Is it 1932?

I heard that a fair amount last night, and over the past few days.

This is faulty economic history.  It is not 1932.  It is 1929.

Outside of the economics profession, the FDR mythos is strong among Democrats:  Hoover did nothing, and then FDR came in with his magic Keynesianism, and through the mighty power of massive government spending and a huge increase in the social safety net, got America moving again.

Economic historians know better.  You can argue whether FDR, on net, helped a lot, helped a little, or mildly hindered recovery.  But you cannot argue that if FDR had gotten into office on January 20th, 1930, America would have avoided most of the pain of the next three years.  The progression of the bank panics and industrial slowdown throughout the next two years is well described, but not well understood.  But the problem was clearly not merely a lack of government activity, or fiscal stimulus.  Hoover was, contra popular myth, fairly active.  It's just nothing he did worked.  Neither did most of the things FDR tried.

FDR did some things right, don't get me wrong--and I think some of those really made a difference, notably bank audits and the creation of the FDIC.  But he also benefitted tremendously from stepping in just as the banking system, and hence the economy, were bottoming out.  By the time of the second banking panic, the system really didn't have much of anywhere to go but up.

Obama has the benefit of better economic theory--but not nearly as much better as we thought six months ago.  There is no economic consensus--or even a revolutionary school like the Keynesians--with a coherent program for getting us out of the crisis.  The happy, utterly wrong narrative of Democrats striding in and boldly reversing Republican errors with stiff regulation, an expanded safety net, and massive fiscal stimulus, is wrong when applied to FDR.  It won't save Obama either.

If the crisis is as bad as some people fear, Obama will have no magic bullet to fire at it.  The very best he can hope for is a fairly successful process of trial and error.  To the electorate, that will look like bumbling as Rome burns.

Now, the worst may not happen; and even if it does, Bush, not Obama, may get the blame.  But Obama is not in nearly as strong a position as FDR was in 1932. 

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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