Politics and Money, 1933 and 1934


[APPLAUSE]
>>Okay, that’s live. Hi and welcome. It’s nice to see so
many familiar faces.>>[LAUGH]
>>Thank you very much Joe and Molly and Vicky and all who have helped put this
together and all of you for coming. So I guess the way that this is going
to work is that I’m going to talk for a little bit about why you
should care about this subject. Then, Chris has got some questions
that he’s going to ask me, which are going to make me look foolish. And then you guys can ask us questions,
and we’d see if you could catch us out. So that’s anyway how it will go right? Okay.
So as Joy said the book has the sub title how Roosevelt and Keynes–
I already forgot now. [LAUGH] Ended the Depression,
fought fascism, and secured a prosperous peace,
or something like that, right? Which is the publisher-imposed subtitle
where you cram everything that’s in the book into the jacket, so that people know what they’re
getting when they buy it. But it’s a book about Roosevelt’s
monetary policy, and in particular, the politics of Roosevelt’s
monetary policy. And I want to begin by giving you
something that’s actually not in the book, that may, sort of, help us to understand why you should
care about Roosevelt’s money policy. This is a chart showing the United States’
recovery from the Great Depression and also from what I’m calling, for the purposes of this chart,
that the “current unpleasantness.” We don’t have a name for this right yet. Do we have an official name?>>The Great Recession?>>People say the Great Recession and
that is obviously wrong, because the recession is over. It ends right there, but what we
still see is a very long shot right. Just as the session for
the Great Depression ends right there. So what I have do here,
I didn’t invent this type of graph, but what this does is that it graphs
the months of the crisis for the current crisis against
the Great Depression. And so you can see the Great Depression, first of all, went much deeper in
terms of how bad things got, right? But then it got better, and has most
recently surpassed our recovery here in terms of going past
the original 100 level for where things started to in
month one of each crisis. This shows US recovery. This an index of industrial output. So, we’ve actually been outstripped by the
recovery in the Great Depression recently in terms of things getting better and past
where they were when the crisis started. This is true not only in the United
States, but also around the world. This is not my chart. This is a Chart from Kevin O’Rourke, who’s a professor of economic history
at the University of Oxford, and here he’s graphed global recovery,
as you can see, then and now. And here again, the blue line showing
recovery from the Great Depression, while it was much worse at it’s nade here, it is
now much better than the current recovery. Although as Kevin’s chart puts forth,
things did get worse again globally. And we have the hope that we will
outstrip the 1930s recovery. So if we are experiencing the recovery
that’s kinda slow, right? Compared to the way things
were in the 1930s, or at least has been surpassed by
the way things were in the 1930s. Why would that be? Our answer to that question depends in
part of what we think happened in terms of a recovery in the 1930’s, and here what
one think we think is happening now, and this is our inflation and
deflation in various places. The blue line is the euro zone,
that’s the countries that have the euro. The orange line is the USA, and
the red line is the kingdom which Which, as you know, is not in the Euro. But, what you can see here, and pretty much in all of these,
is roughly the same pattern. Which is that, when you get here,
and the crisis begins about there, big drops right until you get
into deflationary territory. This is the zero line here,
your deflationary territory here, for the United States and the Euro zone,
never quite for the UK. Right, then some recovery, in terms of inflation getting
back up towards around 3%. But more recently a dive in inflation, so you dip back into deflationary territory
here, again more recently in this time when we have in fact have been
surpassed by the 1930 recovery. So, one of things we can look at here
is there maybe not as much control or focus on improving employments, perhaps
>>At the expense of making sure that prices stay down in our modern era as compared with
what happened in the Great Depression. And the risk of this, this sudden
dive into deflationary territory, our predecessors in
the Great Depression would have told us it’s a political reaction where you should
see the rise of right wing parties. And certainly we can see that. These are just some data on the rise
of right wing parties in Europe. The is the Austrian right wing party,
that’s my best Sorry, guys.>>[LAUGH]
>>The UKIP is the UK Independence Party. The FN is the National Front in France. And the whatever,
Alpha is the Golden Dawn In Greece. These are their vote percentages in
the last three European Parliamentary elections, and you can see that
at the time, between 2004 and 2009, when the crisis really hadn’t been
factored into those votes, they’re about the same, or they’ve maybe actually
fallen in the case National Front. But then they shoot up more recently here, especially in the case
of the National Front. Golden Dawn shows up,
which it wasn’t there before, and they now have seats in
the European Parliament. So these are, I mean,
the case of the Golden Dawn, actually pretty much Nazi parties. Right?
But they’re right wing parties, and they’ve also risen. And this is something that
would not at all have surprised folks back in the 1930’s. Particularly one of FDR’s advisors in
the first phases of the Great Depression. This is an economist named George Warren
who told Roosevelt the theories, on the cover of Time in 1933, there is
really two ways out of the depression one is to raise the price [INAUDIBLE]
Level to the debt level. The other is to lower the debt
level to the price level. Our choice is between deflation or
reflation. Reflation is a polite word for
inflation, right? Although it’s actually better than that. That was a nasty comment. It’s really, reflation implies
getting back to where things were, and Warren’s understanding was you could
get out of the depression by deflation. You could let prices keep falling. You could let banks keep failing. You could let people keep going bust on
their mortgages and on their car loans and everything else. And eventually,
things would sort themselves out, right. Prices would eventually fall to a level. Banks would eventually go bust
sufficiently that people would start buying again. People would start lending again. People start taking, you could do that. Or you could inflate the currency,
re-flate the currency so that people could start paying
back their loans again, and you could get back to a sort
of normal economic crisis. You could do either, practically,
in terms of economic theory, but Warren also went on to point out, there really seems to be a choice between
rise in prices or a rise in dictators. What he had in mind of course was what
had happened in Germany, which was a plummeting there consumer price index
over the years of the Great Depression, leading to when Adolf Hitler became
Chancellor and then Fuehrer. Right, hi. And this was the concern,
that if you had deflation, you would lead to the rise of right-wing
parties, not just overseas but also possibly in the United States. And therefore, while deflation might
work on paper, it would be disastrous, right in terms of its
political consequences, and so really the Roosevelt administration should
seek instead an inflation or a reflation. The main obstacle to doing that was at
the time that Roosevelt came into office, the United States dollar was tied to gold. You had to have a certain amount
of gold in your vaults in order to issue a paper dollar. You had to commit to redeem
those paper dollars. In gold if on demand and therefore if
people are demanding that gold has happens increasingly as the banks fail and
people take their money out of the banks. People take their paper money to
the Federal Reserve and ask for gold for their money, right. The gold stocks dwindle, and
you have less money in circulation. If you have less money in circulation,
prices are going down, right? That’s your deflation. And now this is a graph that’s actually
prepared by the United States Treasury in 1945 to explain their version
of what happened in the 1930s. And you can see this returning
to the gold standard here, it says going on and the gold standard. These are countries that
are on the gold standard. There’s an increase right up
until the late 1920s, and then beginning with the crash, countries decide maybe this is a terrible
idea to be on the gold standard. So they leave in large numbers. Right here you see there’s the UK leaving,
Japan, Germany, a few others. The United States stays on until here,
right? France stays on until there. And both the United States and France,
by staying on the gold standard longer, suffered worse and
longer lasting deflation and worse and longer lasting experiences
of the Great Depression, but they were following suit with these
other countries over the course of time. The way the United States did this was
to revalue its dollar in terms of gold. But they did this very cleverly. Not only did they,
here this illustration helps to show, there in the upper corner, right.>>[LAUGH]
>>They said well, we’ll take some of the dollar
weight of gold out of the equation. But we’re gonna do more than that. Because, you’ll remember,
I said when you’re on the gold standard, not only do you say the dollar is worth so
much in gold, right, but you pledge to redeem paper dollars for
gold. Roosevelt, first coming into office,
says we’re not gonna do that anymore. He’s inaugurated in March 4th,
1933, that’s a Saturday. The next day is Sunday, so
it’s the Lord’s Day, so you don’t do any business on Sunday. But just after midnight on Sunday,
Roosevelt issues a declaration saying, we’re going to halt of
transaction in gold. Would you please bring back your gold? And then we’ll tell you
later what we’re gonna do. He didn’t say that explicitly,
but that’s the general message. And this is the best photograph
I could find of this, but then people actually do bring
their gold back in large numbers. The vast majority of the gold comes back
into the Federal Reserve in the first weeks after Roosevelt takes office. Privately, Roosevelt says to Warren and
his other advisors, we are now off the gold standard. Publicly, he says no such thing,
because he doesn’t wanna spark a panic. And people bring back their gold, they
don’t wanna hold gold, it’s inconvenient, it’s heavy,
they’d rather have their money in dollars. They bring back their gold. And so now Roosevelt has the gold back
in the Federal Reserve where it came from and now he says well,
maybe it’s just gonna stay there. Roosevelt’s policy is to keep the dollar
inconvertible as far as average citizens concerned. Later they’ll make it so that central
banks overseas can get gold for their money, but
basically as far as we are all concerned, the dollar becomes inconvertible to gold. It has notional value in gold,
but you can’t get it. That gold you’re just assured is out there
somewhere or in the ground somewhere. Underneath Fort Knox eventually after
the Public Works Administration builds it. So if you are no longer on the gold
standard, what does that do for you? Especially if all those other countries
that we saw in the previous graph are also off the gold standard. Well, what it allows you to do is to try
to sit down with all the other countries in the world and say well,
what exchange rate should we really have to facilitate a greater level
of international trade? So if you have a world recovery from The
Great Depression, so that we can preserve democracy or something like it in
as many countries as possible. And that’s what the Roosevelt
administration actually seeks to do at the World Economic Conference
in 1933. However, Roosevelt’s agenda is stymied. He says because of a lot of
banker influenced cabinets, particularly those in France,
want to go back onto the gold standard, want to see the US go back
on the gold standard, Britain go back on the gold standard,
and go back to a system where money is expensive, which is what bankers like,
right, because bankers deal in money. They exchange it for other money and the rest of us all deal in stuff and
hope to get money for our stuff. Roosevelt wants to have a means of
exchange among all nations involving an imaginary currency, a notional
currency, only they would give it a name, he says, right. And he cannot get other countries to agree
to this, and so without getting other countries to agree to this, the World
Economic Conference is doomed to failure. The only person, or the only person
of any note, it’s in London, the World Economic Conference in London
in 1933 who agrees with Roosevelt is this guy, who is John Maynard Keynes. Keynes had been the chief representative
of the United States Treasury at the Versailles Conference
at the end of World War I. He had tried to displace gold
as the central bank currency at the Versailles Conference and
met with rejection then. He wanted to see the same kinda thing
happen at the World Economic Conference in 1933 for the same kinda reasons
that I’ve been outlining. If you are bound in terms of how much
money you can have in circulation to the amount of shiny metal
you have in your vaults, then your monetary policy
is not under your control. Prices are at the whim of
the mining industry, right, of overseas demand for
gold, of extrinsic factors. So Keynes believed as early as 1913 or thereabouts, to have something else
determine your monetary policy. You want to be able to determine how much
money is available based on how much you need to have available, so you can try
to aim at a desired price level and not be bound by an amount of gold. And as he says here, right, he supports
in 1933, a new international money. He thinks Roosevelt’s plan is fantastic
even though we’re all talking, by which he means the gold standard
countries as though that man is defeating the alleged of the conference. He’s the only one who can take definite
measures to accomplish them, right? He goes on to say this is what we outta
have, Roosevelt outta have power to devalue the dollar, to change the value
of the currency, so of all other nations. Currencies outta all sort of adjust their
currencies to each other to try to push up prices so
to end deflation around the world and then seek a level where
they can stabilize. So the people would rely on a pound
being worth so many dollars, so many marks, etc, so many francs,
with a provision to change, the ability to change those rates
if economic conditions warrant it. And that would release a lot of spending
power, because when there’s deflation, people don’t wanna spend money. Because their money that they hold is
getting to be worth more all the time. With inflation, you do want spend money because the money
you hold is daily worth less all the time. So Keynes’ argument and Roosevelt’s argument is if we can
globally engineer some kind of inflation, then we can get people more spending,
and then we can relieve the crisis. So this is the consensus that exists
between Roosevelt and Keynes, anyway in 1933. The gold standard will end
except in highly notional terms. Roosevelt still has an idea of
a gold value for the dollar, but it’s not gonna be honored
in terms of any exchange. They’ll reserve the right to change
the value of the currency in the future to try to pursue domestic prosperity. And they’ll have international cooperation
for some kind of stability, but that goal will be kept
subordinate in economic growth. So the rates between currencies may but
adjustable at need. As I said,
this is something which Cains and Roosevelt agreed in the summer of 1933. At the time,
it doesn’t get agreed to by anybody else. The World Economic Conference ends
in disaster, or ends in disillusion. And everybody goes home and deals with the
depression more or less in their own ways. Now, in the book called The Money Makers,
which is full of thrills and chills.>>[LAUGH]
>>Is a page turner, you would find out what happened to the United
States policy after this in the 1930s. How ideas developed, how Roosevelt used
monetary policy in order to thwart fascism at a time when Congress was preventing him
from using the budget to thwart fascism, he had a higher degree of discretion
in using monetary policy. How Roosevelt eventually used, military
policy to bring the UK within US influence of the eave of the war again with
the aim of thwarting fascism overseas. All of that from the book, but
I’m going to skip all that for now. You have to buy the book or
at least get it out the library. Going to the end of sort of the story
here, which is towards the end of the war In 1944, when the United States
hosts a conference in New Hampshire, a place called Bretton Woods,
to try to determine what the post war world will look like. And 44 nations attend this conference. They are the nations who
are united against fascism. Technically, it’s the united nations
monetary and financial conference in 1944. That means that many nations that will
later be involved in the world monetary system aren’t there,
like German and Japan, but it’s dominated by the Latin American countries,
the countries of the western hemisphere, the Allies the western
allies of the Soviet Union. And this illustration comes from
a pamphlet that the United States Treasury helped to prepare, in order to explain
why people should back Bretton Woods. So by telling this story, the same
kind of story that I’ve just told you about the vital importance of going
off the gold standard in 1933, and how that will promote growth. And how there ought to be
international cooperation. So, all countries could do
the same in the future. This is the idea that they
put forward at Brenton Woods. The story of Brenton Woods,
in the language of the period. And you’re going to have to
sort of accept that this is. This right here, particularly,
is enlightened for 1944, but from 44 different countries. But the point is that they had one idea, and that one idea is to figure out
a way to promote this and buy and sell things without getting into
another depression and war. Right, so
the idea of Britton Woods was to do that. The solution that they came to, perhaps unsurprisingly since Roosevelt
is still President and since Kings is still the head of the UK delegation,
is the same idea they had in 1933. Countries should be not
on a gold standard, except maybe as some
sort of notional term. Always talked about preserving gold as
a constitutional monarch could it make people feel good to see that it was there.>>[LAUGH]
>>Like the queen, you know? It would be there, but
you couldn’t get it.>>[LAUGH]
>>You couldn’t get it. It would be there. All the gold will go to the United States
and be buried in Fort Knox, and it would stay there, right? And then people would be allowed
to adjust their monetary policies, countries would be allowed to adjust their
monetary policies with an eye towards improving employment and
reaching economic growth. So, if you wouldn’t get into another
big mess AKA great depression or current unpleasantness depending on
how you think about these things, and the fund is chartered, right. To say that the purpose of it is to
facilitate the expansion and growth of trade, and to contribute, thereby,
the point of the trade, right, between countries, is to promote and maintain high
levels of unemployment and real income. That’s what the fund
was supposed to be for, all right,
it was to implement that kind of policy. So again, you don’t have another big mess,
you don’t have another war. You don’t have the rise of fascism,
because you don’t have that kind of deflationary experience
that they all went through in the 1930s. Now Harry Dexter White, who is one of
the major economists in the US delegation, interpreted this by saying you know, look,
the major objective of this whole idea Is to promote and
sustain world prosperity and peace. That means we have higher
levels of unemployment and real income,
which primary objectives of policy. Right? People misunderstand this to think
that the fund might have been for stability of exchange rates. It’s not. It’s so that you can have high levels
of employment and real income. You will note that he doesn’t say
the lowest possible inflation, verging on deflation, which is of course
what we saw in our earlier graph, but that’s where instead our monetary
policy seemed to have gone. And again, the idea is you promote
these high levels of employment and real income so that you have economic
growth, you have prosperity. And that way,
you avoid the rise of fascism, right? So you don’t want to have your
recovery from [LAUGH] Yes, okay. You don’t want to be in
the current situation that we find ourselves in today
where we see in the European chart that I showed you earlier in this
rather less sophisticated illustration, that we are running the risk of promoting
exactly the same kinds of outcomes Because we have failed to learn those
lessons, that we should probably try to avoid that kind of deflationary or
disinflationary experience. So I’ll stop there, which is, I don’t know
how many minutes that was, Chris, but that gives us plenty of scope to talk,
I think.>>Yeah.
>>Alright.>>Good. [APPLAUSE]>>So my goal is to moderate the session. I’ll start by asking a few questions,
and I see there’s lots of people, so I’m sure there’s lots of
questions from the audience, and I think I’ll have time for that. Let me just start by commending Eric for
such a timely book on timeless issue. Monetary policy in politics may
seem a little bit esoteric. But putting it in this light,
I think is just about right. The last slide included. Sometimes when you teach
these things in economics, it’s a little bit hard to convince
people of the the vile nature of good monetary policies think about you
know the capital labor ratio and the endowments and the real economy and
money doesn’t matter, but I think you made a convincing
case here in a very useful way. So that’s great, thanks for that. I have lots of questions, maybe you’ve
answered some of them in the discussion. The tact you took here was a little
bit different from the book, which is highly readable,
enjoyable, a real page turner, full of delightful anecdotes
as well as substance. So I encourage you to read it. So definitely pick up a copy. So FDR is at the center of your book,
keyens is at the center of your book. Both of them acknowledge and
need to do something. I guess my question, and maybe it’s my tendency as an economical
historian counterfactual questions, and you can slap me over the head
if that’s the wrong way to go, but how crucial was FDR and
how crucial was Keynes in this? People have come around to this. Other countries have led
in the way that FDR went. Eventually, but was it something special about these men or the ideas in the air.>>Well, I mean,
I’m not averse to counterfactuals. So I have to say,
it’s very difficult to figure a counterfactual with
Herbert Hoover Wins the Election 1932. I mean, that’s a real tough
one to kind of make up. The administration had grown so unpopular
and the sent off the army to chase off homeless folks off the mall right
in the late summer of 1932, so it his popularity was diving
coming into the election. As you approach 25% unemployment,
it’s harder for a sitting president to be reelected. But hypothetically, suppose, for example, that in February after Roosevelt had
been elected when he’s in Miami. A guy takes a shot at him and misses and
kills the mayor of Chicago, but suppose he got Roosevelt. John Nance Garner would have become
president, you’ve never heard of him. He was significantly more
conservative than Roosevelt. Plausibly, therefore, we could say, you
might have had an administration that was less interested in these kinds of ideas. Certainly, therefore, you probably wouldn’t have had
the immediate action that you got. I mean, that’s the one characteristic
Roosevelt that I think is very important. During the time between when he’s elected
and the time he comes into office. So between November of 1932 and
March of 1933, Hitler becomes Chancellor of
Germany in January there. Japan gets kicked out of the League
of Nations for invading Manchukuo. Roosevelt is cognizant of these things and
sees them, as a risk right then. You’ve got farm strikes in Iowa. You’ve got pickets all throughout the
Midwest and the incipient problems there. He’s suspicious or at least concerned, about the possibility of a growing
fascist movement if something isn’t done. He actually explicitly says,
especially because we’ve now raised people’s hopes with getting rid of
Hoover and being a new force coming in. If the economy doesn’t then improve, that’s when we’ll really be at
risk of a fascist uprising. So if you take all that on board and
you buy that, even a few months of further monetary and banking panic and
deflation might have lead to, if not an actual functional
fascist part in the United States. Certainly very bad conditions,
violent actions in the, things that you would want to avoid. Also, on the day before he comes in,
the federal reserve bank of New York is below its
statutory minimum goal holding. So, somebody hadn’t done
something right then. The Federal Reserve Bank in
New York would’ve had to say, hey, guess whose closing its doors now? It’s the Federal Reserve Bank in New York,
which I’m sure would’ve been bad news, kinda really speaking. So, I think that there was
a desperate need for action. It’s not likely that Hoover or
Garner would’ve taken it right away.>>Let’s talk about
getting people’s hopes up. My other question was managing and
changing expectations. I think the jacket on the book has
a blurb by Barry Eichengreen and says, monetary policy got us into
the depression, but it also got us out, which is belying the complexity of
the regime change that FDR represented. I know there’s another strand of the new
literature in economic history that says, this thing worked,
because it changed people’s expectations. And a couple questions come to mind,
was FDR really good at that? Was he experimenting in something new? In some sense, who he was,
techniques with the press and radio and so forth and
policy makers lost the art. I mean, the fed worries about
managing expectations with forward guidance these days. Could they take a page from
the Roosevelt Administration? What was special about that?>>I think Roosevelt was good at this and
was aware of the need for that, and then it was born out by
experimentation over the course of 1933. I mean, Roosevelt’s very cagey with
respect to monetary policy over the course of 1932 or early 33, cuz he doesn’t,
again, wanna spark a further panic or make the panic worse. But you can see in the documentary
record that, for example, he very clearly avoids any
specificity about monetary policy, even when his aids try to force it on him. It never makes it into
the final speech somehow. So, he just doesn’t say anything about
it when he can possibly avoid it. When he comes in and he’s inaugurated,
we’ll have a sound but adequate currency. Well, which are you going to have? The sound or the adequate. And then when he goes off gold as I say, he clearly means to do it permanently, but
he doesn’t say that right away either. But he establishes over time
the idea that he might be, I think economists now say,
credible irresponsible. Once you go off the gold standard and
you’re gonna be off the gold standard, there’s always the threat of inflation. So people believe that there
might be inflation in the future, you’re expecting the value
of money to go down. And therefore, you should spend it
if you have any spending in mind and that’s the big regime change shift
that people think is so important. You’re no longer committed to gold,
now you don’t know what point happen. They experiment with the sort of managing
expectations when they do a wheat buying program in
the late summer of 33 and Morgenthau actually observes in his diary,
the thing that really made the prices go up was when I announced that we were
gonna do this not when we actually did it. He was influencing people’s expectations
that seemed to be very important and do I think that Roosevelt
was especially good at this? Yes, I do and I would point to another
big instance later in his presidency where he very carefully managed
Americans’s expectations about becoming involved in In World War II. It took a year or two, but he eventually
got Americans to believe that they should vote for him for a third term,
because there was gonna be a war and we were gonna be in it and
it was a very slow and careful process. So, I think he had a talent.>>So, the 1930s are seminal and
watershed in many respects. Part of the book is about
the Bretton Woods period. The prologue to this is in the 30s, do you
think the US cared that much about what other countries were doing,
it’s impact on the rest of the world? There’s a conspiracy theory out here that
holds that the Roosevelt administration was trying to grind down
the remnants of British power. And so, that’s out there and not maybe mentioned in your books so
much where it seems more cooperative and then the legacy of this whole thing,
the IMF. And when we think about the IMF today or
many of us think about it. It’s kind of there and
it comes into action at appropriate times, but a lot of people think about is
having a new liberal agenda that crushes the poor and imposes
austerity policies whenever it can. Would Keynes be rolling
over in his grave and is that the legacy that they
wanted to leave and so forth. What about the rest of the world?>>Well,
there’s two big chunks to that question.>>All right.
>>Is this okay, I’ll try.>>[LAUGH]
>>The first part, did the United States really care
about the rest of the world? Any American president’s first
obligation is gonna be to the people what elected him. I mean and this is true, the head of
the fed, Janet Yellen recently said, my I remit this to manage the US
economy not the world economy, right? Or something like that, right? But they can’t do that. Both FDR and Janet Yellen know that
it’s impossible to do it in isolation. So they have to have some sense of
what priorities they can manage. Certainly by the end of his presidency
Roosevelt is his last inaugural address, the theme of it is we have learned
to be citizens of the world. Which you can’t imagine Mr.
America First’s saying today.>>[LAUGH]
>>Certainly, but so he’s moved towards the idea that there’s
an interdependence economically. Right, and that is what the Breton-Woods
system is meant to recognize. And as I tried to establish there very
quickly, running at a sprint there, that that was in his plan for
the 1933 economic conference, also was an international program of
cooperation, which he couldn’t get, right? But they very swiftly move
towards a more open economy with renegotiating tariff rates and
things like that. So there’s always an element of that, it’s not necessarily top of the agenda,
but it’s what they’re pushing for. Coming to the IMF today,
would Keynes be rolling in his grave? Well, I mean, it does not work
the way it did where it is said it should work it certainly does not work
the way Kane’s meant it to work right? And Kane’s knew it wouldn’t at the time
he died he had already decided that i was not going to be any one at the world
central bank, he did not get that and that said, and
I remember when Dominique Strauss-Kahn who was then head of the IMF was
arrested for sexual assault in New York. Remember that? Yes, there were several commenters who quipped some variation of IMF now
reduced to raping people one at a time. You know as opposed to wholesale, so
there’s that opinion is out there and it’s probably not entirely unjustified. And I’m sure would tell us all about
the IMS failings with respect to Greece, Greece recently in particular. Nevertheless it is worth pointing out that
not everything they do is terrible and particularly in the wake of
the crash in 2008 you know they made a whole lot of resources
available to try to improve liquidity. Studies show that it probably
improved the condition of some of the poorest countries in the world and
so maybe on the margins they’re doing what they’re
supposed to be doing, if not entirely. And there’s been some shift, I think,
in they’re thinking since 2007 and 8. I think more back towards that
kind of White Cain’s idea.>>I have more questions but
I see hundreds of people in the audience so
I want to open it up now for discussion. There is a microphone here so
if you’re willing to raise your hand and ask a question wait for
the microphone to come on and that way you can be heard on
the recording we’re making of this. So probably lots of questions out
there and people are being shy. Yeah?>>Thank you, wonderful talk.>>It’s working.>>It is on? Thank you, wonderful talk. You started and ended with the graph that showed
the disparity between the two crashes, the depth of the first crash and
height of the recovery. And I wonder it was indexed
if I read it correctly it was indexed to industrial
production specifically. And I’m wondering what the difference
would look like with other measures. Whether it is GDP or whether we say it as took into account income disparity or
the kind of slippery topology, it’s not a topology but, monetary policy
to fight fascism measured by industrial recovery which is spurred precisely
by the literal fight for fascism. Expansion of manufacturing
based in the late thirties but with largely unionized labor as opposed
to the contingent labor forces which are running the manufacturing
base it’s now increasing. So what would it,
does it look dramatically different? And does it tell a different story?>>This is a question that I actually
thought of when I was preparing these charts. These charts don’t appear in the book,
which again is a very readable narrative, and there are no charts in it at all. But I thought for
today I would do some charts. And when I started with Kevin O’Rourke’s
chart which I showed you, which showed global index
of industrial production. So, in order to kind of see if you would
see the same thing in the United States, I went to the same data series,
the index of industrial production. And then I had the same thought you did. How would it look if you did GDP for
example? And then I realized that the GDP
figures don’t go back far enough. [LAUGH] On a sufficiently monthly basis. Which is why Kevin probably doesn’t
use them for his chart either. So we run into a little bit of
a problem there, because, and this go to your second part of your question,
the thing that we wanna see is really more fine grained than annual figures, which is
what we have for GDP going back that far. Because we know that, according to
the official business cycle dating, the turn around in the great
depression comes in March 1933, literally the month that
Roosevelt was elected. There was a consensus that this is partly
because he changed expectations right away by going off the gold standard. And so we wanna see something
more fine grained and that’s why I don’t wanna sort of buy into the premise
of a second half to your question, which is the ramping up of
industrial production for the war against fascism that doesn’t
begin until 1938 or thereabouts. That necessarily promotes the recovery
because we can say, and we can see, that it starts much earlier probably
because of some of these other policies. Right, so
partly it’s just a practical question. The data ain’t there. Which is always a sad thing
with economic history. But partly it’s, I think, we wanna see certain things that
those other data don’t show us.>>[COUGH]
>>There you are, it was a great talk. I have one question, which is why
I grew up, as you probably know, right next to Fort Knox, for my Mom,
to allow my mom to work there. Why do we have Fort Knox, other than to a,
bail out the faltering economy, of the Green River Valley of Kentucky.>>[LAUGH]
>>What’s his literal role, at this point, this holding of the goal there. And then my second question is,
since you put that faded almost recognizable
picture of in the back.>>[LAUGH]
>>I’m curious that maybe you could have a kitchen debate where Trump,
your sense of how to, how historians can help us understand
the Trump phenomenon such as it is. And what kind of separate
from a political response, what kind of policy response that would
demand, whether he wins or loses?>>Boy.
>>[LAUGH]>>Let me take the historical question first.>>[LAUGH]
>>Fort Knox. By which you really mean
the US Gold Depository at Fort Knox. Fort Knox was there as
an army base before. I think it was called Camp Knox,
actually, for a long time, right? But the Gold Depository is built, I think it’s in the beginning,
in 36 or thereabouts. By, as I mentioned,
the Public Works Administration, specifically to store the United States
gold holdings, right? And this is because, part of that US
recovery is governed by expectations, and people bringing their gold back, and
sort of assenting to the new dollar. Part of it’s also driven sort
of by the world situation. Which is bad, beginning in 1933,
especially in Europe, and in Asia. And so there’s money fleeing those areas
and coming into the United States, and international money in this period
is basically in the form of gold. And so, US gold holdings increase
massively over the course of the 1930s with this capital
coming in from overseas. And they decide, well,
we need a place to put it, and Fort Knox is gonna be the place. Especially because as of the first
year of Roosevelt’s administration, it’s clear that it’s not going to be
given out again anytime soon, if ever. So that’s why they built it,
they built it to put stuff in there. And there’s a whole story around that, that has to do with,
the reason I was consulting for the Department of Justice, but that’s
something we’ll save for another time. The second part of your
question about Trump, I think it’s clear to me anyway, that part of what’s driving Trump’s rise,
and not certainly all of it, but
is sort of dashed hopes, right? Roosevelt was very worried,
as I said that by raising hope and then failing to make good on it, they would contribute to the rise of
fascist movements in the United States. And I think we might have had some hopes
dashed in the wake of the 2008 elections. Certainly as we’ve seen, the economy did not come roaring
back in the way we might have liked. There have been a lot of reasons for that. But one of them I think is
that the Obama Administration, didn’t implement anything like a New Deal,
right, and didn’t manage expectations
[LAUGH] in that way. And I think that that’s sort
of the faltering recovery, Trump may be right, we may be in for
a recession before too very long. That might be one of the things
that contributes to his rise, now that’s not as I say,
I don’t think that’s not all of it, right? I think we’ve been on trajectory
towards Trump for a long time, going way back to the Archie Bunker era
and the delight that a certain kind of conservative took in sort of floating,
what we now call PC. But saying the things you’re not suppose
to say, that’s a big a part of it too, and that’s been coming a long time, obviously. But I think immediately
the thrust has been, he’s been given certain amount of
umph by the lackluster recovery. Now, what can we do now? It’s too late now, right?>>[LAUGH]
>>In 2009, we should have had the equivalent of
the congressional hearings in 1933, where we put the bankers on the stand and
said you’ve been very bad.>>[LAUGH]
>>We didn’t do that, right? Let alone put them in jail which is what
some people think we should have done. We didn’t even bother to kind of go
through a public process of education about how we got into this mess. We just sort of tried to get on
with things as quickly as possible. And that I think in retrospect
was probably not a hot idea, so.>>Here, and then here.>>Do you think there’s any special reason
why the Great Depression and the current unpleasantness help far-right parties, or
do you think it’s just whatever group has a lot of credibility in a particular
place and objects to the current system? Like maybe, in some other places, it would
be Islamists, and in some other places, it would be communists, or is it really that fascists benefit
in some kind of special way?>>Certainly, it’s true that in the 1930s, Stalin’s hold on power was
helped by the Great Depression. And then on the other hand, though,
it’s hard to imagine a counterfaction with Stalin which had lost its hold on power-
>>[LAUGH]>>Given his means of maintaining it. I think, though, that more generally,
there’s a kinda common sense, confluence of interests
in an economic crisis, where the first thing you wanna
do is look after your own, right? And so as I said a minute ago, so
of course, the President, the head of the Fed, are gonna say well, my primary
concern is with the United States. At a more local level, people are gonna
say, I’m concerned with my family, with my people. And that very easily feeds into
a kind of a fascist rather regard, who are your people? I mean, talking about a long-standing
trend in American conservatism has been to try to define the group of
people who ought to get benefits. And the people who ought not is
very clearly a part of that. An extreme version of that is fascism. You get tribal and nationalistic enough,
you’re saying, well, only white folks deserve these benefits. Only white folks deserve to
benefit from this recovery. So there’s, I think,
a kind of natural process, whereby that logic is spurred
by economic downturns.>>You mentioned France
in your book twice.>>Yeah?>>Post World War I, and then post World War II, where
the communists are taking the barricades.>>That’s true.
>>So where is that in all terms of here?>>But they get for
it in both cases, right? So there’s that, too. I suppose, and again, communism is
about a certain kind of solidarity, so ideologically, I suppose, that could
benefit as well, it just hasn’t seemed to.>>I’m speaking from a position
of medical ignorance, but your talk naturally focused on
Roosevelt’s economic policy. To what extent, do you think the recovery, Back, God, 50 years ago,
when I had US History, and we barely got to the 20th century,
but that’s not the point.>>[LAUGH]
>>Things like the Works Projects Administration, the CCC, the Public Works
Programs, that dealt with unemployment, and so forth, as I recall it, had a lot
more emphasis in economic policy.>>Mm-hm.>>Are they still regarded as
important in the recovery?>>They are. There’s a fairly widespread consent, and
Chris can correct me if I’m wrong on this, but among economists, that while they
were beneficial, they were insufficient, right, to account for
the amount of recovery that we see, right? Again, if you remember the line that I
showed, that showed the US recovery from the Great Depression,
it moves upwards pretty rapidly. It’s a very rapid rate of recovery. You see GDP growth of about
8 to 9 to 10 to 12% a year. And so some of that can be accounted for
by the WPA, but not all of it. And a lot of it is probably
owing to monetary policy. I mean part of what we have to remember
is that the CCC is pretty small. That started in 1933, but
it’s not a lot of people. The WPA’s the really big one,
that’s 3 million people or so, but that doesn’t get started until
relatively late, til 35. So if we’re looking at accounting for
a recovery that starts in 33, and then continues through, we have to
look for other things to account for.>>I think we have time for
one more question here in the middle. And then we’ll thank Eric. Thanks.>>Hi,
I am from the Davis Political Review, and we are a nonpartisan student
political commentary publication. And so my question today for
you is that while Trump and right-wing fascist leaders
are certainly an endemic problem to these sorts of crises,
the rise of Bernie Sanders, and I guess very loud candidates,
reflects how economic inequality has certainly galvanized both
ends of the political spectrum. And so you’ve made the point that FDR
really studied how to change expectations, and he certainly had a pension for
political pragmatism. How much of a problem do you think it is
that Bernie Sanders is billing a lot of his policies as New Deal-esque, when he
clearly doesn’t have the same pension for political pragmatism nor
the solid understanding of ethics?>>[LAUGH]
>>I thought you said you were a nonpartisan.>>[LAUGH]
>>To declare, we are nonpartisan as a publication, but-
>>I was teasing you.>>[LAUGH]
>>I mean, I would point out that maybe
both Sanders and Trump have been spurred by the economic conditions
that we see, although Trump’s the one who’s actually getting the nomination
of his party and not Bernie Sanders. So that’s important especially because at
the start of these nominating seasons, a lot of people though Trump’s
policies were not pragmatic or realistic, and indeed,
many people still think that. So I’m not sure that pragmatism or
realism or willing to work with the party actually has anything to do with the
results since both Sanders and Trump would seem to fall into the same basket as
far as those things are concerned. I think that, you came down to the
question of whether it’s a problem that Sanders describes his things
as New Deal-esque, for who? I mean, he’s not gonna be
the nominee right, so don’t hiss me.>>[LAUGH]
>>He’s not gonna be the nominee, so I’m not sure it’s not that much of
a problem for the Democratic Party. I think it would be nice, my own
personal belief, is it would be nice, as I’ve already said in response to Greg, that it would have been nice if
the Democratic Party had been more New Dealish, but I think that’s
kind of a little bit too late now. I mean, it may be a problem for
people’s abilities to understand what the New Deal was really like, but
don’t listen to politicians for that, so.>>Thank you.>>Yeah.>>Thanks. Thank you everybody for
participating and Eric, most of all.>>Thank you.>>[APPLAUSE]

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