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Source link: http://archive.mises.org/4102/bush-krugman-and-the-old-deal/

Bush, Krugman, and the Old Deal

September 16, 2005 by

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.

Cross-posted to Notablog.


Stefan Karlsson September 16, 2005 at 11:54 am

Good post with good arguments. But you left out another really funny assertion from Krugman:

“President Bush subscribes to a political philosophy that opposes government activism – that’s why he has tried to downsize and privatize programs wherever he can.”

This about a man who have actively sought to expand program after program and as a result has seen government spending increase by a third in 4 years.

A few columns back he similarly accused Bush of having a “ideological hostility to the very idea of using government”.

Paul Krugman seems to be living in a alternate universe.

Chris Matthew Sciabarra September 16, 2005 at 12:12 pm

That’s a good point, Stefan.

It never ceases to amaze me how commentators seize upon a rhetorical flourish as proof of some sort of practical policy implication. The disconnect between rhetoric and reality here is fairly typical; Bush, like others before him, uses the ideological “veneer” of privatization to legitimize an unending augmentation of government intervention.

Mike Tennant September 16, 2005 at 12:47 pm

Never fear. Rush Limbaugh today spent most of the first hour of his show trying to calm his listeners by telling them that, yes, the federal government is going to spend a lot of money on disaster relief, but (a) it’s required to do so by law and (b) it will be spent on “conservative” projects. Thus, he said, Bush’s government spending would signal the death knell for liberalism and socialism, which are a greater threat to America than the expenditure of $200 billion in taxpayers’ money. (Funny, but I always thought that liberalism/socialism was all about spending taxpayers’ money.) We needn’t worry about corruption, either, for the prez says he will send oodles of inspectors general to the Gulf coast to see to it that our money is spent wisely.

jeffrey September 16, 2005 at 12:51 pm

Here is the American Prospect going on about how it is not enough to expand goverment; you have to BELIEVE in big government to make it work–and so the real problem with Bush is that he is not a true believer blah blah.

mike September 16, 2005 at 1:44 pm

it is sad that the two parties merely are arguing over how much and where to spend it. ron paul must be a lonely man.

David White September 16, 2005 at 3:32 pm

Not that I expect a reply, but I just emailed Krugman as follows:

Sir, the neocons believe just as much in the state as you neoliberals do; it’s just that you guys prefer the welfare state, while they prefer the warfare state. Together, you cram both down our throats, thus assuring the collapse of the fraud that Francis Fukuyama famously dubbed “the final form of human government.” One Vladimir Lenin knew better, making no distinction between or among them: “While the State exists there can be no freedom; when there is freedom there will be no State.”

R.P. McCosker September 16, 2005 at 3:37 pm

Gee, if only all that power was in the hands of someone incorruptible — say, a liberal Democrat like Krugman — we needn’t worry about cronyism and all that.

Bush compared his own “recovery” scheme with FDR’s because nowadays almost everyone thinks FDR was a some kind of politico-economic savior — after all, that’s what they were taught in history class. Conversely, Krugman tries to turn this sentiment against Bush by contrasting Bush with the widespread idealization of FDR.

How convenient that Krugman only has to uphold FDR against charges of cronyism and corruption — not Bill Clinton, whom Krugman defended at every turn during *that* presidency.

It’s easy for Krugman to pretend that FDR was pure as the driven snow — very few of his prospective readers are old enough to remember, or would’ve bothered to research, the gory details of the “New Deal.” After all, Krugman assures us, “a later Congressional investigation couldn’t find a single serious irregularity it [the FDR administration] had missed.” (Now that’s a comfort: We can always count on Congressional committees to tell it like it is, especially ones dominated by members of the same party as the administration they’re investigating.)

With a nice flourish of unintended humor, Krugman admonishes us that state and local government isn’t to be trusted with “recovery” funds: “[T]hen as now, patronage played a big role in local politics,” unlike the federal government — the federal government, that is, in the hands of just the right sort of people, not those like Bush who use anti-statist rhetoric, no matter how disingenuously.

Wayne Brady September 16, 2005 at 3:41 pm

Yes believing in big government is definitely the problem. There are not enough true believers in the world today. I think that is what the problem was at the end of the Soviet empire. Too many people pretending that cracks weren’t there to be seen by all and not enough faith.

arielb September 16, 2005 at 4:04 pm

David, neocons may prefer the warfare state and neoliberals may prefer the welfare state but all politicians prefer BOTH. The only question is who do we attack and who do we give lots of $ to.

Ryan Fuller September 17, 2005 at 4:10 am

“And to date the Bush administration, which has no stake in showing that good government is possible, has been averse to investigating itself.”

So why is it that an administration that has no stake in making good government appear possible is trying to give the impression that it is governing well by stifling investigation? Krugman contradicts himself without so much as a period between his contradictory statements.

David White September 17, 2005 at 8:50 am


Yes, with what Jefferson called “the chains of the Constitution” long broken, it’s a political Tragedy of the Commons — http://dieoff.org/page95.htm — that eventually “brings ruin to all,” the only question being when. By its actions, both foreign and domestic, the Bush administration seems intent on bringing it sooner.

Kristian Joensen September 17, 2005 at 11:07 am

“not Bill Clinton, whom Krugman defended at every turn during *that* presidency.” This is not true at all.

Dennis Sperduto September 17, 2005 at 11:24 am

“Gee, if only all that power was in the hands of someone incorruptible — say, a liberal Democrat like Krugman — we needn’t worry about cronyism and all that.”

R.P., I agree with your sarcasm. I would also add that academics/professors are typically even worse than politicians regarding cronyism and appointing and supporting only those who follow the official line. This may be one of the unfortunate consequences of tenure. And since Krugman is a fully tenured, powerful professor, his comment is certainly a blatant example of the pot calling the kettle black.

R.P. McCosker September 17, 2005 at 1:21 pm

Kristian Joensen,

I stand corrected. And I’m sure everyone reading here’ll be interested to learn in which areas Krugman wasn’t an apologist for Clinton.

Let me take a wild guess: That Clinton mournfully declared that “the era of big government is over”? Conceivably Krugman was distressed that that gave the public the wrong idea, that such an era *deserved* to be over?

How *irresponsible* to be planting ideas like that, it might be imagined. Anyway, I look forward to your exposition.

Kristian Joensen September 18, 2005 at 7:05 am

No, Paul Krugman was opposed to the protectionistic trade policies proposed by the Clinton administration.

MLS September 18, 2005 at 2:25 pm

“Last year the newsletter Corporate Crime Reporter ranked the states according to the number of federal public-corruption convictions per capita. Mississippi came in first, and Louisiana came in third.”

I just love it how this guy spews out statistics without realizing their cause.

One would find federal corruption precisely in those areas with the most channeling of federal funds.

Republicans and Democrats today are just different sides to the same socialist coin.

Ohhh Henry September 18, 2005 at 8:29 pm

You have enough federal public corruption convictions to make statistical comparisons?

Wow. I can’t remember the last time a federal politician or bureaucrat was convicted of corruption in Canada. I think maybe there was a plea bargain with no jail time in Quebec in the past year, but despite a lot of scandals in the news, no other recent convictions come to mind. Certainly not enough to allow any statistical comparisons.

Either the Canadian government is incredibly honest, or the government is extremely small – or else it is so thoroughly corrupt that even the federal police and judges are ‘bent’.

Andy D. September 19, 2005 at 1:25 am

Henry, 75% of statistics are made up on the spot.

Jonathan September 19, 2005 at 4:42 am

Andy D, you mean like yours?

Andy D. September 19, 2005 at 3:17 pm

…..it was a joke…

Paul Edwards September 19, 2005 at 7:18 pm

Don’t feel too bad Andy. Only 25% of the jokes told on this site are funny enough to be recognized as such and thus avoid some kind of rebuttal. (That’s my attempt at humour for the week)

Andy D. September 20, 2005 at 2:03 am

We’re always too serious here, we need a light forums ;)

Anthony Gregory September 20, 2005 at 4:33 pm

Clarence Darrow was charged with evaluating the soundness of the National Recovery Administration, and ended up criticizing the fascist agency as “harmful, monopolistic, oppressive, grotesque, invasive, fictitious, ghastly, anomalous, preposterous, irresponsible, savage, [and] wolfish.”

Is Bush really the anti-FDR? Sounds like a wannabe-FDR to me.

Ohhh Henry September 20, 2005 at 8:26 pm

I just found a biography from 1948 that is online, which promises to be anything but hagiography. I have only started reading it, but the foreword promises that it is based on an extensive sifting of the relevant political memoirs and news stories of the day: The Roosevelt Myth.

Are any of you familiar with this book, and if so, would you recommend it?

Anthony Gregory September 20, 2005 at 8:45 pm

Ohhh Henry, I would definitely recommend The Roosevelt Myth. It’s not so much a biography as a chronicling of the New Dealer’s actions in office. The book’s priceless and irreplacable, as far as I’m concerned. John Flynn was a liberal journalist who favored FDR at first, but came to see the New Deal for what is was: economic fascism and warlike nationalism of the economy. The book is an Old Right classic.

See this info, too:




Anthony Gregory September 20, 2005 at 8:45 pm

Ohhh Henry, I would definitely recommend The Roosevelt Myth. It’s not so much a biography as a chronicling of the New Dealer’s actions in office. The book’s priceless and irreplacable, as far as I’m concerned. John Flynn was a liberal journalist who favored FDR at first, but came to see the New Deal for what is was: economic fascism and warlike nationalism of the economy. The book is an Old Right classic.

See this info, too:




tracy wettig January 8, 2006 at 11:56 am

Oh, conservative fools! FDR saved the U.S. from socialism, as any mainstream, reputable historian knows. After twelve years of conservative Republican rule (1921-1933), including tax cuts for the rich and deregulation, as well as orthodox conservative Republican philosophy (“What is good for GM is good for America), the U.S. experienced the Great Depression and twenty years of economic stagnation(1921-1941, the economy was the same size). Coincidence? No way! It is interesting that Greenspan is predicting stagnation, or worse, unless the Bush deficits are tamed. Paul Volcker, former chairman of the Fed and like Greenspan a Reagan appointee, is predicting a 75% probability of a serious economic crisis in the U.S. in the next five years, just what the conservatives want, according to Krugman. Has anyone posting to this site experienced an economic crisis in their lifetimes? I’m talking about something like in Brazil, Argentina, or Thailand, not the U.S. in the early eighties; Volcker says it is now the worst he has ever seen, although it is not yet apparent to the average person. I sure hope Volcker, Greenspan, Krugman, Walker, and Stieglitz are all wrong, and the Bush tax cuts will usher in an era of conservative Nirvana, but prudence tells me otherwise. Interestingly, Canada to our north does not have the same fiscal problems, in their budget they note that they have been in surplus since 1997, and their productivity has risen the fastest of G8 countries over the same period. Silly Canadians! They promise to reduce overall federal debt to 25% of GDP by 2014, because they promise to ensure that money is available for health care, nursing home care, and retirement funds for their aging population. Baby boomers, are you following me on this? Better buy your horse now, because with $11 trillion in federal debt predicted by 2010, surely you do not expect the younger generation to pay for your old-age upkeep. You will simply have to climb on your horse and head into the hills to die, just like the Indians used to do. And rightly so, don’t burden the next generation with debts wrung up by the tax cuts you voted for, and at the same time to support you in your old age! Those silly Canadians, who in polls said that 81% would have voted for Kerry, are worried that the huge U.S. budget deficits of Reagan and Bush(remember, Clinton paid them down to surplus)will have a bad effect on their economy over the long term, as they note in their budget summary. Interestingly, the Chinese economy has grown by 9.4% per year since 1978 (5-6% per year from 1952-1982, ie under Mao), and the CIA projects that this trend will continue, barring an end to globalization. Silly Chinese communist leaders, where they reinvest 40% of GDP every year, whereas the U.S. has a negative savings rate. How long will it be before China’s economy is larger than the U.S. economy? Goldman Sachs says 2041, but if Greenspan and Volcker are half right, I think it will be a lot sooner. According to Paul Kennedy, Yale historian, from 1500 to 2000 nine Great Powers came and went, an average of one every 55 years. The U.S. is simply the latest, I think, but maybe I should be an arrogant neoconservative and simply disregard the lessons of history, and support a Pax Americana like the neoconservatives in Project For a New American Century. But then, I invite everyone on this site to Google the following: India Daily BRICS. Guess what, Brazil, Russia, India, China, and South Africa are teaming up to challenge U.S. primacy, militarily and economically, covertly. Don’t they realize that the U.S. is predestined for everlasting greatness, just like the neoconservatives claim? Silly rest of the world! It does not matter that China is building a nation of thrift, producing ten times as many scientists and engineers as the U.S., just go and ask the neocons, tax cuts are what matter, not investing in science and technology education. Silly commies, even if the CIA says that China and India are destined to be scientific and engineering superpowers, hence economic and military superpowers. Silly CIA analysts, don’t they know America will always be number one on this planet. We don’t have to worry about global warming, either, do we, because we are the masters of the universe, right?Oh, I almost forgot, but as Paul Kennedy, Yale historian, says: in Great Power Wars, the nation with the largest and most productive economy has always won, and that is a historic fact. So, if Goldman Sachs and the CIA are right, we have about 35 years, and our kids and grandkids, too. So party it up in the good ol neoconservative USA, our time is coming, too. Really, fools, get a clue: Krugman is a future Nobel economist, as the oddsmakers will tell you. He is simply being honest when he says that this administration has looted the treasury, and is wildly irresponsible. As Krugman says, it would be much simpler for him if he simply championed the Bush administration economic debacle, but you gotta kill the snakes every day.

R.P. McCosker January 9, 2006 at 2:49 am

tracy wettig:

“[C]onservative fools”? Most people reading and writing here aren’t conservatives, they’re libertarians. I take it you’re some kind of leftist. Most leftists conflate libertarian ideas with conservatism, so it’s unsurprising you defend FDR by attacking his allegedly conservative predecessors.

So far as “any mainstream, reputable historian” is concerned, one of the purposes of this website is to set the record straight. Unfortunately, what’s considered mainstream and reputable in the brotherhood of professional historians is pretty much grotesque economic misunderstanding and profoundly statist, egalitarian premises. BTW, did you really think that among members of a profession about 90% of whom are unabashed left-leaning Democrats that their discussions of FDR are going to be anything less than enthusiastic?

BTW again, if I had a dollar for every time I read or heard someone say — always without citing the particulars of any evidence — that FDR “saved capitalism” (or your variation: “saved the U.S. from socialism”), I’d, oh, take my family out for a multicourse dinner at Trader Vic’s, complete with a round of the schlocky-but-fun trademark cocktails there. And still have enough left over for a generous tip.

“Saved” capitalism? Sort of like how Johnson and Nixon “saved” Vietnam?

John Jay September 30, 2007 at 9:45 pm

Look at your paycheck or 1040 next April. 20% of your tax dollars are going to pay interest expenses on money borrowed under Republican Presidents.

Pushing borrowed money into my wallet and saying “gee, aren’t Low Taxes Great!?” is a short-sighted and decidedly unconservative view.

Reagan, Bush1, Bush2 and their belief in unleashing the national Credit Card have led to our taxes being 20% higher than they should be to meet the level of services the gov’t delivers. 20% of our taxes are being wasted on interest payments that serve no public purpose.

John Jay September 30, 2007 at 9:46 pm

In response to the very first comment:

Expanding government spending, but using the funds to pay private companies, is exactly what has happened and is consistent with Krugman’s statement.

Please note that a huge portion of our federal budget now goes merely to paying interest on debts run up by past Republican borrow-and-spend Presidents. There really is an unavoidable economic cost to unfunded tax cuts.

R.P. McCosker March 6, 2010 at 1:00 am

In September of last year (2009), I received a personal email in regard to an exchange above in which I participated, in January of 2006. (Apparently what I’d written must’ve stuck in his craw, or else he keeps a record of all his online posting exchanges.) The gist of the email was, see how silly you look now — what with the failure of the economy proving how bad unregulated free markets are!

I wrote back that I’d only bother responding if I had this person’s permission to post his email to this original discussion, then respond publicly. He said, yes, I could. Sorry to let almost six months elapse, but I had to wait for a real slow day to bother with this nonsense. So here’s our little email exchange, and my followup comments:

“In January of 2006, on the Mises blog, you responded to my statements. I invite you to revisit my comments, which you can find by Googling my name, Tracy Wettig. Let me know if I was right in predicting the financial crisis, based on what Krugman et al were saying at the time. Also, let me know if Krugman won the Nobel in economics(well-deserved), and if my projections of the future debt proved to be accurate. I am not a leftist, although I must assume that to you, anyone to the left of Attilla the Hun is a leftist. Rather, I am a pragmatist, pragmatism being the philosophy that an idea must be judged according to how it works in practice. No more, no less. It is not my judgement, but the judgement of the world, that US laissez faire capitalism has failed, developing countries throughout the world are now rejecting the US model and embracing the Chinese model. Stiglitz has been proven correct, and Mises is fast becoming an irrelevent relic, according to the standards of pragmatism. There is a danger in embracing ideology as revealed truth, I think, and I find that the conservative ideology is akin to religious fervor. Comments?”

I replied:

“No offense intended, but I’m not going to take time to write out comments just for one person I don’t even know. However, if you email me back permission, I’d be happy to paste in the text of your email above as part of a continuation of that blog discussion, followed by my own response.”

The reply was:

“You have my permission to post my email to the Mises blog.”

Okay, so here goes:

Your question evinces spectacular unfamiliarity about what the Ludwig von Mises Institute is about. It’s a wonder you found yourself posting there in any discussion thread at all. I can’t help but speculate whether you care to inform yourself at all about the economic ideas presented and, usually, intelligently argued on the Institute’s website.

If you were even minimally familiar with the ideas of the Institute, you’d know that its voices were predicting the present-day financial crisis all along, based on the credit and monetary policies forcibly imposed by the government of the United States and most other industrialized countries (including the central banks that have great powers over the economy at the point of a bayonet). That Ludwig von Mises (1881–1973) himself first developed the comprehensive theory that the credit expansion and inflationism imposed by the coercive agency of government is what causes periodic systemic market failure.

So how does all that apply to the particulars of what are happening today? Rather than try to reinvent the wheel, here are a few beginner articles which summarize how governmental economic interventionism, and not laissez faire capitalism which you erroneously believe was in effect leading up to the present crisis, was the cause of that crisis:


After you’ve had a chance to read them all:

Krugman was a great cheerleader for all the things that led up to the crisis. If he was predicting it, it was for the wrong reasons. Meanwhile, everybody at the Mises Institute was predicting it, and for the correct reasons.

Does Krugman deserve the Nobel Prize in Economics? That prize is awarded by the Swedish central bank, so it would be akin to the CIA giving an award to one of its in-house assassins.

You call yourself a pragmatist for promoting ideas that work? That’s just tooting your own horn.

“It is not my judgement, but the judgement of the world, that US laissez faire capitalism has failed” (how’s that for pomposity?): The US doesn’t have laissez faire capitalism. Where do you get such ridiculous ideas? Oh, maybe from reading Paul Krugman and taking him seriously.

“Mises is fast becoming an irrelevent relic, according to the standards of pragmatism. There is a danger in embracing ideology as revealed truth, I think, and I find that the conservative ideology is akin to religious fervor.”

No reasoning there, just frenzied preaching. Uh, thanks for pointing out the “danger.” Really, are you serious, or just a very wry prankster?

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