian Conservation Corps, the Works Progress Administration and Social Security -- didn't revive the economy in the 1930s, Republicans in Congress have a powerful argument justifying their opposition to President Obama's stimulus program. And if the Roosevelt programs worked, Democrats can justify the huge stimulus package as following a successful precedent.

In fact, for most of the New Deal era, the economy grew quickly -- an annual rate of about 13 percent from 1933 to 1937 and more than 10 percent from 1938 to 1941, Commerce Department data show. Mufson argues that the New Deal absolutely helped the economy, and its only shortcomings were due to insufficient spending – Republican revisionist history notwithstanding.

The New Deal absolutely helped the economy, and its only shortcomings were due to insufficient spending – Republican revisionist history notwithstanding.   