It did once, until President Roosevelt lost his nerve.
Here’s the text of a letter I wrote to the NPR radio program “This American Life”, which let the anti-Keyesians run riot over the historical facts:
“I just heard your show of the weekend of January 31 on John Maynard Keynes and Keynesian fiscal stimulation of the economy. What a hatchet job!
First you attempt to call into question Keynes’ character by having one of your reporters talk about his sometimes arrogant personal behavior. Then you FAIL to mention that President Franklin Roosevelt, from his election in 1932 until 1937, followed policies that resulted in Keynesian stimulation of the American economy, resulting in turn in a robust recovery of the American economy over that period, including a strong rise of Wall Street stock prices.
I have just been reading a history of the Depression called The Dark Valley by Piers Brendon. It is well researched and doesn’t seem to have an axe to grind. Mr. Brendon explains that after that initial partial recovery through stimulation by governmental deficit spending, President Roosevelt, with the advice of his Treasury Secretary Henry Morganthau, lost his nerve, began longing for a balanced budget, and cut government spending by 2 billion dollars ($28.6 billion in 2007 money), in 1936, whereupon another stock market crash ensued in 1937, and the Depression got worse again*, until the USA went into that most stimulative of all American experiences, World War II, whereupon recovery took off.
With an accurate historical predicate unlaid, you then turned to opinion. As I heard the presentation, monetarist opinion dominated this section, including that of an economist who claimed that Keynesian intervention had “never” been tested, which claim would have seemed true to listeners who lacked knowledge of the abortive, and successful ’til aborted, test in the early 1930s.
You went on to give that misrepresenting commentator the last word, allowing him to claim that his opposition to Keynsian stimulation was based on its being dangerous “because its an experiment that’s never been run.”
I realize that NPR is largely funded these days by corporate handouts. I understand that accordingly you have to let the intellectual justifiers of laissez faire capitalism take the floor unopposed every once in a while, but really–this program went over the top in that line.”
To My Blog Readers
Please take a look at the Wikipedia articles on the “New Deal” and the “Recession of 1937”, and particularly the graphs of employment and Gross Domestic Product during the 1930s that appear in those stories. Both articles are short.
Paul Krugman made this same point in his New York Times column of Friday, April 17, 2009:
“History shows that one of the great policy dangers, in the face of a severe economic slump, is premature optimism. F.D.R. responded to signs of recovery by cutting the Works Progress Administration in half and raising taxes; the Great Depression promptly returned in full force. Japan slackened its efforts halfway through its lost decade, ensuring another five years of stagnation.”