Do We Need A New Deal?

British Prime Minister Gordon Brown told a gathering of European dignitaries yesterday that the world needs a “global New Deal” to help pull it out of its current economic crisis. Brown’s comments reflect a growing resurgence of FDR’s Depression-era policies among some economists and thinkers on the left. This begs a reasonable question – reasonable enough in theory but not in application – did the New Deal work?

And depending upon who you ask, the answers will vary. If you were to lock a dozen economists in a room (what a party that’d be), six liberal and six conservative, and told them that they were not allowed out until they came to consensus on the question, chances are likely that they’d still be in there. It’s not just because of their political differences, but because they’d still be arguing as to what the New Deal constituted and what measures they'd use to judge its success.

Some on the left side of the argument might point to real GDP growth from 1932-1940 as evidence of New Deal validity, while the right might counter that unemployment figures for the same period varied widely, never dipping below 14%. In response, the left would throw down their Krugman card, arguing that the good doctor and Nobel Prize winner would say the only reason unemployment figures surged in 1937 was because much of FDR’s policies were repealed. A-ha! The right would counter, not only were the policies unconstitutional, they weren’t working! Not only that, but 1937 would have been about the time when FDR’s massive tax increases in 1935 would have begun to have been felt in the economy. And so on…

But I think one thing both sides might agree upon is that New Deal policies weren’t the result of any “new” thinking or codified plan at all; they were mostly retreads of Wilsonian Utopian collectivism. Jonah Goldberg, in his excellent book Liberal Fascism, quotes FDR economic advisor Alvin Hansen when asked in 1940 whether “the basic principle of the New Deal” was economically sound, is to have responded, “I really do not know what the basic principle of the New Deal is.” From Hansen, it can be reasoned that the basic principle of the New Deal is that whatever stuck to the wall was good enough.

This is not to say that certain policies of the New Deal didn’t provide some measure of relief – two such policies that come to mind are Social Security and Unemployment Insurance – but these are two of several that didn’t, and which could have been enacted irrespective of the New Deal.

Ultimately, I think the New Deal was a product of its time, borne from the notion that the state is the solution for all of society’s ills. This movement needed an impetus, which the social and economic upheaval of the Depression gladly provided.