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Economic Lessons From The Real Great Depression

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Economic Lessons From The Real Great Depression


Economic Lessons From The Real Great Depression

Economic Lessons From The Real Great Depression

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

A recent CNN poll found almost half of Americans believe another Great Depression is "very likely" or "somewhat likely" in the next year. Robert McElvaine warns many Americans and politicians misunderstand what went wrong during the Great Depression and risk leading the country into another one.

NEAL CONAN, host: The stalemate on the debt ceiling and the debt reduction - deficit reduction takes place in the broader context of a stagnant economy and rising unemployment. A CNN poll conducted last month found that almost half of Americans believe another Great Depression is very likely or somewhat likely in the next 12 months. In The Washington Post Outlook section on Sunday, history professor Robert McElvaine argued that many current politicians misunderstand the history of the Great Depression and risk leading the country right into another one.

What lessons should we draw from the Great Depression? Give us a call: 800-989-8255. Email: You can also join the conversation on our website and find a link to the op-ed. Go to, click on TALK OF THE NATION.

Robert McElvaine, professor of history at Millsaps College in Jackson, Mississippi, with us today here in Studio 3A. Nice to have you with us today in Washington, sir.

ROBERT MCELVAINE: Glad to be with you.

CONAN: And that CNN poll, half Americans think we're close to another Great Depression. You say that's a term tossed around a little too casually.

MCELVAINE: Yeah. I think there are a lot of terms from that same era - like Nazi and Holocaust and so forth - that people just throw around and mean it's like really bad, you know, man? However, I think we are seeing some things based mainly on the fact that people don't know what went on in the Depression or misinterpret the sort of events and policies that produced it and kept it going, that could lead us down a path that we would not like at all.

CONAN: Well, give us a little the historical context then. How does this era compare with the era of the Great Depression?

MCELVAINE: Well, one thing that is very different is that when the stock market collapsed in 1929, the Depression began. The country was not deeply in debt to begin with. You were just doing the news and saying that Mitch McConnell said that Republicans weren't elected in order to make it easier...

CONAN: That was Jim DeMint, but...

MCELVAINE: Oh, it was Jim DeMint, sorry. OK. But nonetheless, he was saying that they weren't elected for the purpose of making it easier to increase the debt. However, they've been doing that for the eight years under George W. Bush and seem to have only gotten religion on debt once Obama was elected. However, the basic ideas that Franklin Roosevelt followed, he had the same beliefs as Herbert Hoover. He thought that we needed a balanced budget.

And the main reason that the New Deal was not able to end the Depression was that Roosevelt was too cautious in spending. He was willing to incur deficits in order to keep people from starving. But he wasn't willing to give the big boost to the economy that was really needed, and it was only World War II that forced that to happen.

CONAN: And that was running up a lot of deficits. But let's go back in time. Those bursts of programs in 1932 after FDR was first elected, that was a lot of government spending.

MCELVAINE: It was a lot of government spending, to be sure, and it was unprecedented in peacetime. And what it did was make it a lot easier to live with the Depression. It helped to reduce unemployment somewhat. It restored confidence. I mean, one of the odd things is that Herbert Hoover kept saying that all we needed to do was to restore confidence, and he seemed to be totally unable to do that. Roosevelt, on the other hand, came in and said the only thing we have to fear is fear itself, which was basically what Hoover had been saying all along, but the country loved it when it came from Roosevelt.

CONAN: And so it had a little bit more bite, but people point out that, just a couple of years later, things were almost as bad as they were back in 1932.

MCELVAINE: Right. And part of the reason that they started to get worse again in 1937 is that Roosevelt wanted to balance the budget, was afraid of large deficits. And as soon as his re-election was assured - even before the actual election in 1936 - he started cutting back on spending. And along with a few other causes, that produced the so-called recession of 1937.

And my fear is that all this talk about how we're spending too much now and the original stimulus didn't work and so forth - which it didn't, entirely, although I think it staved off going into a depression at the time in 2009 - it wasn't sufficient to actually stimulate the economy. Cutting back on spending more now is pretty much the same path that the country was on in 1937, which caused another dip into what amounted to a renewed depression.

CONAN: Well, let's not speculate about the joys of being rescued by another world war. I don't think anybody wants to go there. But the fact is that you say the people who are talking about reining in spending now are driven by faith in the market.

MCELVAINE: Yes, absolute faith in the market. And here, again, this is something that just does not go along with the facts. The facts are, if you look at what went on during the period of the Depression and World War II, Mitch McConnell - and I do have the right fellow here this time - was - said shortly after Obama was elected president that economists and historians agree that the New Deal didn't get us out of the Depression, and that shows that spending doesn't do the trick. World War II got us out of the Depression.

Well, he is right about what got us out of the Depression, but that proves exactly the opposite of what he was saying because it was the massive spending of World War II that ended the Depression. Had Roosevelt and the Congress been willing to do that in peacetime, the Depression could have ended much earlier.

CONAN: Well, you rail on Republicans for believing in the magic bullet of market forces that will solve all problems. Aren't you arguing for a magic bullet here, of your own? A lot of spending, that'll solve the problem.

MCELVAINE: Well, it may not solve the problem completely, but cutting it back is certainly going in the wrong direction. And what Republicans, especially conservatives, argue is that the market will solve all things, that the government, basically, any kind of government action is sinful. And facts just don't seem to matter to them.

If you - one way I like to put the difference, and I did in The Post article and also in the new introduction to my book, "The Great Depression," is to point out that Franklin Roosevelt famously said that what the country demands is bold, persistent experimentation, and we need to take a method and try it. If it doesn't work, throw it out and try another one.

What Hoover's approach - and it has been, basically, the conservative approach ever since, amounted to, was take the method - because they think there is only one - try it. If it fails, deny its failure. Try it again, try it again, but just keep trying the same idea.

CONAN: And again, your idea: spend, and if that doesn't work spend some more.

MCELVAINE: Yeah. That is exactly right. But if you look - it's not just spending. It's a matter of tax...

CONAN: And we're 14 trillion in debt which is not insignificant.

MCELVAINE: It's not just spending. It's a matter of taxation. It's a matter of government regulation. They claim that none of this works. I mean, here's an example from more recent times. Republicans - every single Republican in Congress in 1993 voted against President Clinton's budget, largely because it increased taxes on the wealthy to the same top marginal rate that Obama would like to go back to now. They said it would result in economic disaster.

Instead, it was followed by a period of sustained prosperity and ultimately a balanced budget. That is a fact that doesn't matter. They moved on in the Bush administration, cut the taxes back, claimed that this was going to magically create jobs. Basically, the number of jobs created during the Bush administration added up to about zero.

And what we've been seeing ever since this basic faith-based economics was brought back in 1980, '81 under Ronald Reagan is that in 1980 the top 1 percent of the country was getting 10 percent of the income. By 2008, it was getting 21 percent of the income, and it has us on a course to become basically a third-world country in terms of income distribution with it all concentrated among the very, very rich.

CONAN: We're talking with a professor of history at Millsaps College, Robert McElvaine. His piece, "Cutting Our Way Back to the Depression" ran in The Washington Post Outlook section over the weekend. What lessons should we draw from the Great Depression? 800-989-8255. Email: David on the line calling from Cleveland.

DAVID (Caller): Hi. Thanks for having me.

CONAN: Go ahead.

DAVID: OK. Well, I - what I'm listening to and what I'm thinking is that, you know, I agree that more spending certainly needs to happen, but I think it's also important to cut back in certain ways too. And what I'm thinking is that there's so many things in our budget that are completely inefficient, little things. I mean, even getting away from big items like the war in Afghanistan or the war on drugs, the little things, like corn subsidies, like the fact that we spend more money to create the penny than a penny is worth, places where we're just throwing away money.

And I feel like if we really sat down and went through with the budget with a fine comb, and found all of these little things, where we're just wasting money, it would add up to something substantial that we could then pump into the economy,

CONAN: Waste and abuse.

MCELVAINE: There's no question there's waste and abuse, and one place where there's a great deal of it is in the Pentagon. But that also is totally off limits according to Republicans. I'm certainly in favor of eliminating waste and abuse. It would help, but it's not going to begin to solve the deficit problem.

And, of course, the deficit is a problem, although what we usually don't hear is that a great portion of the deficit that we now have is a result of the Bush tax cuts that the Republicans insist are basically a sacred cow that cannot be touched under any circumstances.

CONAN: President Obama says the middle-class tax cuts are also a sacred cow. He wants to preserve those.

MCELVAINE: Right. And I think those may eventually have to be scaled back some, but now is not the time to do it. The Republican orthodoxy repeated over and over again these days is that you can't increase taxes during a recession. Well, that is true in the middle class, and that's the reason why I think President Obama is right on that in not wanting to rescind the tax cuts for the middle class.

Those are the people who are the consumers who stimulate the economy. But the very rich can certainly afford it, and corporations are sitting on something like $2 trillion right now without investing it. They are not using the money to create jobs. Jobs are not being created. One major way to reduce the deficit while, at the same time, stimulating the economy, is simply to restore the tax rates that were put in under Clinton and that were taken back, for the very rich, under Bush.

DAVID: Yeah. I certainly agree with that. I mean, I've never been a fan of the Bush tax cuts. But I still feel like there's a place for someone somewhere to go through and make our budget more efficient. I feel like there's so much inefficiency that even on top of the Bush tax cuts, there's probably hidden in there so much money that we could be spending more wisely. And I feel like we're spending so much time in gridlock and debate that no one is even questioning that.

CONAN: David, perhaps, it's not an elective office, but you might want to run for the director of Office of Management and Budget.


DAVID: Thank you.

CONAN: Good luck with that. We're talking about the lessons of the Great Depression. You're listening to TALK OF THE NATION from NPR News. And let's see if we can go next to - this is, excuse me, I hit the wrong button. This is Joel. Joel with us from Detroit.

JOEL (Caller): Yes, sir. It's a pleasure to talk to you. My comment is that the lack of regulation, the free-market economy created all of the depressions in our history. I really think that that philosophy is so bankrupt and corrupt that the conservatives just have no touch with reality of a global economy of the 21st century.

CONAN: Joel, a lot of people would argue that the same economy created all the prosperity in this country too.

JOEL: Well, it did, but it just kept going and going and going. It's like the housing market here in the Detroit area where I live. It's been 100 percent reduction in the value of my home in the past two years.

CONAN: Now the housing bubble, a great example cited by those, Professor McElvaine, who say we need more regulation because this was an experiment in a kind of lending that really nobody was paying any attention to, because...

MCELVAINE: What both of you are saying is true. Indeed, the free-market system, up to a point, is the best system. It's what produces the wealth and produces the jobs, the income and so forth. The problem is that it also carries with it risks. Winston Churchill once said - and I may not have the quote word for word - but said that democracy is the worst of all possible political systems except for every other political system anyone has ever thought of. And I think the same applies to capitalism. It is the best of all possible - worst of all possible political systems, except for every other one that's been thought of.

The Founding Fathers understood something along the lines of what Churchill was saying, and they set up a political system in this country based on democracy, but they realized democracy has, inherent in it, certain dangers, and they set up checks and balances to try to rein in those excesses of democracy.

CONAN: And the passions of the mob.

MCELVAINE: Right. And we need that in the economy as well. And so as I put it in a piece that was actually not on the air, but online for NPR about two years ago, a spoonful of, quote, unquote, "socialism" helps the capitalism go up. The system needs to be basically capitalist. But in order for it to work, for the benefit of business as well as for ordinary people, it needs to be regulated in a sensible way.

CONAN: Let's see if we could go next to - this is Tyler. Tyler with us from Newton in Kansas.

TYLER (Caller): Hello. My comment is, is that a lot of historians actually cite Hoover as the foundation for many of Roosevelt's policies, like the idea that Hoover didn't - was - didn't try to combat the Depression with big spending is not historically accurate. Moreover, there are a lot of economists that say, including from UCLA, that have said that Roosevelt actually prolonged the Depression with his - by completely decimating business confidence with all of these new regulations like, a one book I would cite is "New Deal or Raw Deal?," which is really good in describing how he essentially destroyed the economy with all of the spending.

MCELVAINE: Part of what you say about Hoover is correct. He did take more action than any previous president had in what used to be called panics; he preferred the word depression, because he thought it didn't sound as bad as panic.

CONAN: Boy, there's a semantic argument for you.

MCELVAINE: But he did take a number of steps, including the Reconstruction Finance Corporation, for instance, that pointed the way toward some of the New Deal programs. However, it's simply not the case that he was willing to increase spending on any sizable level in order to try to deal with it. In fact, he was so wedded to the orthodoxy that we must have a balanced budget, not just over the long term, but from year to year, that he was putting through cuts all over the place and trying to reduce federal spending at a time when it was really needed to spur the economy.

CONAN: What about the regulations as a crimp on the market?

MCELVAINE: Well, there certainly are regulations, sort of the same thing I was saying about whether you have a capitalist system that has no regulation or you have one that has some regulation. The idea that regulation is always good is obviously not the case either. You can have good regulations and you can have bad regulations. Mario Cuomo, who I wrote a biography of some years ago, liked to say that we need all the government that we need, but no more government than we need. And you - it's a tough thing to sort out.

And President Obama moved in that direction somewhat some months ago when he talked about trying to eliminate all regulations that were, you know, useless, that weren't performing the way they should be and concentrate just on what is needed. But certainly a lot is needed, and that includes the sorts of things that were included in the financial reform regulation.

CONAN: Tyler, thanks very for the call.

TYLER: All right. Thank you.

CONAN: And, Robert McElvaine, thanks very much for coming in today. Appreciate your time.

MCELVAINE: Glad to be with you.

CONAN: Robert McElvaine, a history of professor - professor of history, excuse me, at Millsaps College, the author of the book, "The Great Depression: America 1929-1941." He joined us here in Studio 3A. Tomorrow, teenagers are not well equipped to deal with violence in their relationships or sometimes even to identify it. We'll talk about dating violence in teens. Join us for that conversation tomorrow on TALK OF THE NATION from NPR News. I'm Neal Conan in Washington.

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