A letter writer in the latest Commentary (subscriber link here) takes writer James K. Glassman to task for an article in which he downplayed the impact of FDR?s policies on boosting the economy. Glassman?s response?
Very well: I should not hold FDR responsibile for the unemployment rate in 1933, his first year in office. So from what year exactly may the reckoning on his policies begin? Can we agree on 1935, when the unemployment rate was 20 percent? Or 1938, when it was 19 percent? The figures cited by Paul J. Pieper for GDP growth in the 1930s sound large, but that is because they came off a terribly low base. The essential fact is that it was not until 1940 that nominal GDP in the U.S. returned to its 1929 level.
Contrary to Mr. Pieper?s assertion, nowhere did I claim that fiscal policy did not have any power to stimulate. What I wrote was this: ?The consensus until recently among economists was that attempts at stimulus through emergency fiscal policies?as opposed to monetary policies and the automatic effects of increases in unemployment assistance and decreases in tax payments?were useless at best.?
I would gladly join the economists in Mr. Pieper?s poll in affirming that ?fiscal policy has a stimulative impact on a less than fully employed economy.? There is little doubt that ?automatic stabilizers??unemployment insurance and lower taxes?have a beneficial effect. The issue is whether discretionary or deliberate stimulus?say, the federal government buying a new icebreaker for the Coast Guard, paying for a Little League parking lot in Puerto Rico, or giving out a one-time tax rebate?constitutes sound practice. Here, the view of the accounting profession has clearly been skeptical (as the citations in my article suggest), and I am not persuaded that the empirical data justify recent attempts to argue the contrary.
For more evidence of the limited value of Roosevelt?s policies, see the transcript of Roy Cordato?s recent discussion with Donna Martinez about Keynesian economics.
