« Song of the Day #396 | Main | Song of the Day #397 »

Bush, Krugman, and the Old Deal

Today's NY Times article by Paul Krugman, "Not the New Deal," gave me a few chuckles.

With George W. Bush projecting a huge federal government effort to reconstruct Louisiana and Mississippi and other areas affected by the devastation of Hurricane Katrina, fiscal conservatives are already murmuring. But little stands in the way of this vast projected increase in government spending.

As my colleague Mark Brady has asked: "Did You Really Expect Anything Else?"

A Bush critic such as Paul Krugman is busy objecting to a Heritage Foundation-inspired plan that would include "waivers on environmental rules, the elimination of capital gains taxes and the private ownership of public school buildings in the disaster areas." But he also believes that "even conservatives" must recognize that "recovery will require a lot of federal spending." Since this will have an appreciable effect on the deficit, Krugman wonders "how ... discretionary government spending [can] take place on that scale without creating equally large-scale corruption." Given the Bush administration's penchant for awarding so much pork to favored corporations in places like Iraq, Krugman is understandably concerned about "cronyism and corruption."

This, says Krugman, is in marked contrast to the efforts of Franklin Delano Roosevelt, whose "New Deal" provided "a huge expansion of federal spending" without corruption or cronyism. The New Deal, says Krugman, "made almost a fetish out of policing its own programs against potential corruption. In particular, F.D.R. created a powerful 'division of progress investigation' to look into complaints of malfeasance in the W.P.A. That division proved so effective that a later Congressional investigation couldn't find a single serious irregularity it had missed." For Krugman, FDR was committed to "honest government," because he understood that "government activism works. But George W. Bush isn't F.D.R. Indeed, in crucial respects he's the anti-F.D.R."

Is Krugman kidding me?

Throughout his presidency, Bush has looked to such American Presidents as Woodrow Wilson and FDR for inspiration. Bush believes that FDR himself "gave his soul for the process" of taking America out of the Depression and into a world war against authoritarianism.

As for the New Deal: There are no "honest government" spending programs that don't involve some kind of structurally constituted cronyism and corruption. That's just the nature of the beast. And FDR's New Deal is no exception. It was, in many ways, a paradigmatic case, no different from the "war collectivism" policies of World War I or World War II, all of which entailed using the vastly expanding power of government to privilege certain groups at the expense of other groups. Not even Herbert Hoover's response to the government-engendered Great Depression was "laissez faire" (see Rothbard's "Herbert Hoover and the Myth of Laissez-Faire" in A New History of Leviathan, and, of course, his fine book on the subject).

A cursory look at Jim Powell's recent book, FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression reveals "why so much New Deal relief and public works money [was] channeled away from the poorest people." From its inception, the New Deal was inspired by the corporatist model of Italian fascism. Even Krugman's beloved Works Progress Adminstration was constructed on the basis of patronage schemes. Citing economic historian Gavin Wright, Powell tells us that "a statistical analysis of New Deal spending purportedly aimed at helping the poor" gives us evidence that "80 percent of the state-by-state variation in per person New Deal spending could be explained by political factors."

Mainstream politics offers no genuine opposition to FDR's Old "New Deal" or Bush's New "Old Deal," not when "conservatives" and "liberals" are united in their support for massive government intervention.

Comments welcome. Cross-posted to L&P and Mises Economics Blog.


This topic is one that push my quarrels with libertarians. Althought I agree that is desirable to reduce as much as possible the size of the Leviathan, It seems to me that libertarian position is dogmatic and unrealistic concerning goverment spending and programs. For libertarians it seems that goverment programs produce always bad results and that it will be better if we abolished goverment spending ipso facto. It may be the case that goverment spending is bad as a matter of principle, but that has little to do with its results (if they are good or bad). Can we actually think that the victims of Katrina disaster can do it without goverment help? Maybe in the ideal libertarian world, but not in the world we actually live. If the state must disapear that ought to be a gradual process, and it is better we accept the idea it will remain a long time with us, don´t you think?

Hi Sergio,

I just want to note that this post was really not about potential resolutions to the current situation along the Gulf Coast. Note too that I would be the last one to argue that we should ignore the current context in coming up with such potential resolutions, libertarian or otherwise. Because the simple fact is: The current context is not libertarian, and the political system will not allow for any kind of limited governmental response.

I surely do not believe in "button-pushing," which would imply that we can simply push a button and get rid of state interference in social and economic life. I don't see the end of such intervention at any point in the foreseeable future. I'd like to say that this therefore means we should advocate "more efficient" governmental planning, but that presumes that such planning is guided by efficiency; it rarely is. There are political pressures always at work in any situation where government is involved. It is as close to inexorable as is the fact that all living things eventually die.

An argument can be made that because the government was responsible for maintaining the levee system to begin with, it bears responsibility for what happened in New Orleans and elsewhere.

But there are many premises that need to be checked in coming up with the kind of government response that would encourage growth. First, I think it will be important for people to begin to re-examine how government socializes risk, that is, how it forces taxpayers to socialize the risky investments of others. It does this by insuring certain geographic areas against damages that would be or should be borne by those who choose to settle in these geographic areas.

The same can be said for the development of certain energy sources: Government can sometimes spur development of an industry by socializing the risk of damages that such an industry might generate. But that doesn't mean that government should be doing that. Case in point: The Price Anderson Act, which limits the liability of nuclear power plants. Without government insurance of nuclear power plants, it is very doubtful that nuclear power operators would be able to get private insurance for their industry. Let the people trading on the market decide, and let a more ideal legal framework allow for the increasing delineation of private property rights and their protection.

Of course, once risk is socialized and real individual men and women settle in risky areas, it is wrong to tell these individuals now: "Tough, next time don't live in a city that exists below sea level."

But government on almost every level failed in this instance: the local, state, and federal response has been awful, people's lives were decimated, and the damage from this is likely to reverberate for decades to come.

I think that, given the current system, much can be said for government mobilization of resources to shore up the levees and drain the cities of water. But if Bush wanted to start acting in truly revolutionary ways, he might consider private means of maintaining levees. He might consider turning the entire Gulf Coast into a large "Enterprise Zone," allowing people to reclaim property and to develop it in ways that assumes future risk, while enabling investors and workers to keep the benefits of their labors.

Nothing bold can possibly come from the current context, however; the system as such will generate responses that enrich those who are most adept at using the system's tools.


Excellent post (as usual). In addition to the points you discussed, the New Deal also proved quite negative for African Americans. In particular, New Deal legislation granted monopoly bargaining power to racist unions, raised the price of food and other goods, and threw many poor blacks out of work. I discussed some of these issues in a review essay for Reason magazine (in part a review of Jim Powell's book, in fact), which you can read here: http://www.reason.com/0410/cr.dr.bad.shtml

Damon, thanks for your kind words. And that was a fine article. (You can hyperlink the words in the Notablog comments section now, so for the sake of those too lazy to cut and paste, here is Damon's essay.)

Thanks again!

I was just browsing the archives of the left-libertarian mailing list and was reminded of this post, when I came across a great quote from Karl Hess's 1975 book Dear America which captures the spirit of Krugman-type "liberalism" well:

"Liberals believe in concentrated power—in the hands of liberals, the supposedly educated and genteel elite. They believe in concentrating that power as heavily and effectively as possible. They believe in great size of enterprise, whether corporate or political, and have a great and profound disdain for the homely and the local."

Great quote, Joel.