Depressions on the mind

Revisiting the Great Depression is a hardy perennial of economic history that has added force in recent times due to the recent global financial crisis (GFC) and Great Recession. One of the central myths is "FDR and the New Deal saved the US". A consoling heroic narrative, especially as the modern US Democratic Party was essentially re-created (and turned into the default majority Party of US politics) during the Roosevelt Administration.

This is a mythic story that only has strong plausibility if one does not compare the US experience with other developed economies. The US was, for example, the only major capitalist economy to have two economic downturns during the 1930s. Moreover, the Australian economy began its economic turnaround before Roosevelt took office and recovered much more strongly (and consistently) than did the US economy. To put it another way,Australian public policy was more successful than American public policy. (These details and much more were provided in Prof. Sinclair Davidson's very informative address comparing the Great Depression with the Great Recession to the Adam Smith Club Wednesday night.)

Yet the New Deal has mythic status and the Premier's Plan does not (except as a horror story in ALP history: the Premier's Plan does not even rate a Wikipedia entry). This is for lots of reasons, not least of which was FDR's very charismatic personal style, the sense of (dare one say) audacity and hope he generated, his utilisation of the new medium of radio, the gloss of victory in the Second World War and that the New Deal incorporates the notion of government-as-saviour which is such a powerful force in modern politics. What are the public policy facts against all that?

Including that one John Maynard Keynes supported the Premier's Plan and wrote letters to and about FDR's Administration criticising its contradictory policies.

But one should never underestimate the power of a simple narrative. "FDR and the New Deal saved America" is a simple narrative. "There is not enough spending, so government has to do the replacement spending" is a simple narrative. That Oz is the only developed country where fiscal stimulus has "worked" in the current crisis could be evidence that the Rudd Government was just very, very clever (or very, very lucky). Or 25+ failures to one success could mean that they were all cases of expensive "pissing into the wind": it is just that we were better placed than other folk, so our pissing seemed to work. (Too bad about the looming public debt.)

Meanwhile, in the US, unemployment continues to rise in dramatic contradiction of the Administration's projections.

On a lighter note, let's all enjoy this little exchange before the Australian Senate Economic Committee (pdf):

Senator CAMERON—What about some of the infrastructure projects that form part of the package?
Prof. Davidson—Name them.
Senator CAMERON—The Ipswich Motorway.
Prof. Davidson—The government’s job is to build roads anyway. I would have thought that is a state government responsibility.
Senator CAMERON—Are you seriously putting to this inquiry that the federal government should play no role in investing in the nation’s road infrastructure?
Prof. Davidson—I am putting it to you that if you wanted to build roads that you would give the money to the states and allow the state governments to make decisions as to what roads they wish to build.
Senator CAMERON—That is an interesting point of view!
Prof. Davidson—We have a constitution that actually has states that make decisions about these things. You do represent the states, don’t you?
Senator CAMERON—I am here to ask the questions, not you.
Prof. Davidson—Actually, I am a taxpayer. I will ask questions too.
Senator CAMERON—You will not ask me any questions. I will be asking the questions, thanks very much.