George Selgin on the New Deal, Regime Uncertainty, and What Really Ended the Great Depression

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• The New Deal's recovery was characterized by a strong initial burst following banking stabilization and gold revaluation, but it stalled due to policies like the NRA, with sustained recovery later relying on unintentional foreign gold inflows driven by European war fears.  Copied to clipboard!
• Keynes' direct advice to Roosevelt regarding the Depression—specifically avoiding regime uncertainty, prioritizing recovery over reform, and criticizing the gold purchase program—was largely sound, despite the common myth that Roosevelt followed his guidance.  Copied to clipboard!
• The severe 1937-38 downturn was likely caused by a 'perfect storm' of simultaneous monetary tightening (doubling reserve requirements and sterilizing gold inflows) and fiscal retrenchment by the Roosevelt administration.  Copied to clipboard!

Segments Expand All Collapse All

Selgin’s New Book and Guest Introduction

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(00:00:28)

• Key Takeaway: George Selgin is introduced, discussing his new book, False Dawn: The New Deal and the Promise of Recovery, 1933 to 1947.
• Summary: Tyler Cowan introduces George Selgin and praises his new book on the New Deal era, noting their long acquaintance.

New Deal Stimulus vs. Policy

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(00:01:26)

• Key Takeaway: The New Deal did not amount to a modern style of fiscal or monetary stimulus.
• Summary: The host asks if revaluing gold helped and NIRA hurt recovery. Selgin clarifies that the New Deal largely avoided modern stimulus programs.

Initial Recovery and NRA Effects

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(00:02:18)

• Key Takeaway: The initial manufacturing growth was a temporary boom based on expectations of NRA price controls.
• Summary: Selgin explains that the early growth was short-lived, partly due to manufacturers buying inputs before NRA price controls took effect, and partly due to banking stabilization.

Optimal Gold Devaluation Strategy

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(00:04:41)

• Key Takeaway: Roosevelt should have immediately devalued the dollar after suspending gold payments, avoiding the Warren-based gold purchase program.
• Summary: Discussion on whether gold revaluation was the best reflation method, criticizing the months-long process of ’toying with the price of gold’ before settling on a final devaluation.

Keynes’s Sound Advice on the New Deal

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(00:06:17)

• Key Takeaway: Keynes’s advice to Roosevelt regarding devaluation and avoiding policies like the NRA was sound, contrary to the myth that Roosevelt followed him.
• Summary: Selgin highlights that Keynes criticized Roosevelt for following Warren’s theories and advocated for sound recovery measures.

Policy Evaluation: Glass-Steagall & RFC

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(00:06:51)

• Key Takeaway: Glass-Steagall was irrelevant to recovery, while the RFC’s lending activities hurt, though its recapitalization efforts helped.
• Summary: Rapid-fire assessment of the Glass-Steagall Act and the Reconstruction Finance Corporation’s impact on ending the Depression.

Policy Evaluation: AAA and Banking Act

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(00:09:09)

• Key Takeaway: The AAA was bad because it focused on supply reduction, and the Banking Act’s deposit insurance helped stabilize banks but was less crucial than often believed.
• Summary: Selgin critiques the AAA for paying farmers to produce less and discusses the mixed legacy of the 1933 Banking Act, noting FDR opposed deposit insurance initially.

Dictator George on Fiscal Policy

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(00:13:26)

• Key Takeaway: Selgin would have favored more fiscal stimulus (deficits) but prioritized monetary policy over fiscal stimulus.
• Summary: If dictator, Selgin would spend more but emphasizes that monetary policy was the underutilized tool for demand recovery, and he would have rolled back regressive taxes.

Smoot-Hawley vs. Regime Uncertainty

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(00:15:56)

• Key Takeaway: Regime uncertainty, which discourages investment, was a much bigger barrier to recovery than the Smoot-Hawley Tariff.
• Summary: Selgin defers to research suggesting Smoot-Hawley was small, emphasizing that uncertainty about future policies severely hampered investment spending.

Causes of the 1937-38 Depression

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(00:18:39)

• Key Takeaway: The severe 1937-38 downturn resulted from a conjunction of monetary and fiscal tightening occurring simultaneously.
• Summary: The Fed doubled reserve requirements and the Treasury sterilized gold inflows, coinciding with fiscal retrenchment by the administration.

Keynes’s Sound Advice on the New Deal

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(00:21:12)

• Key Takeaway: Keynes’s direct advice to Roosevelt on avoiding hostility toward business and prioritizing recovery over reform was very sound.
• Summary: Selgin praises Keynes’s counsel to FDR, noting Keynes ridiculed the gold purchase program and NRA, and advocated for more spending.

FDR, Fascism, and Political Compromise

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(00:24:16)

• Key Takeaway: FDR’s New Deal policies were partly a compromise to steal the thunder of more aggressive socialist/fascist figures like Huey Long.
• Summary: Analyzing John Flynn’s claim that the New Deal was semi-fascistic, Selgin suggests FDR was balancing against more extreme political threats.

Austrian vs. Chicago School Diagnoses

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(00:26:52)

• Key Takeaway: Austrians like Hayek were inconsistent, recommending austerity despite theories requiring spending stability; Chicago economists recognized the need for public works stimulus.
• Summary: Selgin critiques Hayek for favoring austerity over stabilizing spending and notes that early Chicago economists were not simple-minded classical economists.

Banking Structure: Decentralized vs. Centralized

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(00:30:15)

• Key Takeaway: The US decentralized system, while prone to crisis pre-1933, is now superior to highly concentrated models, especially given the moral hazard introduced by deposit guarantees.
• Summary: Comparing the US system to centralized models like Canada’s, Selgin argues that government guarantees corrupt incentives, making past freedoms dangerous now.

Quantity Theory of Money Assessment

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(00:36:36)

• Key Takeaway: The quantity theory is badly misunderstood; its strict version fails because velocity is not stable, especially post-2008.
• Summary: Selgin discusses the relationship between money growth and inflation, noting that while correlations existed historically, financial innovation and changing demand for real balances complicate the theory today.

Reforming the Federal Reserve

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(00:42:17)

• Key Takeaway: Selgin’s ideal reform is a ’night watchman Fed’ using a computer to target stable nominal spending (NGDP), replacing the FOMC.
• Summary: Selgin, an NGDP stabilizer, explains his preference for a rules-based monetary policy over discretionary management, even on a fiat standard.

Dollarization Prospects

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(00:44:24)

• Key Takeaway: Dollarization is a serious option for basket-case economies that have proven incapable of managing their own currency, despite the risk of inheriting bad US policy.
• Summary: Selgin discusses which countries should dollarize, criticizing economists who compare real-world failures to idealized managed floating exchange rates.

Stable Coins vs. Banking Lobby

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(00:46:51)

• Key Takeaway: Arguments against allowing stable coins to pay interest based on protecting the banking industry are insufficient justification for regulation.
• Summary: Selgin suggests that if stable coins offer better services, they should be allowed to compete, though stable coins themselves need regulation for reliability.

George Selgin’s 100 Donkeys

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(00:49:14)

• Key Takeaway: Selgin owns 100 donkeys in Spain, which provide positive psychological externalities through therapy programs.
• Summary: Selgin humorously recounts how he ‘adopted’ 100 donkeys at a reserve, noting the reserve operates on a fractional reserve basis.

Evolution of Selgin’s Libertarian Views

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(00:51:35)

• Key Takeaway: Selgin was never a hardcore laissez-faire libertarian; his views on money led him to accept a government-managed fiat standard as the only practical option.
• Summary: He explains that his libertarianism stemmed from monetary issues, and he accepts that switching monetary standards requires coordination, making a return to the gold standard impractical.

Biggest Surprise Living in Andalusia

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(00:54:32)

• Key Takeaway: The biggest surprise has been the genuine kindness and concern shown by local people, such as dentists and postmen.
• Summary: Selgin shares anecdotes about a dentist refusing payment until a procedure was complete and a postman frantically calling to ensure a package was received.

Eurozone Impact and UK Exit

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(00:57:06)

• Key Takeaway: The Eurozone is a mixed bag; the common currency is good, but the accompanying bureaucracy is burdensome.
• Summary: Selgin recalls advising Lithuania on currency reform and expresses ambivalence about whether Britain benefited from leaving the Eurozone.

WWII’s Role in Ending the Depression

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(00:58:56)

• Key Takeaway: WWII ended the Depression by shifting government attitude toward business from hostility to cooperation, fueling post-war investment.
• Summary: The war changed regime uncertainty from negative to positive, leading to an investment boom that sustained recovery after wartime spending ceased.

Policymakers and Productivity Deflation

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(01:01:47)

• Key Takeaway: Policymakers are currently too afraid of positive inflation to even consider allowing productivity-driven price declines.
• Summary: Selgin states that central banks must first agree on nominal income stability before they can even contemplate a long-run policy of falling prices.

Impact of Executive Control on the Fed

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(01:05:16)

• Key Takeaway: If the Supreme Court removes agency independence, the Fed will likely fall under fiscal dominance, leading to easier monetary policy favored by the executive branch.
• Summary: Selgin prefers the current, albeit imperfect, Fed independence over control by the executive branch, which he believes prioritizes spending over macroeconomic stability.