The current financial crisis has frequently been compared to the Great Depression, despite objections from some economists who say the circumstances are very different. Similarly, President Obama’s job during his first 100 days has been sized up against that of Franklin Delano Roosevelt, who took the oath of office as unemployment soared, bread lines formed in America’s cities, and farmers were on the verge of revolt in the heartland.
While President Obama’s challenges are very different, there are certainly some important lessons to be learned from that period in our history, and no doubt Obama has been reading up on the successes and failures of the 32nd President. In fact, there has been a boomlet in literature and discussion about the Great Depression—when unemployment soared to 25 percent and thousands of banks collapsed—and FDR’s response to it.
The newest entry into this genre is Nothing to Fear: FDR’s Inner Circle and the Hundred Days That Created Modern America by Adam Cohen, published in January. The author focuses on the handful of top advisors that FDR surrounded himself with as he embarked on the most ambitious “first 100 days” in presidential history. During this time, FDR pushed through Congress an impressive slate of legislation, including the Emergency Banking Bill, which reorganized and strengthened the solvent banks. During those first few months, FDR’s administration also created the Federal Emergency Relief Administration, the Civilian Conservation Corps, and the Tennessee Valley Authority. But these agencies proved no quick way out of the Depression, and Cohen points out FDR’s flawed balanced-budget approach, which bucked John Maynard Keynes’ recommendation to begin heavy deficit spending. Obama will not make the same mistake, of course, but the debate is now over just how much deficit spending we can endure.
One of the leading authorities on that subject is Paul Krugman, New York Times columnist and 2008 Nobel Prize winner. In 1999, Krugman wrote The Return of Depression Economics, about the crisis in Asia and Latin America, which he compared to a strain of bacteria that had become resistant to antibiotics. Now that the strain appears to be infecting the U.S. economy, Krugman has updated his book to address the current crisis. The left-leaning columnist lays the blame squarely on regulators, whom he says stood pat while the financial services industry ran “out of control.” Krugman’s fix? Deficit spending, and lots of it.
If the successes and failures of economic leaders during the Great Depression can indeed show us the way through this current crisis, it’s good that we have a Federal Reserve Chairman in Ben Bernanke, who just happens to be a Depression-era specialist. A writer for Dow Jones called him “the greatest living expert on that period.” In Essays on the Great Depression, published in 2004, Bernanke lays out the causes of the economic blight and contrasts the policy reactions of nations around the world. It is heavy on macroeconomic theory, but an incredibly insightful take on how the financial sector reacts to panic and the broader implications of knee-jerk economic policy.
One more text worth reading to gain a comprehensive understanding of the period and how it compares to today is Amity Shlaes’ The Forgotten Man: A New History of the Great Depression. Shlaes delves deep into monetary policy, and the crafters of the New Deal. Shlaes’ take is that Hoover and company were not as incompetent as history has made them out. She is less kind than most historians to FDR, and reminds us that many of Roosevelt’s “experiments” were failures. As we have watched our own economic leaders struggle with fits and starts to solutions for the many problems we face and the new President takes the helm with a bold and ambitious economic agenda, these are lessons worth rediscovering.