Conservatives, as David Sirota noted, have a new favorite talking point: FDR and the New Deal made the great depression worse. Conservatives are arguing fervently in a desperate attempt to derail a major economic stimulus plan from the incoming Obama administration. A number of writers – UC Davis Professor Eric Rauchway and UC Berkeley Professor Brad DeLong, Nobel Prize winner Paul Krugman, Campaign For America’s Future pundit Bill Scher – have pointed out that most of those critiques are based on the faulty numbers of Amity Shlaes – whose book The Forgotten Man is the bible of right wing New Deal criticism (some writers argue it should be called Forgotten Math given the less than credible way Shlaes massages the numbers).

Beginning in 1929, the US Economy went into freefall. Unemployment, 3.2% in 1929, was 24.6% by 1933; from 1929 to 1932, the US experienced 32% deflation. Real incomes declined by 29%; nominal incomes declined by 46%. In nominal dollars, GDP plummeted from $103.6 billion in 1929 to $56.4 billion in 1933; in 2000 dollars, the fall was from $865.2 billion to $635.5 billion – a 27% fall in “constant” dollars and a 46% fall in nominal dollars. Bank closures numbered in the thousands. Huge numbers of Americans lost their life savings.

Roosevelt took office in March of 1933 (president’s were inaugurated in March back then). In 1933, the economy “only” declined 1.27%. In 1934, the US economy grew nearly 11%, in 1935 8.9%, 1936 13%, 1937 5.14%, 1938 it declined by 3.45%, then 1939 grew by 8.07%, 1940 saw 8.77% growth and as the economy moved onto war footing, achieved an astonishing 17% growth in 1941 (1942 was 18.52%, 1943 16.41%, 1944 8.12%). 1937 and 1938 were the result of Roosevelt misjudging the strength of the economy and trying to prematurely balance the budget.

David Sirota describes it thus:

“Excepting 1937-1938, unemployment fell each year of Roosevelt’s first two terms (while) the U.S. economy grew at average annual growth rates of 9 percent to 10 percent” – a verifiable, undebatable fact. It notes that the only time the New Deal didn’t produce positive economic results was when FDR momentarily backed off the New Deal and balanced the budget – again, a verifiable, undebatable fact. It notes that even conservative icons like Milton Friedman have said that the New Deal’s key banking laws like the creation of the FDIC were key to undergirding the U.S. economy – again, not debatable. And, of course, we have the U.S. government’s own Census data* telling us that the pre-WWII New Deal period saw the single largest drop in the unemployment rate in American history.

With a hat tip to Brad DeLong, I’ll quote Martin Wolf:

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions…. Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

Krugman calls it the Hangover Theory:

the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion.

The hangover theory is perversely seductive—not because it offers an easy way out, but because it doesn’t. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.

It’s difficult for us to fathom the full impact of the Great Depression on those who lived through it. 1 in 4 Americans was out of work and the winter of 1932-1933 was a long, cold winter. Despairing Americans believed the nation was on the verge of collapse, the world itself had spun out of control. Marriage and birthrates dropped, as did divorce rates (I have a chart I’ll have to post that shows those three trend lines dropping off a cliff in the early 30s).

My grandparents married in the summer of 1932 in Salt Lake City. Grandma got work as a butter wrapper at the Deseret Creamery. My grandfather ended up working as a day laborer, often working only two or three days a week. Grandpa eventually got a job as a union welder. The experiences of those years shaped their attitudes in ways that marked a true schism with those who came before.

As Shane pointed out, conservative economic theory consists of three key items:

For those who need a crash course in voodoo econ 101, that means three things: 1. cut taxes, 2. deregulate, and 3. privatize.

For all intents and purposes, conservative economic policies have been geared toward undoing the New Deal. Add in “bust unions” and you’ve got the whole of the conservative economic program in one sentence. Watching the banking system meltdown and the economy unravel – almost 700k jobs lost in December! – and you get an idea of how effective the conservative regime has been in terms of managing the economy.