Jeff Madrick on Infrastructure Spending in the Great Depresion
Jeff Madrick was parachuted at the last moment--as he wrote me, he thought he was the wrong person (the right person would have been someone like Alex Field)--into the Council on Foreign Relations New Deal Conference last Monday to make it less hopelessly biased--less of an event that, as one senior Bush I economic policy advisor and rock-ribbed Republican quipped, was the Council on Foreign Relations' attempt "to outbid Heritage as the most biased and least educational thinktank." He did a good job in talking about infrastructure spending during the Great Depression, and why you would never have expected it to curematters: there just wasn't enough of it:
Infrastructure Spending to Grow: JEFF MADRICK: I want to state this very strongly because I don't think it has been stated strongly enough... enough wasn't spent... there was no net stimulus to the economy when you talk about all that spending. Let me put that in a little bit of perspective, and I want in particular to emphasize Peter Temin's point about what a deep hole we were in. From 1933 to 1937.. [t]he economy grew at 9 percent a year... GDP equaled its 1929 level by 1937, coming out of an enormous hole.... So when we talk about the depression lasting from... 1930 to 1939, we are seriously misstating it.... You have heard already about unlocking the monetary system, the bank holiday, people were borrowing, leaving their money in banks... Federal Reserve policy was loosened, and there was modest deficit spending in those years....
Keynes talked about a deficit, not the size of government, which is a different issue, but a deficit.... That came at most to something like 5 percent in those mid-1930s years. Nothing serious enough to get us out of that very deep hole in the early '30s, which cut GDP by about 30 percent....
I have to say one other thing about high labor costs and unionization. A simple fact of life -- the golden age of American growth was the 1950s and 1960s. The golden age of unionization was the 1950s and 1960s. The golden age of wage growth in America was the 1950s and 1960s. The golden age of capital investment was the 1950s and 1960s....
[W]e didn't have roads and bridges. We had to build them. And when did we build them? In the 1930s. And the good work of Alex Field, for example, suggests that the capital stock of roads and bridges in the 1930s increased by 70 percent.... I don't know many economists who think adequate infrastructure for a modern economy since the industrial revolution in the 1700s will be created by General Electric or General Motors or big oil.It has been created by people getting together and deciding, we've got to build roads and bridges, we've got to build turnpikes, we've got to build railroads.... Government has been the source of major infrastructure investment....
And the smart and well-informed Nick Taylor thinks he has wandered into the wrong discussion:
NICK TAYLOR: Well, I'm not prepared to argue Henry Morgenthau and whether he was right... as I look over the program this morning I believe I'm the first non-economist on the stage or at least among the panel...