nothing to fear? debating the 1929 economic collapse

“Nothing to Fear? Debating the 1929 Economic Collapse” October 12, 2009 Amity Shlaes v. Jonathan Alter Fountain Street Church, 7:30pm

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Gleaves Whitney: Good evening. I am Gleaves Whitney, director of the Hauenstein Center for Presidential Studies at Grand Valley, and I am also the moderator for this evening’s debate. Thank you for joining us and welcome also to our viewers at our live webcast. Now, I would like to extend a special welcome to two individuals – our founding benefactor of the center, Ralph Hauenstein, front row [clapping] and also our President of Grand Valley State University, Dr. Tom Haas. [clapping]. In addition, let me thank the Hauenstein Center’s two partners that helped make this evening possible – Dr. James Williams, Dean of the Seidman College of Business at Grand Valley [clapping], and the Reverend Fred Wooden, who of course is the senior pastor here at Fountain Street Church. [clapping]. Now at this time, I am going to do my little ritual. I am going to hold up my cell phone and I am going to show all of you guys. I am going to turn my cell phone off and I ask you all to do the same. Thank you. Many of you in the audience will remember the famous quip from the 1980 presidential election when Ronald Reagan was running against Jimmy Carter and he defined a recession as when your neighbor loses his job, a depression is when you lose your job, and a recovery is when the powers that be lose their jobs. Well, 80 years ago this month, the stock market took a nose dive and gave us a new vocabulary – Black Tuesday became the emblem for widespread failure in our economic system. Now it is an event that the Hauenstein Center and Seidman and other organizations here are dedicating much of the next academic year to studying, to analyzing. The question is, to what extent? Was it the market that failed versus to what extent was it public policy that failed. Now, if you Google Great Depression and Great Recession, you get 2.8 million hits – clearly, a propriety of viewpoints. But tonight, you are going to hear two of the best view points, I think, on the opposing views of the Great Depression – the problems, the policies and the politicians who struggled with it. Amity Shlaes and Jonathan Alter represent opposite sides of the debate over FDR’s legacy, but what they share is also considerable. They both have Chicago roots. They are two of the best journalists in the country, writing with great historical depth and awareness, and they both have a passion for public debate and getting public policy right. Amity Shlaes is an award winning syndicated columnist for Bloomberg and a senior fellow at the Counsel on Foreign Relations, a writer on political economy and taxes and a contributor to numerous television and radio shows. Ms. Shlaes has been called “a leading historian of 20th Century Finance. She is formally a columnist for the Financial Times, a member of the Wall Street Journal Editorial Award, where she was featured as an op ed writer. She also has published in National Review, New Republic, Foreign Affairs and the American Spectator, and she is the author, as many of you know, of The Forgotten Man: A New History of the Great Depression. Peggy Noonan called this book epic. Wholly original. George Will called it “a fresh appraisal that Americans now need to know.” Amity, thank you for joining us tonight. [clapping] Jonathan Alter is an award winning columnist and a senior editor for Newsweek. Since 1991, his column has examined media, social issues, global issues and politics, and going back to the 1980s, he has covered seven presidential elections. During his presidency, Bill Clinton was quoted as saying, “Alter bites me in the tail sometimes.” Actually, Clinton used another word – I


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I am using a euphemism – but at least he knows what we are trying to do. Mr. Alter is also a contributing correspondent for NBC News appearing on Today, NBC Nightly News and Meet the Press. As many of you know, he is the author of The Defining Moment: FDR’s Hundred Days and the Triumph of Hope, which historian Alan Brinkley called “rich and perceptive,” and Richard Norton Smith, who is no stranger to these parts, called it, “required reading for every president, every student of leadership and anyone who appreciates narrative history at it’s finest.” John, thank you for joining us tonight. [clapping] I got to know these two at lunch a little bit better today and I can tell you off script that they go way back. Both of their mothers were extremely active in the politics in Chicago, but neither went to jail [audience laughter]. John and Amity attended rival high schools in Chicago, rival colleges on the east coast, and they continued to rival each other; in the press, over the air waves, and of course here on stage tonight. Ladies and gentlemen, please help me welcome our two distinguished guests. [audience clapping] Now, just a word about the format real fast. We agreed on two questions in advance. Our debators will speak for seven minutes each on the first question followed by each making a three minute rebuttal. So, without further delay, I see that they are ready to go and we are too. Question one – did Franklin Roosevelt and his policies deepen the depression or help bring about recovery? Amity, seven minutes. Amity: I am going to use some seconds to say I am very grateful to be here – to the Hauenstein Center, to the Seidman School of College of Business and to Fred and Wendy Wooden, to be in their church, this wonderful church, the Fountain Street Church. How do you know if a recession is going away, is abating, is gone, is getting better or worse? We know how we know today. Recovery is there when we are back where we were before the crash. We know by the stock market and on television, or we know by unemployment. That is today, and those are our criteria. So, did FDR make the depression better or worse? I will argue that he made it worse. One of the things you do when you study the New Deal that Jon and I both did, is you don’t just look at the politics or the economics, you look at the culture. Before writing this book, I did not know that the board game, Monopoly, came out of the Great Depression. The modern board, as we know it, did though come from that period. It was invented around Philadelphia. There were some other contributors. Parker Brothers had first rejected it for having more than 50 design flaws, but it did become popular. Something about the game resonated, Monopoly, in those years, the 1930s. You know the game. It is about trying to make it with real estate through property, through business. You buy a house, maybe you buy another house. When you get a hotel on the property, suddenly your life makes sense, the value of it all goes upward a lot – it compounds. The game depends on a few things. Those include getting a predictable number of pay income tax cards, a predictable number, not too many, of Go to Jail cards. And it depends on the temperament of the bank, the person who plays the bank. You need a bank. Well, the bank does not have to be perfect does he or she, but the bank has to be not too bad. Someone who enforces the rules, does not cheat on the math when he hands out the money, is relatively


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predictable himself, the bank. If the bank is too unpredictable, too much of a screamer, too nasty, too jumpy or too domineering, what happens? You walk away from the board. FDR did many things that made the period of the depression better or feel better. Once I think of are deposit insurance which has a history in Michigan because Arthur Vandenberg supported it and pushed it through. FDR did not especially want it. Hoover certainly did not want it, and yet, it became law and made American lives better. FDR signed that law. FDR created the Securities and Exchange Commission. Very important when we are thinking again in terms of games, the game of the stock market. Can we play it fairly? Are the rules clear? There was a clear understanding generated by the institution that he established. He created Social Security – that is the bedrock for us, so important that part of the net that we know we need. He understood about free trade very well, at least eventually. He nursed, along with Cordell Hull, for quite a time, the concept of getting back to trade because Hoover had done so much damage by signing a tariff. He knew this was what Hoover had done wrong and yet he rewarded Cordell Hull, this senator from Tennessee, in the end for helping him as Secretary of State to get us toward free trade during the war. And actually Cordell Hull got the Nobel Prize for that in 1945 – after the work. FDR also understood about the suffering of people. I wrote in my book, I think, about Albion, Michigan, where people were so inspired by our president – or the man who was just becoming our president, because it was the winter of 1932/1933 – president-elect, that they were making script currency, as everyone was. It was a deflation and they put his picture, the new president, on their money. In Monopoly speak, if you want to use that language, he was doing these things. In doing them he was being a good bank – reliable, clear, making a game that you could play. But he was also a bad bank and here are the ways, on balance, that mattered more of the ways he was a bad bank. He did things that made people walk away from the table and that made the depression worse. One is, he tried to run the whole game – an aggressive bank. The best example of this was the centerpiece of the New Deal, the National Recovery Administration. It ran the entire economy – John and I have both written about this – right down to what price you could charge. You had to charge a high one on this crazy theory that a higher price would get the economy going. You had to pay a high wage even if you couldn’t afford it. It was pro big business, Monopoly, and it was no accident that the game came out in the year that his NRA was very, very strong, and it hurt business, especially little business. It shut small business out. Another thing FDR did was raise taxes. So Hoover had started it. He pushed taxes up to 60+ percent, 62, maybe 63. FDR raised them and raised them again, so all of a sudden you could never get that hotel. Your money did not compound because you were giving it too fast to the government, in essence. He attacked wealthy people as well with an animus we don’t see today. You hear FDR talking about princes of property. What does that say to you if you own a few hotels? Me, I am a prince of property, I shouldn’t be at the board…pause. He attacked wealthy people as bad people and that, too, set us back because those wealthy people then stopped working – capital strike. Went to the country house and waited it out.


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He did something that we never talk about, but I have been studying lately, which is he let the price of labor get too high. What does that have to do with depression? There is a lot of scholarship on this topic, and I tried therefore to lay it out in the book. The NRA, that monopoly law I spoke of, and then the Wagner Act, the big union law, that you know both pushed up labor prices. Maybe people will pay more than the economy could stand, more than a fragile economy could stand. There are two scholars, Harold Cole and Lee Ohanian – and I say their names carefully because they have meant so much to me in my studies – who showed that labor prices in the 1930s were 20% above the trend for the century. That is extremely weird given the level of unemployment. Those phrases that we heard from our parents and grandparents, “nice work if you can get it.” It was okay if you had a job about the 1930s. They were true. By helping organize labor and overpaying it, we were creating a second forgotten man, the man who did not happen to be in the union and get that benefit. The man ,whom the employer who was relying on government to set the prices, could not longer afford to hire. This was the ultimate jobless recovery, the 1930s. The data bear all this out. You know our criteria. The Dow did not come back in 1935 or 1936 or 1937 to its ‘29 level. In fact, it didn’t come back until the 1950s. Unemployment – there’s a little bit of debate about that. Maybe it was 12%, maybe it averaged 14%, maybe it averaged 16%. The difference between terrible and awful, nothing that we can accept. So, what I want to conclude with is what struck me and that we never learned, but they knew. They knew that it was ridiculous and that the New Deal was unbalanced, probably counterproductive. Eleanor said to Franklin, “Franklin they are afraid of you, you have stopped business.” That was important knowledge from the period, and it is important for us now, too. Jon: Thank you. I also…thank you very much for coming everybody. I also want to thank the Hauenstein Center and the Seidman Center and this wonderful Fountain Street Church. This venue is awe inspiring. I can understand why so many of our distinguished predecessors over the years, Winston Churchill, and the rest would want to appear here. First of all, I want to say a special word about one of our hosts, Ralph Hauenstein, who has made so much of this possible. And I want to salute him not only because of his magnificent achievements and contributions, but also, frankly, to score a debating point. Ralph is a product of the Civilian Conservation Corp. What was the Civilian Conservation Corp.? In the dark days of 1933, when all of the banks were closed and Franklin Roosevelt became president, when the country was literally curled up in the fetal position, the banking crisis had started right here in Michigan because of the dysfunctional relationship between Henry and Edsel Ford. Henry would not bail out Edsel’s bank. Governor Comstock of Michigan was forced to close the banks here. Disease spread across the country and pretty soon our economy had melted down. The Board of Trade in Chicago closed indefinitely. The New York Stock Exchange closed indefinitely. A lot of people thought that capitalism was at an end. The dean of the Harvard Business School was among those who thought that perhaps capitalism as we knew it was at an end. Nobody knew what was going to come next. Studebaker had a car called the Dictator which sold rather well, and obviously dictatorship in Europe at that time was working well. Mussolini was extraordinarily popular, not just in Italy,


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but in the United States. Hitler was brand new. Nobody quite realized he was a bad actor yet. So Franklin Roosevelt comes to power and first he does, something rather conservative, like President Obama, he rejects the liberal idea of nationalizing the banks. Because he knows you need to stabilize the banks first, and then he sets about putting people to work. His first big work program, A Dollar A Day – not popular with organized labor – was the CCC. What did the CCC accomplish? Planted three billion trees, saving the topsoil of the United States. Put more than two million people to work. Trained Ralph and his colleagues so that they could go on to serve as the officer corp that won World War II and saved humanity. Led eventually to the integration of the Armed Forces, kicked off both the environmental movement in this country, the conservation movement, as well as the National Service Movement since the CCC was the first National Service Program. Now, did the CCC end the Depression? Did all the other jobs and programs end the depression? No. Did all of them work? No. The National Recovery Act, as Amity indicated, was a failure. But, if you believe, as Roosevelt did, in bold, persistent experimentation, we were going to try a lot of things to try to work the problem and to confront the threat of a loss of our system, of our capitalist system, and of our democratic system. Roosevelt decided not to become a dictator, to work through Congress, even though a lot of newspaper editorials were urging them to take dictatorial powers. So did it work? That is the question. And the answer is that we did not get out of the Depression until World War II. So if you are asking did it naturally end the depression? Did the New Deal end the Depression? The answer would be no. I saw Senator Mitch McConnell on television recently and he was saying he had been doing some reading about the New Deal. Perhaps he was reading Amity’s book and some others… And he said he was arguing against stimulus programs and he said that he found that history showed us that Roosevelt’s stimulus, big government spending, did not get us out of the Depression. It was World War II that got us out of the depression – ha, ha, ha he was saying. It wasn’t the New Deal, it wasn’t those big spending programs, and I did something I probably shouldn’t have. I started yelling a bit at the television. I said, “What do you think World War II was?” It was massive government spending, Keynesian economics on steroids. It got us out of the Depression. That massive government spending is what brought us out. You know, I don’t know about you, but I think reducing unemployment from 25% - and Michigan was over 30% - to a little bit over 11, 12, 13%, you know, cutting it basically in half, I think that is pretty impressive. That does not sound like failure to me. Now, unemployment went up and down in the period, but the numbers you might hear from Amity do not actually count the millions of people who were in government jobs programs. The statistics in those days did not count them as being employed, so the numbers that you are going to hear from her on unemployment are artificially high. Now, at a certain point, they had another dip in 1937. And that was because in advance of the 1936 election, Roosevelt cut spending. He decided to try to appease the deficit hawks, moved away from the New Deal programs in order to get some votes and the unemployment went back up to 19%. So, it was when he got more conservative in his approach that the economy weakened. But, I think the best judges of whether the new deal did anything to improve the economy are the American people.


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We heard mention of Ronald Reagan in the debate. “Are you better off than you were four years ago,” he said. That was a line from Franklin Roosevelt. He asked people in a Fireside Chat, are you better off than you were two years ago before the 1934 mid-term elections. They responded with a resounding democratic triumph. In the 1936 reelection, he carried all but two states – Maine and Vermont – the biggest victory since George Washington. Now, if he had been failing, if the Depression was not at least being ameliorated, or eased, considerably eased, by the efforts of Franklin Roosevelt, were the American people, were they that easy to fool? I don’t think the American people are stupid. I think they understand what is in their interest. If you look at the long-term legacy of these New Deal programs - 39,000 schools built, 325 airports, 2,500 hospitals. This is a monumental contribution to the infrastructure of our country and it made so much of our post-war prosperity possible. So, the efforts of Franklin Roosevelt were flawed in many respects, but in total, they were a major, major contribution to the development of our country. Amity: Thank you, John. Just briefly on those controversial unemployment data… The unemployment data that I used are the same data as President Obama and Christy Romer used. The average, according to their data, is 13-14%, or even actually higher. The average according to the lower data is 13-14%, so you want to be careful with that. The 1936 year is an important year when we think now about government spending and the effect of government spending and then the limit of government spending. We love government spending and we always vote for it. In 1936, the Federal Government had expanded wildly. It was half again as big as it had been, and it was surpassing for the very first time in peacetime history, the size of the states and the towns. That is a very big political gift – whether it equals strong economic growth and recovery is a second question. John and I do not disagree on the first part of the 1930s, 1929, the crash and so on, but a crash, a dark time, is not congruent to a Great Depression. We would not remember the Great Depression if it had all gone back to more or less okay in 1935 – it didn’t. We have instead the terrible depression within the depression where people did hang themselves, too, out of hunger and despair, where unemployment hit 18 or 16% depending who we would want to use; either way, a horrible number. And that cannot be explained by a market crash, by international forces, even by monetary events. It can’t. It can only be explained by government policy. I wonder whether you could have had the CCC and all the wonderful things we do feel nostalgic about that did employ our parents and our grandparents, maybe when they had nothing else to do that week, and also not have high taxes and not attack business and not change the rules all the time and not try to run the economy with strange schemes. But I have a sense they go together. That you are going to be dramatic, so you create great social employment programs, and you also do great big things to the economy. A crisis is a terrible thing to waste. You try the experiments you had in your mind already. Finally, I would contend that the U.S. was a good deal less revolutionary than John says. Not on the brink of revolution at all, not like Europe. We had Father Coughlin right here. We had Huey Long, but the American labor force was rather quiet overall, especially before the Wagner Act. The scholar came from Europe and wrote this note, “This flabbergasting thing that I have found. American labor is not revolutionary. It is relatively conservative.” Just as they say today,


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looking at us. Oh wow, labor in the U.S. has a long fuse. The idea of revolution or Roosevelt is a false choice. That’s what I would argue. And, finally, World War II… Christy Romer, who is in the White House, contends, for example, that it was monetary easing – which is different from fiscal spending – that contributed to the recovery in that period. The last thing to say about World War II that we often fail to mention – when Roosevelt went to war, he forgot about attacking business because you can’t wage war at home and abroad at the same time. And the same people who had been in court were now in the White House writing deals to serve our arming for this Great War, or even before it. So, business felt relieved, and you saw that in the economy, and that too helped the recovery. Jon: I agree with Amity that greated certainty is an important thing for business and I think they could have had more consistent policy making during the 1930s and it would have helped. And I agree that it was not sensible for either Hoover or Roosevelt to raise taxes in the middle of a steep economic downturn. But the question you have to ask, if you are rejecting Keynesian spending – and this was a question that a lot of Republicans had to ask themselves within the last year – is what is your alternative? And what was fascinating to me was that certain Republican economists like Martin Feldstein, who was Ronald Reagan’s chairman of his counsel of economic advisors – they understood that when you are in this situation, there is no alternative to massive government spending. It would be nice if there was. If you could say, all right, if we just cut taxes further, will it take the economy out of a tailspin. You know, we won’t have a global meltdown. We won’t have these international bank runs, which can now be done with the click of a mouse. It would be nice. It would be nice if there was an alternative. If free market economics and just liquidate, liquidate, liquidate as Hoover’s treasury secretary who Amity admires – that was his policy. It would be nice if that was a recipe for recovery. Unfortunately, it is a recipe for disaster, which there was a total consensus on in 2008 and sensible people in the 1930s recognized that. So I think anybody who wants to critique the New Deal, you know, at its core, rather than at the margins, that this policy or that policy could have been better, has to offer a compelling, coherent and pragmatic alternative to large scale government spending, which I have not heard from any of the critics on the New Deal. And by the way, what you spend it on – and this is unanimity across the economics profession on this – is not particularly important. They can be digging holes and filling in the holes, and if you are paying them, you are injecting money into the economy. So yes, there were some make work projects, boondoggles; it was better when it was spent on the good projects, like the CCC projects, but even when there were boondoggles, it was helping to keep people afloat. And I don’t think it is a surprise that so many people look back and say, “you thank God for Franklin Roosevelt” and for his entire life, he was immensely popular with the people, and long after his death, you could go up into a hollow in West Virginia and you would see a picture of him on the wall. Gleaves Whitney: Well, thank you very much for a spirited debate and answer to the first question. Amity and John will now have five minutes each to answer tonight’s second question and three minutes each to offer a rebuttal. And that second question is this: what are the lessons from the 1930s that we should be applying today?


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Jon: I started to talk about this a little bit. I think the first lesson is, you don’t worry about the deficit in the middle of a severe downturn. I am a deficit hawk. I have been writing, for 17 years, I have been writing about the need for more fiscal discipline, among other things. But you just, that is a medium- or long-term problem. It is Hoover economics to worry about that in the middle of a downturn. That is how the crash turned into the Depression, was that you had – and there was bad trade policy, the Smoot Hawley tariff, and some others – but the gold standard and the idea of fiscal restraint were disastrous policies in the early 1930s and were they applied today, would be equally disastrous. The second is, as Amity mentioned, quoting Rahm Emanuel, the White House Chief of Staff, “A crisis is a terrible thing to waste.” You know, if you can use a crisis to achieve certain important social objectives, that is a plus. Look at what we got? Social Security came out of the Great Depression. Now, the 1936 election, which as I mentioned Roosevelt won overwhelmingly, that was a referendum on Social Security. The Democrats were all for it and Republicans were all against it. The American people hadn’t even yet begun receiving their Social Security checks, but they had faith in Roosevelt and so they knew that those checks would eventually come. And indeed Social Security and poverty among the elderly became the most popular social program in the history of the United States. Now I think, health care is a lot tougher, and I think it is going to be a lot less popular. But it is along the same lines that you do take a crisis, use it as an opportunity to get some big things done. So there are some other things like high speed rail we might get. Obviously, we are going to get some roads paved and some infrastructure taken care of, not nearly as much as we should, but it is important. Finally, it is important to remember that something we can really learn from them is there is no gratitude. There is no gratitude on the part of people who are saved by an aggressive problem solving president. So the bankers in the early 1930s, they were rescued. And in those days, there were a lot of Harvard to homeless stories – you could actually go all the way down. And they were rescued, their businesses were rescued, the fortunes were rescued. And then as soon as they came up above water, they started complaining about Roosevelt and they did not want any regulation. Roosevelt compared it to the story of the lifeguard who saves a drowning man, and the drowning man he saves comes back a couple of years later and says, “Hey lifeguard… How about my silk hat? You lost my silk hat.” The lifeguard just saved him from drowning. That is what we are seeing right now. Is that you have people who just a few months ago, they were saved by the government and by the taxpayers, more important, with these huge bailouts – maybe unavoidable bailouts for the banking system, because that is the life blood of the economy. They were saved. And now when financial reregulation is being discussed in Congress and there is talk of a consumer financial products regulatory administration that would defend the consumers against predatory lending and the predations of the credit card industry, and they are saying no, no, no and they are using their lobbying power to try to protect themselves from regulations that might prevent us from going into the soup again. So, I think it is really important to remember that if you bail out capitalism, which is what happened in 1933 and is happening again now, that there are reciprocal responsibilities and that the people who have been rescued need to be heavily regulated. And that would apply to insurance companies in the health care sector as well. In the public interest, and the idea that somehow regulation is always a negative or – because there had been abuses in regulation that it


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somehow is harmful to regulate – has been disproven by the events of 2008. If we had more regulation, we would not have had a near economic meltdown in late 2008. Amity: I am going to try and counter on the economics in my rebuttal. But for now, I am answering, “what should we have learned from the 1930s for today.” The first thing is that scare mongering, trying to scare people into believing that the world is going to come to an end for years and years unless the government does something, may be counterproductive. The second is that local community matters a lot when you are in trouble. Local community and the community aspect of the country carried us through. In The Forgotten Man, I talk a lot about clubs – Rotary, Alcoholics Anonymous – what we did for each other on that level in a hard period. The third is that the individual matters more sometimes than the government planner and may see the economy better than the government planner. Jonathan said earlier that, I don’t even remember exactly what you said, John, but something that everyone had a view that they were grateful for the New Deal. I want to read you a poem by Ogden Nash, the humor poet, about the New Deal and it’s planning aspect and how it was intruding on the agriculture in this instance. “Mumbilty pumbilty, my red cow. She is cooperating now. At first, she didn’t understand that milk production must be planned, but now the government reports she is giving pints instead of quarts.” There was a deep understanding in the country that this didn’t make sense. They might go along with it. Maybe some people said there was going to be revolution, but there were plenty of people who believed it didn’t make sense and who would believe that now as well and are saying it. Another thing that matters – and we that we should listen to them, is really what you’re asking about today. The price of labor matters very much. We always treat this well as sort of a macro event, labor up and down, everything else will adjust. The experience of the ‘30s was that that was not so and that high wages mattered a lot. Then it was the unions, now it is not the unions, but it is the mandates, for example, for health care. When we say, “Maybe I won’t hire another person this month, maybe I will wait and see about the health care bill” – that’s really the equivalent of what those who did not hire in the later 30s were saying: “Maybe I will wait it out and see where the Wagner Act goes and see how high I must pay labor.” That labor prices, when they are too high, make the recovery choose to stay away. The taxes matter on the margin. That nostalgia for the New Deal can be destructive. You can love the New Deal very much – parts of it that have to do with your family or ideas that meant something to you – but to look nostalgically to that period, is the answer for now, can also be counterproductive. That paying off interest groups is a slippery slope or a bad trend. Because of course in the New Deal, we just had that little bitty program of Social Security and very small, and people died very young, so it wasn’t this huge aspect of the economy that it is now. But of course, the Great Society had to follow and Medicare had to follow and President Bush had to expand, yet again, with Medicare Part D and no party can stop expanding on entitlements. And of course on the state level, as Michigan knows so well, and on the federal level, the government cannot pay. So we may enjoy it, but we bankrupt our grandchildren if we do what the New Deal taught us, which is always expand entitlements.


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You want to ask yourself what FDR would have said of the implications of this. We were talking at lunch, and people said, “Well, how can we know what it would have been like had there been no New Deal.” Fred Wooden said, “Oh, that’s a counter factual.” And in a way he is right - we did have the New Deal in the 1930s. But in a small way now, we do have evidence because we have less New Deal places and more New Deal places in the United States and we know how well they are doing. More New Deal places, more in that culture – industrial, heavy labor are the east coast, Detroit, big cities – and we know how they are doing. Less New Deal places are the southwest. Sure, there were New Dealers who came from the southwest, but it is no so much part of the culture and those places tend to fair better. Or even within Michigan, you could say, “Which is the New Deal part of Michigan?” – the Detroit part – and how is it doing relative to the less New Deal part, which is Grand Rapids area. Maybe one is fairing better than the other and maybe that is because of the devotion to all of those things – the entitlements, the strong respect for organized labor, even when it’s, unfortunately, too expensive. Where does that lead us and what kind of future does it bring? So, I would be the opposite of some of the columnists today who say we have not tried the New Deal. I say we have tried it very hard for a long time or versions of it all over. And it has produced sometimes okay, sometimes inspiring – maybe the 1950s were very well protected with no competition results, but often very mediocre results and that that nostalgia is currently worth giving up. Jon: Amity, I would just stay that blaming the devastation and folly of Detroit on Franklin Roosevelt is like blaming Joe Wilson screaming, you know, “You lie!” in the House chamber on Ronald Reagan. There’s just…you can’t draw those kinds of lines. Sure, there were excesses to the New Deal. You are perfectly right about some of the silliness of it. The National Recovery Act was so much overregulation that they literally regulated the burlesque industry as to how many times a night a stripper could take off her clothes. They would tell the nightclub owners with a regulation. But, just because they had those excesses, does not discredit the entire enterprise. And just because some people were frozen in the amber of the New Deal through the ‘60s and ‘70s and ‘80s and became what I think of Paleolithic liberals didn’t necessarily help the country and didn’t rethink issues in a pragmatic way. Those people were not living a New Deal. Franklin Roosevelt would not have been happy with them. He was, above all, a pragmatist. He believed in bold, persistent, experimentation. Take a method and try it. If it fails, try something else. But above all, try something. You have to work the problem. And this is an enormously important lesson for our time. One of the reasons that George Bush became unpopular was the American people no longer had the impression that he was getting up and working the problem on their behalf every day. And so, it wasn’t just Iraq. Katrina would be a good example. Before the New Deal, if people were in trouble because of a hurricane, it was seen as any of the responsibility of the government. There are some people who still believe it is not the responsibility of the Federal Government. But I think the American people in general – and I am not talking about everyone. When you say that, of course, there were people who did not like the New Deal, there is going to be 25 % who don’t like anything at any time. So obviously, you are never going to get 100%. But most people, after Katrina, they felt that this was society’s responsibility to come to the aid of people when they are in this stadium and in New Orleans and that it is not right just to leave them. As Roosevelt said, “The winds of chance and the


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hurricanes of disaster.” Or to have Social Security as Bush proposed be subjected to the stock market, which was contrary to FDR’s idea. So for all the excesses of liberalism, and I criticize a lot of it, the core of this, a new definition of what we owe each other as a people – that in some ways we are interconnected and interdependent and we are our brothers and our sisters keepers – the kinds of ideas that perhaps you hear in the church sometimes. This is the core idea of the New Deal. It is not this particular program or that one, this easy to exaggerate failure or that one – it is the idea is a pure free market economy, laissez-faire, survival of the fittest economy. Is that the way we want to move forward? Or has history proven the limitations of that approach and the merits of a more independent, mutually supportive and compassionate approach to governing? Amity: But John, to relate Katrina to, I don’t know, Calvin Coolidge, is like shouting, “You lie!” to the president from the floor of the Congress. I don’t see that relationship at all. You said earlier that sensible people agreed on what happened economically in the 1930s, that sensible people agreed that one must always spend. I would differ here a little bit. I think we have a big fight. We have a split between the legal culture and the historical culture on the one side and the economic culture on the other side. Lawyers, historians and politicians all agree that spending is the answer and also agree, tend to, that the Fed should be stronger. Economists are not, and business people, are not so much agreed. There are studies that show there is about a 50/50 division among political economists with an economic background on the issue of what the New Deal did – was it net good or bad. You know, vis a vis, even the rescue of ‘29, ‘30, ‘31, such as it was, we had an experiment right before that because we had a rather severe downturn in the United States were we did liquidate, liquidate coldly. That was the Depression, the panic of the early part of the ‘20s and unemployment went high into the double digits very fast. Auto companies failed and other auto companies had to rescue them. And that snap was terrible, but it lasted only two years, in part because, I would argue, the government did not jump in and change it all. And it was scarcely remembered and scarcely remembered by us. So there was that very model within the decade, ‘29, ‘30, ‘31 especially, ‘32, ‘33, ‘34 - we went on a different path. The school of economics that I am getting more and more interested in is something called public choice theory which we scarcely discuss, and it is neither right wing nor left wing. It’s got a Marxist element to it, it has a markets element to it. It says, government is not better than the private sector. It is not worse, but it is not better. And it is a competitor and it will use any occasion, any prices, to take ground, to win ground, to push the other fellow, the private sector, into a defensive position. And that is what you see in economic crises, generally. Government says, “we are higher, we can solve the problem better. We know more. We are wiser and listen to us.” And in the end, the public sector is rather bigger than it was before, relative to the private sector. I am not sure that means the economy is better. I am just sure that this school of thought, public choice theory – it’s a terrible name, but is a useful theory – is accurate in what they are describing. So you want to contemplate, even at rest, Ronald Reagan, his government was nearly twice as big as Roosevelt’s. How far can the United States go? There is a last philosopher I will mention, Frederick Hayek. We never say his name. He said, “We are on an incremental road towards serfdom, towards the end.” I don’t believe we are going towards


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serfdom. I do believe, and I believe many in Michigan believe, that we have probably reached the limit of how far government can go. And maybe it’s time to stop. Gleaves Whitney: Thank you both. Well now I would like to offer our debaters the opportunity to pose a question to each other and then after we conclude with that section, we will go to the last part of this evening where you, the audience, will have an opportunity to come up to the microphones and pose questions to our debators. Amity, what question would you like to ask John? Amity: What’s your next book? Jon: Nice question. It is much nicer than mine. I have to revise my question for you. [laughter] My next book is about Barack Obama’s first year in office and I am in the middle of reporting it right now and have written a pretty good chunk of it. If anybody has a good title for me, I am open to suggestions. So I have been spending a lot of time in Washington, in the White House, and usually I go to a coffee shop because I want to get them off campus, so I have done a lot of my work from Starbucks and other coffee shops near the White House. They talk a little more freely if you get them out of the building. And so I am trying to give people a sense of what actually happened behind closed doors in some of these very, very important decisions that were made. I have a chapter about the auto bailout and a lot of details have not come out yet about, you know, we now own actually 70% of General Motors. If you said a year ago that in October of 2009, “Hey, the taxpayers are going to own 70% of General Motors,” I think people would say, “What are you smoking?” So I am going to try to explain how that happened as well as the Chrysler deal, banks, foreign policy, the temperament of the president – the the way he makes decisions – the way the whole thing has taken shape, because it feels like a blur to most people. There were so many things happening so fast that I thought I would kind of slow it down for folks and tell them what was going on when they were going about their own lives. I am going to ask two questions. I am going to ask one nice one like yours [laughter] and to make it a little more fun, I am going to ask one that is a little bit more pointed. The nice one is, I know what your next book is on – Calvin Coolidge – and I am fascinated by that and I want to know why you think Coolidge is relevant and important for our time? And my slightly nastier question is actually related to that. And that is, after Lehman collapsed a year ago, there were a lot of free market folks, including those in power, who said, “We just have to let it go. We can’t have these companies that are too big to fail and we can’t bail everybody out, and we have to let it go and that is just the way it is going to be.” And that turned out to be a disastrous decision. It led to what the head of the international monetary fund called a global meltdown. Bank runs are now very easy. They can be done with a click of a mouse. You had terrifying bank runs and we are only now learning how terrifying last September was. So my question is, isn’t the meltdown after Lehman’s collapse proof of the limitations of Calvin Coolidge-style free market economics that you champion? Amity: That gets at the uncertainty that we are talking about… I would argue that the problem wasn’t that we let Lehman go, it was rather that we rescued the others and then were inconsistent with Lehman. That the market did not know what the U.S. was going to do and it freaked. That does not mean that they freaked because Lehman died, because all markets would


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collapse, but rather because it was in awe at the inconsistency and reach of Henry Paulson, which is different. I think the same Europeans who are saying now how horrible it was that we failed to rescue Lehman will be rather gleeful when the crisis behind the crisis comes. And now I will scaremonger and say, when the dollar has a crisis, because it is very clear this administration, and also for that matter the preceding one, aren’t concerned about the dollar being a stable currency, that they will trade it for trade and a lot of other things. And so there will eventually come, sooner rather than later, not 30 years from now, a crisis behind the current crisis that has to do with the currency. And those same Europeans who said we should have rescued Lehman will say we should have stood by the dollar and not done so many rescues and they will make great hay out of our fiscal state that resulted from our rescues. Vis-à-vis the Coolidge… I will just say, I don’t know that much about him yet. I went on the advisory board of the Coolidge place and visited Plymouth Notch, but I do have a sports analogy for him. Every president brings up a sport and it is kind of anachronistic. Sometimes you see the president doing a sport that didn’t exist in their time or barely. And if Coolidge had a sport, he would be a wind surfer. Why do I say that? Cause you look, it all looks so easy. He is just holding still. He is doing nothing. He is vetoing or he is not going down to his flood, and there was a great flood in that period – he sent Hoover, the flood of the Mississippi. He is not, he is not, he is not, he is lazy, he is do nothing, he Silent Cal. But what you know about windsurfing, is it is really difficult and it takes great strength to hold still. So Coolidge is our great refrainer and there is some virtue in refraining and that is what I will be studying in the Coolidge bio. Jon: Didn’t he like Indian clubs? Wasn’t that a school at the time? And Hoover liked the medicine ball? Amity: Hoover liked the medicine ball. Coolidge liked… Hoover fished, was a fly fisherman, and Coolidge fished with worms. [audience laughter] So you can imagine what Hoover felt about Coolidge. Jon: When Hoover went fly fishing in his business suit with, you know, a fly fisherman coat over it and was photographed kind of like Jack Dempsey wearing those dress shoes when he was supposedly drilling something and it was the most embarrassing photograph until Richard Nixon was photographed on the beach at San Clemente wearing wing tips. [audience laughter] Gleaves Whitney: Well, I would like to encourage the audience to ask questions. Just come up to the microphones if you have something you would like to ask. And while you are queing up, I have a real quick question for both of you – what would each of you concede, what would each of you concede, in the other person’s argument? John, how about you? What would you concede? Jon: I think Amity makes a very good point about the importance of certainty for business planning and that this is something that both Democrats and Republicans, but particularly Democrats, have to take more care and understanding that businesses are on a time


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horizon where they want, they are making investment decisions, and they want to know if there is going to be a certain consistency of public policy in at least the medium-term, and they need to take more account of that, so that is a very important point. Amity: I concede that we didn’t say it… I think we both agree that Roosevelt was right in World War II, on the right side, and a great war leader. My point is only that we should not let his war leadership obscure the economic errors of the 1930s. Gleaves Whitney: Okay, well thank you very much. It looks like we have a number of questions here, and I would like to impose the Jeopardy rule – please make your statement in the form of a brief question. Let’s begin on that side. Sir. Male voice: Thanks. A couple of quick ones I guess. With regards to Lehman Brothers, it was my understanding that Paulson decided not to bail them out because they investigated the books and they did not have enough assets that would be truly throwing good money after bad as opposed to some of the other banks, which had some assets available. And a second point, from the Depression, one of my favorite movies, Carole Lombard, William Powell, “My Man Godfrey,” and it was of course it is a film, but it shows a huge disparity – you’ve got the forgotten man now living in the dump and then you have these wealthy people chattering about Fifth Avenue breaking windows for glee… How much reality was there between the disparity in the depressio? I mean, we have this overall impression of massive, you know, chaos and whatnot, but was that across the whole economic spectrum or were there still people at certain stratas, maybe the farmers living at subsistence level…I think you get the point. Jon: I am really glad you raised that point about the disparities. You know, coming out of the ‘20s, there were huge income disparities, the likes of which we have not seen until the present day. And then in the ‘30s, what happened was you had a creation of a very large middle class coming out of the Depression. You had a tremendous reduction in income disparities, and I am one of these – I’m like a big bourgeois guy – I’m like a big believer in the power of the middle class to advance the country’s interest. And if you look at the post war period where we became this unbelievable economic engine and where we created good jobs for a lot of people here in Michigan – good high paying jobs that could support a family and a robust middle class – that was partly the result of government policy coming out of the New Deal and the post-New Deal period which continued a lot of policies that had the effect of bolstering the middle class, raising wages. I don’t believe with Amity that a race to the bottom in terms of wages is the way to go. And so one of the things that is arguably the biggest domestic challenge for President Obama and his successors is to restore a robust middle class to the United States. Amity: So the first question regarded Henry Paulson. I think generally the question is why is so much up to the Treasury Secretary/Fed? And is that really appropriate? That the fates of so many companies must be decided by these few figures. If you talk to people in the past administration – and I know more people in the past administration and fewer in John’s administration, of course – what they will say that it was a terrible mayhem and they all did what the Treasury said including, for example, at the SEC. Was that right? No. They should have been countervailing forces. They just fell in line because of the crisis, because capitalism was coming to an end, and there weren’t the checks and balances that we needed. Vis-à-vis income


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distribution, there is a good article by Claudia Golden in the current issue of Michael Milken’s Review on the west coast and she pinpoints the biggest moment of income disparity, when income distribution looks the most skewed, as you would say, and that was 1915. Actually you see a narrowing after that until more recently and she says that has to do with education. The more people go to school and higher school, the evener we all are, which gives a sort of Swedish feeling and so it is real. The more people go to school, the evener we all are. I would say secondly that I don’t think big income distribution with very, very rich people and very, very poor people is necessarily evil because the rich people do create jobs – that’s what they do with the money – and you see in times of growth correlating to skewed income distribution. I once wrote an editorial in the Wall Street Journal about how great the income distribution was in Europe – it was all even – and the title of that editorial was “Broke but Equal,” because the cost of that equality was a broke government. So this is a tradeoff for you. Do you want equality in that sense, income equality, or do you want more fiscal health? Male voice: Well, sometimes they create jobs so people have money and sometimes they consume… Amity: They just buy diamonds. Jon: That is not a trivial argument. If you look at compensation levels for the American Financial Services industry - $77 billion – if you are looking at risk capital, and like to be very conservative a 10 to 1 ratio, which some people say is 14 to 15 to 1, $770 billion that could have been invested into the American economy instead of going into their pockets with these you know ridiculous compensation levels? So I wish that they had created as many jobs as they might have. As far as your point on education, I completely agree with you. That is why I think it was good that the New Deal built 39,000 schools and the Great Society created the first aid to elementary and secondary education and began large scale subsidizing of higher education, making us the finest higher education system in the world and becoming the engine of our economy. So if we had pursued some of the policies that you endorse, we would not have much of an education system to be speaking of and we might be on the road to serfdom. Gleaves Whitney: Okay, Professor Veryser. Professor Veryser: Yes, Jonathan, I am curious what your comments would be why Roosevelt didn’t cooperate with the London Economic Conference and that it seemed that Bretton Woods did what the London Economic Conference wanted to do and it did lead to the prosperity. And then I would like to have a comment from both of you – do you think we need a new Bretton Woods? Jon: The London Economic Conference, which was in June of 1933… Roosevelt sort of blew up the conference because he thought, unlike Hoover, he thought the origins of the Depression were domestic. Hoover thought they were international. I think the truth is, usually in these situations, somewhere in between. He wanted to get off the gold standard. Britain was


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moving off the gold standard, but there was…they still had a ways to go. And I think that even if he had cooperated with that conference, I am not sure that they necessarily would have been able to do that much good or reduce trade barriers, for instance, which were terribly destructive in this period. Roosevelt’s chief delegate to the conference, the Secretary of State, Cordell Hull, was an ardent free trader and he did not feel like he was making a lot of progress in getting other nations to agree with free trade. So it probably took World War II for us to get to Bretton Woods. I do believe that we need some kind of new Bretton Woods conference. I think the international financial system and trade regimens are in some trouble. One area where I would be critical of Barack Obama – and he is my president in the same way he is everybody’s president, which is something that some of his critics sometimes forget – they seem to be challenging his legitimacy to be president, but that is another subject. But even though he is my president, broadly speaking, I do have a bit of a problem with him on trade. I do not think he is being aggressive enough right now in removing trade barriers. People don’t want protectionism, but we have lost some of the progress, the forward momentum we had on trade. Gleaves Whitney: Yes sir? Male voice: During the 1920s, the one speaker said that the structural weakness in the economy is that rising productivity, all of the technology, the productivity, and wages were not keeping up with it, so inventories began to build up and such. And that Roosevelt’s attempt was, what a lot of his advisors had come out of the Wilson administration, was to somehow create an upward pressure on wages through labor and that his response – this is a question and a statement, his response was that when he came in it was not necessarily that he was pro-labor, but…I take exception that labor was rising from New England to South Carolina. The textile mills, the uprising of the 500,000 in 1934. My question is, didn’t Roosevelt respond to two things: rising productivity, wages not keeping up and the pressure from unorganized labor rising up, like the 1934 textile strike. I mean, these were southern workers who had nothing to do with unions or Roosevelt or anything and rose up. Wasn’t this response and belief that the economy would be better if a percentage of labor was organized, creating a kind of a balancing factor to laissez-faire capitalism? Amity: Can you craft an economic justification for organized unions? Yes. Is it right? Some of the time. Vis-à-vis, the union law that we got…had we got for example say, Taft Hartley, which was the edited version of the Wagner Act, in the mid-30s, you wouldn’t have seen either the intensity of the sit down strikes, the fear of business, the many days of nonproduction that made the Depression within the Depression of ‘37, ‘38. What we got instead was a very radical, unadjudicated law – the Wagner Act - nobody knew, was a sit down strike legal? Nobody knew, was the close shop legal? This only became clear much later when Democrats rethought it, Republicans rethought it after World War II. So did the law have to be that radical? I would argue no. Maybe we would get a union law, maybe it was time in the U.S. But it did not have to be that radical. There was political fear of John L. Lewis. In our school books, we romanticized John L. Lewis, but when I read what he did to the companies and…he bullied them. He was a bully and he drove those wages higher than they had to be and that hurt production. So you are talking about productivity… That was a big, big story in the later part of the 30s. This is important for Michigan. There is a lot of scholarship on it. I will say again the


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names of the people I think are great on this: Harold Cole Penn and Lee Ohanian, UCLA, because very soon many books are going to come out about this. These studies are just forming. Jon: General Lewis very interestingly turned very much against FDR for a lot of reasons. I think you are right that the challenge was increasing purchasing power and that if they could not get wages up to increase purchasing power, they did not feel like they were going to be able to get the economy going again. And that did become a priority of their economic policymaking. I don’t think they thought enough about business incentives. They did not have what conservatives sometimes call growth agenda. Liberals should call it a growth agenda, too, because there are things that you can do…they are talking about this now, both Democrats and Republicans in Washington as we speak, are talking about a tax credit for business for hiring new employees. It might be an unworkable idea, but you have to think about it from both the perspective of small business and from the perspective of labor and have a balanced approach that increases purchasing power, increases incentives for small business to hire new workers and all in all, keep its eye on the interest of the middle class. And one of the things that I think has been you know really unfortunate about what has happened in the last several months is that because AIG and these mega banks, you know, had strapped dynamite to their chest and said, “If you don’t do what we want, we are going to blow us all to kingdom come.” They got the money first, you know, and you are talking about if you include all the Fed guarantees, you are talking about trillions and trillions of dollars. And so, you know, many times the cost of the Iraq war. It used to be that in the 1960s, Ev Dirksen who is the senate minority leader, and he and Jerry Ford used to have something called the Ev and Jerry show when Ford was the minority leader of the House and they would go on TV, Ev and Jerry, and they would criticize Lyndon Johnson’s program. And by the way, in a very collegial way, without the nastiness that you see nowadays on cable TV and Dirksen famously said, “A billion here, a billion there, pretty soon you are talking about real money.” And nowadays, it is a trillion here, a trillion there, pretty soon you are talking about real money. And that is going to be a problem because as Amity says, that is a burden on our children and grandchildren. Male voice: Good evening. We have all benefited in our lifetimes from private industry miracles. To name just a couple, we have computers, medicines, energy production in regions that heretofore had been impossible. And all of these represent capital, scarce capital ,expertly deployed. Mr. Alter, you mentioned in your part of the debate that in a downturn, it does not matter how the government spends its money or our money, why we can pay one person to dig a whole and our neighbor to fill the hole in. Well, is it not possible that that theory, and indeed the entire, much of the New Deal and its spending, despite its accomplishments, and much of today’s stimulus, represents the taking, the sapping of scarce capital that can be used to generate miracles, products that enhance our lives and yes, jobs and economic growth, take that money, keep it from the experts who can deploy it. I leave that to, well, to both of you. Mr. Alter… Jon: First of all, I was speaking in broad economic terms. If you invest government money in the economy as an economic matter, it does not matter how you do it, but because it is more money in the economy. But obviously it is preferable, you know, if you have a choice, to invest it in things that are going to leave a lasting contribution like the ones I described from the New Deal, you know, and that… And I would venture to say that for all of the dynamism of American entrepreneurship and innovation, and this what, in large part, is what has made our


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country go and has made it great – if you actually look at the origins of that, much of it began with government spending. And I would mention just too very quick examples that helped to get the high-tech revolution going. One is DARPA, which is a Pentagon advanced research program, which contrary to Al Gore, invented the internet and provided the seed money that created the internet. And the other is the space program, which had a powerful influence on a lot of different industries. And I would add a third, from a republican administration, and that is the interstate highway system, which created tremendous radiation of economic growth radiated out from the highway program. So what you want for economic development – and then higher ed is the key example that I was mentioning before and so much of our growth now comes out of, you know, the power of our universities to create innovation. Where does the money for those universities come from? It does not fall from the sky. Huge amounts of it comes from Washington, okay, to power the growth of American higher education. So what you want is neither a big government solution, nor a laissez-faire solution. You want a series of pragmatic, public-private partnerships that are win-win, that are pragmatic and nonideological and that are focused on what works to create economic growth. And what happens is just very, very briefly, like on labor, you know, when it was the ‘30s and you had Walter Reuther, then what they wanted was more purchasing power, higher wage and it was pretty hard to argue with that. But it got to the ‘60s and they had these labor contracts, it built in these huge health care costs into every car and that were providing benefits that were sort of unimaginable for anybody who was not fortunate enough to work for the auto industry, that is when it got out of hand. So it’s like what the ancient Greek said, “Everything in moderation, nothing in excess.” And that is a good principal for my money to keep in mind. Amity: I think this is probably the most important question tonight. In broad economic terms, it matters very much how the money is spent. So if you spend it on looking about without all these incentives here and there and you spend it on that thing you think has the most potential for profit, especially longer term, you tend to generate innovation so you have productivity gains. If you spend it just like that, you may have some productivity gains some times, but often it is just wasted. This idea of just spending it is very much out of that period. That is when it was being developed. The economist Keynes was in the men’s room with another economist named Hoover – not the president, but another economist named Hoover – and he said, “Look, if we just knock these towels off the table in the men’s room, that would be better than doing nothing. If we just dug holes, that would be better than doing nothing. If we just drop money from helicopters, that would be better than doing nothing.” But you know intuitively that it is maybe a little better than doing nothing but not very much. It is the experience I think of when you, just to put it in everyday terms, when you go to the airport and you have to take off your shoes, and the man is telling you that you have to take off your shoes. And you take off your shoes and you feel a little resentful, but then you try to be nice and you think, “At least this created a job for someone…” [audience laughter]. The man who gets to ask me to take off my shoes and then you are done and you are putting your shoes back on and you are feeling a little better, and you say, “But it isn’t a very good job, is it? What is the use of that job?” Well, it has a security use, but economically you know it doesn’t have a very good use. It is not going to improve the quality of our live beyond military security.


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Jon: Whoa, whoa, whoa…wait a minute. It is feeding that guys family… Amity: Right, but he could have a job… he is… Wait. What happens when the war ends and he is no longer employed. There is absolutely no more justification… Jon: Well, the war on terrorism is going to be 15, 20 years, 200 years. Amity: Maybe, but there is absolutely no more justification for someone who benefitted from a one year job creation tax credit to be employed the second year. There is absolutely no more justification for someone to buy an automobile next year if he got one in the clunker period through the program this year. The point is, money will be spent for an event, an offer, a job, but it is not that productive and it isn’t necessarily added production over time. Sometimes you just buy the car this month instead of next month – substitution. And you cause a double dip afterwards. Jon: You’ve got to stop the bleeding. With the last year, it has been a tourniquet. Look, take this state. What is it, 13%, 15% unemployment? 17? If you did not have a state stabilization fund and the billions coming in here for Washington, you would be up over 20%. That is a lot of human hardship. [male voice in background] Well, it would be even higher. You know, what the economists, including conservative economists, when they were looking at the stimulus, one of the things that people agreed that they should put money into was food stamps. Food stamps, extend unemployment compensation, prevent layoffs, a huge amount of the stimulus went to prevent layoffs. Now when you are not laid off, it is like the dog that did not bark in the Sherlock Holmes story, you know, you don’t really know. That is the clue that the dog that did not bark. When you haven’t been laid off, you can’t quite…it is an abstraction to try to conceive the consequences of if you had been laid off. But think back to the Depression where in the 1932-1933 school year, you had teachers were not paid for the entire 1932-1933 school year. The reason that the Mayor of Chicago took the bullet for FDR in Florida when a gunman got off five shots at FDR, he killed the Mayor of Chicago, I wanted to know when I was doing my research why was the Mayor down there. It is because his teachers hadn’t been paid. Now if we hadn’t gone for a big spending stimulus program this year, the teachers in Michigan would not have been paid. And if they couldn’t be paid, then they couldn’t pay their bills and the local businesses in their community and their little shopping malls would go even more out of business than they are today, and you would have a downward cycle. So, at a certain point, the government is the only institution that can save the economy when it is tanking. There is no alternative. That is the unfortunate sad reality, and it is a dagger at the heart of free market economics. It is a great idea, it works much of the time to provide all sorts of benefits for our society, I am a huge advocate of market ideas for incentivizing people, but when you are in trouble, when you are in a foxhole, you need the government and that is what we have learned again as we did in 1933. Gleaves Whitney: Did you want to respond? Amity: No. I just don’t think we are in a perpetual foxhole. You can argue it many ways. Michigan is, as I said before, a very New Dealish state, and it has not brought you to a good


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place. You can think now about the terrible pain that you are in about the employment problem. We think about it, too. But the question is Michigan’s future. And if you add entitlement/stabilization onto, onto, you may not get any farther than you are now and you will further challenge the opportunities for those who follow you. One of the states that is studied – I don’t like one state better than the other – but one of the states that brought itself to my attention in the recent period, actually not vis-à-vis Michigan, but vis-à-vis Japan where they had ten stimuli and ended up with higher unemployment and a worse stock market than they had before. After that decade of stimuli was Texas. Texas brought itself to my attention because Texas basically was allowed to fail. Texas wasn’t too big to fail, it failed and failed and failed and every bank in Texas has a different name than it had 15 years ago or 20 years ago. What happened to Texas? It was terrible. People were very sorry. There was a lot of trouble. But overall, Texas was able to recover. It was not just related to the energy price. And now unemployment in Texas is not that bad. It is below the average instead of way above it. We are not saying we love one place or the other, but at least I am saying there are some models that are worth looking at that are different from the new deal model. Jon: I agree in looking at different models, but I just have to ask a really simple question. Let’s say instead of your name being Amity Shlaes, your name was Jennifer Granholm. Would you have refused the stimulus money from Washington? Amity: I think that is to force me into a corner. But I do think the governors and senators who were less hospitable, less willing to take the stimuli, were making points that will matter over time. Gleaves Whitney: Thank you very much. Unfortunately we are starting to run out of time now. We have had some great questions, great answers, and I want to thank both of you for generating a lot more light than heat in this debate. It is now my pleasure to invite my good friend and colleague from the Seidman College of Business to come up and address you very briefly, Dean James Williams. Dean Williams: Thank you, Gleaves, and thanks to our great debators. What a wonderful night, right? [clapping] I would like to thank Pastor Wooden and the parishioners for inviting us into this great facility. We really want to thank you for sharing some of your evening with us. We are really pleased that we were able to share this joint venture between the Hauenstein Presidential Center and the Seidman College of Business. We both are very blessed. In fact, our two organizations reside side by side in the DeVos Center right across the river over there and I have seen what the Hauenstein Center is doing. They are truly one of the outstanding Presidential Centers in the nation. [clapping] And the Presidential Center and the Seidman College of Business both are blessed with tremendous role models. Gleaves already talked about the great Ralph Hauenstein, Ralph [clapping]. Leadership and service – we really appreciate what you have provided and the role model that you are for all of us. But the Seidman College of Business is also very proud of a role model - Mr. L. William “Bill” Seidman was our role model and still is. Although he passed away during May, he left a rich legacy of leadership and service for the Seidman College of Business and all of Grand Valley State University and I know he would have appreciated this session tonight. So we thank you on behalf of Bill Seidman.


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We are going to continue our journey through this economic maze tomorrow morning. So we invite you to join us at 7:30 for breakfast over at the DeVos Center, the Loosemore Auditorium, where Mr. Brian Domitrovic and six economic panelists are going to talk about economic recovery today. So we will continue this discussion tomorrow morning. Please join us. At the back of the church, there will be a book signing as we leave. And so on behalf of Grand Valley State University, the Hauenstein Presidential Center and the Seidman College of Business, I wish you a good evening. [clapping]

nothing to fear? debating the 1929 economic collapse

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great recession

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