The real New Deal

Paul Krugman today in the NYT: "Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world?"

Krugman argues that contrary to Neoliberal orthodoxy FDR underspent:

Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

Yes! I love this line of argument. It completely inverts the Austrian economics orthodoxy which rejects the need for social-liberal regulatory politics in the face of the finance capital convulsions because, they argue, it was government intervention that fostered the sub-prime mess in the first place. Krugman, instead, argues that the New Deal was never as interventionist as it has been painted by the Neoliberals. The US is yet to try the real New Deal.