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Creeping Morgenthauism


There’s a passage from Henry Morgenthau’s diaries that has been a staple of right-wing New Deal denialism over the years. In it, FDR’s Treasury secretary describes a meeting with the House Democrats on Ways and Means Committee in which he bemoans the supposed failures of the New Deal to lift unemployment and restrain the balloon of national debt.

We have tried spending money. We are spending more than we have ever spent before and it does not work…. We have never made good on our promises….I say after six years of this Administration we have just as much unemployment as when we started and an enormous debt to boot!

As I noted, this is a popular quotation among people who believe that all taxation is theft and all spending draws the nation closer to full collectivization. But Morgenthau was, quite simply, wrong. The New Deal did work, albeit erratically and despite the fact that Roosevelt could never quite jettison the fiscally conservative instincts on which he based his 1932 campaign. But sure enough, between 1933-39, real GDP rose by nearly 50 percent, while private, non-farm unemployment dropped from just above 30 percent to a shade above 15 percent. Morgenthau can be forgiven for not realizing how dramatically unemployment had been whittled away, since he was relying on BLS statistics that have been dramatically revised over the past 70 years. The debt he alludes to was — as a percentage of GDP — roughly equivalent to the levels the US would later reach during the 1980s, and they were nowhere near the levels (e.g., ~120 percent of GDP) that the US raised during WWII. The US could have avoided those debts by not fighting, but regardless, the debts were paid off, in true Keynesian fashion, by the 1970s.

But we shouldn’t be surprised that Morgenthau — whose anti-Keynesian views put him at odds with most economists in the Roosevelt administration — would have overlooked the data. His obsession with spending cuts and balanced budgets (and FDR’s willingness to listen to him in ’37) helped produce the disastrous recession that marred Roosevelt’s second term and inspired Morgenthau’s wailing about how the New Deal “does not work.” As well, Morgenthau was one of the key figures who successfully persuaded FDR to modify his own advisers’ proposal that Social Security be funded from general revenues rather than (regressively) from the paychecks of workers themselves. The result was a social insurance plan modeled differently from those of every other industrial democracy — a plan that was less generous and more exclusionary, and one that (at least initially) bore no sense that economic security for the aged was at all a “right.”

It’s no surprise, therefore, that conservatives would celebrate a quotation from someone whose analysis of the economic situation in 1939 was — as we now know — wrong on the facts as well as the theory. And we shouldn’t be shocked that these same folks would continue to propose ideas that will, if implemented, assure that the US economy fails to recover before my kids are teenagers.

Why the Obama administration would provide any solace to those who echo Morgenthau’s 70-year-old error is, however, an enormous mystery.

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