|0:36||Intro. Standard view: Herbert Hoover was a laissez faire acolyte who stood idly by as we plunged into depression; then Franklin D. Roosevelt came along and, inspired by Keynes, spent our way out of it by putting purchasing power into the hands of consumers. What's Shlaes's view? Hoover: Hoover's philosophy was free market—stance on promoting mining. But his temperament trumped his philosophy. He was a control-freak. When the [1929 stock market] Crash happened he tried to control it, and did a lot of wrong things. He called business together and told them to not lay off people—very Keynesian. But the first thing you want to do in a recession is cut costs. He also didn't take seriously the importance of free trade; and he signed off on a bad tariff (the Smoot-Hawley Tariff) even though economists of the day wrote him. Hoover made "fallacious assumption that he was the smartest person in the room" because he always had been. Consistent with his Quaker background, he tried to do good deeds; led relief effort in Belgium to stave off starvation. But food is fungible, so Germans didn't feed the Belgians. Helped during flood; but Coolidge wasn't comfortable with the Federal Government marching into the south because he felt it was the job of the states. Followed the rules, believed spending would help (Keynesian style, though without talking about Keynes). "He should have known better but he just couldn't help himself." Hoover Dam, arranged compact among states—he was a big spender. Roosevelt administration took away the name; they and history trashed him. Throughout the '30s, Hoover protested that he, like Roosevelt, had been a big spender. Irony was that he kept claiming he acted and acted and acted, when inaction might have been the better course.|
|9:50||Roosevelt: Clichéd view is that by his taking hold of the tiller [sic, rudder], he steadied the sinking ship of the economy. "We will do bold persistent experimentation." Neglects an appreciation of the cost of uncertainty. When a ruler may do the unexpected, you freeze. Investors, employers were terrified day by day. Roosevelt kept changing course. Ray Moley, prison reform: to look at Roosevelt's policies and see that they have any purpose was as silly as to look at a boy's bedroom and see the snakeskin and the old mitt and tell yourself that an interior decorator had decorated that room. Roosevelt was random. Did some very destructive things when business tried to hide. Undistributed profits tax: claim was that money needed to be put back into the economy, so if companies kept money it was stunting growth the money had to be taken from them. But taking money from them discouraged investment! Roosevelt was anti big business, pro small business, Justice Louis Brandeis (The Curse of Bigness), cozied up to big business but trashed it through Justice Department.|
|15:26||National Recovery Administration (NRA) was a conflicting law: had a romance with the economy of scale. If we can be big and efficient, and save, we will be better; if we can keep prices up, we will be better and stop deflation. Fallacy. If business can just get along (e.g., labor sits in boardroom), we'd be better off. People who ran the New Deal were not traitors, but were influenced by the Soviet Union. Perverse result afflicted every area of the economy by codes and rules with false premises: sewing, chicken farming. From "One From One Leaves Two," by Ogden Nash:|
Mumbledy pumbledy, my red cow,So many rules people went crazy.
She's cooperating now.
At first she didn't understand
That milk production must be planned;
She didn't understand at first
She either had to plan or burst,
But now the government reports
She's giving pints instead of quarts....
Abracadabra, thus we learn
The more you create, the less you earn....
|19:02||People were put in jail. Schechter Poultry vs. the United States, family business, Kosher butchers, convicted, barely spoke English. Plucked to be an example, had to conform to detailed regulations. NRA emblem: blue eagle. Family made same case as Roberts, Boudreaux, Friedman, Samuelson—modern economists of all persuasions—make. "I'm not an economist, but I'm an economizer." Competitive markets mean you have to charge low prices. NRA even ruled out a consumer's picking out best chickens from a batch—just had to take first ones that came to hand. But consumer and business choice are very important. Concept was that middleman gets in the way—historical, medieval, possibly stemming from anti-semitism. Rule was purportedly to decrease inefficiency but haggling and picking matter for chicken business. Rule made market unable to weed out inefficient businesses that provided crummy chickens. Like Al Capone; clean people from Harvard and the Government attack dirty ethnic people. Schechters won, delegation, commerce clause. Communist Drew Pearson mocked the Schechters. All in the name of one bad law. NRA ultimately collapsed—bone and sinew of it couldn't hold up. Stock market began to rally around the time the Schechters won. Unemployment was at 20%, didn't come back till 1950s; yet Roosevelt's popularity high. Poem by Mrs. Schechter, reprinted in book with family permission:|
No more excuses to hide our disgrace
With pride and satisfaction I'm showing my face
For a long, long time to be kept in suspense
Sarcastic remarks made it our expense...
|30:55||Schechter case was as much a watershed as Gideon case, highlighted in Gideon's Trumpet, Anthony Lewis: case about Miranda rights. Schechter case stopped the big government, New Deal, worry that we were heading toward National Socialism or 5-year Soviet-style plans. Wagner Act (1935), Fair Labor and Standards Act (1938), later lost ground gained by Schechter case. Low level of economic reasoning in the debates of the day. Example: Role of money supply, Friedman and Schwartz, Monetary History of the United States—even the Federal Reserve Board itself at the time was ignorant of the economic role of money. Example: Microeconomic misunderstanding: the idea that you can make the economy better by killing pigs, driving up the price of pork. Helps pig farmers, but destroys economy and wealth. Six million pigs killed at a time to drive up pork prices when people were starving. Shlaes: "I believe the understanding of people in government about economics was poor, and the rules in government were poor, but there was a lot of native understand among the people that was usually good. Certainly on the micro side. Maybe not on monetary—monetary's hard." Today there's a better understanding that might stop some of these ideas from becoming policy. Wonder about protectionism. There was an economist at the time who understood that it was a monetary problem, that there wasn't enough money, literally, and that was Irving Fisher. Made price indexes. But he was also a market bull, so when market crashed he looked ridiculous. But he was right about the monetary problem. At first Fisher was pleased with Roosevelt, but ultimately Fisher didn't think Roosevelt went far enough.|
|39:31||Problem of deflation: If prices are falling (or rising) isn't as important as that people are able to predict what will happen with prices so that they can write contracts, especially loans. Bad to be a borrower at time of deflation, hard to pay off on a house when wages are falling. 3 or 4 in 10 people in some towns lost their homes. Ben Bernanke, current Fed Chairman, has written about this. Deflation punished risk takers and rewarded lenders. Created the character of our parents and grandparents: savings bonds, saving rubber bands. Cultural side to the Depression. We think of that period as a period when government became important in our lives, but it was also a period when people turned inside and away from government. Bill W., a founder of Alcoholics Anonymous (AA), created the modern self-help group, no clergyman leadership, just citizens helping each other. Legacy of the period: today we know acronyms like AA, but NRA now has to be explained.|
|44:49||Politics: Roosevelt and his aides used lass warfare, vilifying the rich, so justice requires that they be punished. View is that world is a 0-sum game—one person's riches can only come at the expense of someone else. Misunderstanding of how wealth is created. Sarbanes-Oxley is mild compared to the language of New Deal legislation. We've learned that the private sector is important. We see that period as an exception rather than the rule. Roosevelt knew people attacked hated him, and said on the air, "And I welcome their hatred." Had new tool: Income tax, young but in effect and mostly tax on the wealthy. Raised income tax way up from where Andrew Mellon as Secretary of the Treasury had had them in the '20s, persisted into the '70s. Prosecuted people. Conflated avoidance—legal—with evasion—illegal. Anyone who tried to pay less taxes was a criminal. Same attitude as Treasury Secretary Henry Morgenthau. Scared people, was hypocritical. Prosecuted Andrew Mellon (would be like prosecuting Allan Greenspan today) for taking deductions he was allowed to take. Mellon died before it was all over. FDR didn't treat himself the same way: Didn't pay his whole taxes and couldn't be bothered to figure out what they were. Insight into McCarthyism, attacks on communism. Outstanding thing about them was not whether people were communists—it was that they had no decency, were vicious, mean. The Republicans learned how to be nasty from the New Dealers. The lists of McCarthy were foreshadowed by the lists drawn up by Roosevelt of innocent taxpayers. Power corrupts, turns people arrogant, all sides. Politics is a blood sport. Roosevelt's illness, constant pain, may have informed his presidency.|
|53:55||Rule of law was at risk because of relentless tinkering at the time. Justified ex post by saying it could have been worse. Our culture of contract—between two people, between government and the people—was weakened. Rex Tugwell, institutional economist of the period, failed because he was insufficiently political, went on to consider rewriting the Constitution. Is it important for the Constitution to be flexible? Jefferson.|
|57:20||In last 10 or 15 years, new stereotype: Roosevelt tried hard but wasn't successful in ending the Depression. The war ended the Depression. But Bob Higgs has pointed out that maybe the war didn't end it either. The atmosphere of uncertainty persisted. Salient question is: Why did Depression last so long? Economy didn't come back to where it had been till late '30s, even '50s. We still live with its legacy. Roosevelt's 2nd Inaugural, 1937: "We are beginning to wipe out the line that divides the practical from the ideal and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world." Pretty confident. 1935-6 law, taxes are never going to go up. Social Security and payroll tax myth that your payments fund your account came out of the New Deal. Forgotten man in Shlaes's book is today's voter. Book title, William Graham Sumner, The Forgotten Man, was used by Roosevelt in a speech, possibly without knowing the phrase came from Sumner and meaning something different. The forgotten man is not the one who gets the benefit, but the one who pays. Taxpayer. Sumner's 1883 forgotten man: "He is the man who is never thought of. He works, he votes—generally he prays—but he always pays." Also, from frontispiece: "As soon as A observes something which seems to him to be wrong from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X.... What I want to do is look up C.... I call him the Forgotten Man."|