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In Part I of this series, New Deal Democrat and I looked at the years 1929 - 1933.  These years saw a decline of 25% in the chained GDP figures; a failure of 20% of commercial banks, a drop in personal income from $90 billion to $50 billion and a drop in the level of industrial production from 60 to 30.  In
part II
we looked at the years 1934 - 1940, where we saw that growth returned to 1929 levels in 1937, although this was lowered by the recession of 1938.  By 1939 GDP was again increasing.  In Part III, we looked at what happened statistically and practically during the years of 1934 - 1938.
    In this, our 4th and final installment, we expose and rebut the lies and distortions of the RW noise machine New Deal denialists.

    Q. "Do you feel the New Deal saved our society?"
    A.  "By and large? (Pause) Yes."

- Alf M. Landon, 1936 Republican candidate for President, to Studs Terkel, Hard Times

    As we have already seen, the New Deal succeeded in reversing and dramatically improving all of the objective measures of the economy, and most of them had returned to pre-depression levels by 1937.  Since the RW noise machine can't rebut those objective facts, their effort to discredit the New Deal relies on 3 arguments:
    1.  By 1939, unemployment had only fallen to about 10%
    2.  Business's uncertainty about changing New Deal enactments led them to invest less
    3.  The economy of the New Deal failed to measure up to theoretical mathematical economic perfection.

We will examine the RW meme via its three usual sources:  "The Forgotten Man" of Amity Schlaes, "Regime Uncertainty" by libertarian think-tanker Robert Higgs; and an economics paper by UCLA Profs. Ohanian and Cole.

1.     The polemic "The Forgotten Man" by Amity Schlaes (what was being regurgitated by George Will when he was schooled by Prof. Paul Krugman in the videoclip from Part 2 of this series) is the leading example of this effort.  Ms. Schlaes is neither an economist nor a historian.  She holds holds a a Bachelor's degree in English, first found employment as an Op-ed writer for the Wall Street Journal, and has generally fed at the RW noise machine trough ever since.  In other words, her forte is rhetoric and her career is as a RW shill.  Now, in terms of credibility, Ms. Schlaes' other sage analyses include the following about Hurricane Katrina:

Still, Iraq has not caused the US to botch Katrina -- either the preparation or response. On the contrary, the fact that the country and President Bush personally were already mobilised for disaster has saved lives.

and  this gem from earlier this year:

Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining..."  
    Gramm was right about the recession .... A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ.

So perhaps we should just say that her analysis of the Great Depression is equally cogent and leave it at that.   But as her "analysis" of the Great Depression is obviously the designated meme of the RW echo chamber, a detailed rebuttal is in order. Ms. Schlaes gave an summation of her argument in a speech at the American Enterprize Institute, which serves as a convenient foil to respond with, you know, the truth.

Ms. Schlaes judges the New Deal entirely on two factors, charging that:

[FDR] flunked by two other meters that we today know are critically important: the unemployment rate and the Dow Jones Industrial Average. In his first inaugural address, Roosevelt spoke of a primary goal: "to put people to work." Unemployment stood at 20% in 1937, five years into the New Deal. As for the Dow, it did not come back to its 1929 level until the 1950s. International factors and monetary errors cannot entirely account for these abysmal showings.....

    Let's look first of all at Ms. Schlaes metrics.  Why has she not chosen GDP?  Or median household income?  Or the foreclosure rate?  Or the rate of bank failures?  Or industrial output?  All of those are good, valid measures of how well parts or all of the population/economy is doing.  But our readers by now know why:  because by those measures the New Deal was a stunning success.  

    On the contrary, the Dow Jones Industrial Average has never been considered "critically important" to determine how well the economy is doing (The S&P 500 is a leading indicator, but by no means the most important one), especially in an era like the 1920s and 1930s when only about 3% of the populace owned stock; the simple fact of the matter is, under Roosevelt, the S&P 500 did fantastically well!  The inflation level rose 20% from March 1933 to 1937 and ended the decade up 11%.  By contrast, in March 1933 when Roosevelt took office, the DJIA was near 60; it rose to 185 in 1937 (a gain of over 200%!) before ending the decade at 150 (a gain of merely 150%!).  By 1937 in real terms the DJIA had recovered ~60% of its losses from 1929, and considering the obscene disparities in wealth during the 1920s Guilded Age that gave rise to such corporate values, a 60% rebound is certainly impressive.  In fact, in real terms the DJIA was higher than at any point except for 1928 and 1929 stock bubble.
    More importantly, Ms. Schlaes' odd use of the "DJIA compared with 1929" as a yardstick to measure the New Deal's effectiveness appears deliberately chosen to mislead.  Here is a graph of something called Q (or Tobin's) ratio, which measures stock valuations as a percentage of GDP.  This is a measure for how manic vs. pessimistic stock investors are.  As you can easily see, in 1929 the DJIA was at its most "bubblicious" in 70 years!

Essentially, Ms. Schlaes claims FDR was a failure because he failed to produce another stock market bubble!  To the contrary, the return of stock prices to their more sober norm of about 80% of GDP by the mid 1930s -- a level equivalent to the booming 1960s --  appears from this vantage-point to be a thorough success.

    That leaves Ms. Schlaes with exactly one metric one which her entire thesis that the New Deal "failed" must rely:  unemployment never recovered to its 1929 level until the cusp of World War 2.  That the banking system was stabilized, that Wall Street was regulated to minimize fraud, that millions were put to work in public infrastructure programs, that the elderly were elevated from poverty by Social Security --none of this matters. The New Deal was a failure, according to Ms. Schlaes, because only 2/3 to 3/4 of the Great 1929-32 Contraction's (depending on how you count) joblessness was remedied as of 1936-37.  In other words, because the New Deal did not 100% succeed on each and every front, therefore it was a failure.

    Ms. Schlaes has a number of other "doozies" in her book, for example:

* defending her cherry-picking of unemployment data, she refers to the official US Census as "obscurer data" (you know, the very same data relied on by St. Milton Friedman in his "Monetary History of the United States).

* She claims that "the New Deal hurt the economy, and that mattered more. At some points Roosevelt seemed to understand the need to counter deflation. But his method for doing so generated a whole new set of uncertainties....",  actually upping the ante from an argument that FDR didn't simply retard recovery, he actually made things worse.  As we have discussed at length (ad nauseum?) in this series, by every single measure, including employment, the economy improved dramatically under the New Deal.  

* As for the alleged fallacy that "price cutting caused deflation", Ms. Schlaes book, alas, came out only a year before Oil price decreases from $147/barrel to $35/barrel caused the CPI to decline -3.4% over only 4 months!

* that "Herbert Hoover was... an interventionist in spite of himself [who] bullied companies into maintaining high wages and keeping employees on their payrolls when they could ill afford to do so".  In addition to bordering on the vile --  if only corporations had cut wages even more, then surely the privations of the American people would have ended  -- this charge is also patently false.  Despite Hoover's exhortations, the fact is that by the middle of 1930, companies cut wages with wild abandon, contributing to the deflationary death-spiral.  Further, as noted by the New York Times' review of her book:

There is very little support for this idea among professional economists. Consult Essays on the Great Depression by Ben S. Bernanke, for example, and you will learn that a majority of macroeconomists have concluded in recent years that prolonged adherence to the gold standard played a dominating role in determining the worldwide monetary contraction of the 1930s. ... In other words, something approaching a consensus exists among economists that poorly-designed institutions and short-sighted policies were at the heart of the Great Depression....   (About this considerable volume of work, Shlaes has very little to say.)

* that "After the 1980s and 1990s we know that markets can do much of the work that Roosevelt believed only government capital could do.....  After all, the argument of markets has its own powerful morality. It is immoral to cause unemployment by pretending that a big government policy is morally necessary. When Andrew Mellon and Calvin Coolidge put through their tax cuts in the 1920s, they made the efficiency argument that supply-siders make today: lower rates could yield, they posited, higher revenues."  Such supply-side nonsense has been endlessly debunked by nearly every reputable economist there is.  Morever, suffice it to say, from the viewpoint of January 2009, a paeon to the deregulatory frenzy that has already ended the investment banking industry and required the commitment of over $1 Trillion of public funds to bail them out, the "argument that markets have their own morality" is ridiculous nonsense.

Ms. Schlaes argues, in support of her conclusion, that

"the intervention, the lack of faith in the marketplace. Government management of the late 1920s and 1930s hurt the economy... Fear froze the economy, but that uncertainty itself might be a cost was something the young experimenters simply did not consider."


the cost of uncertainty, as the economic historian Robert Higgs first pointed out[, is] that unknown unknowns are inherently destabilizing. Roosevelt, a man of impulses, changed policies routinely. He moved from supporting big business to attacking it to supporting it again, many times in his presidency.....
..... Policies like this caused the most unnecessary part of the Depression: the Depression within the Depression of the late 1930s.

2.    This is the second prong of the argument; that business uncertainty prolonged the Great Depression.

This argument was advanced by Robert Higgs in the paper Regime Uncertainty; Why the Great Depression Lasted so Long and Why Prosperity Resumed After the War.  Let's begin this critique with this chart from the third part of the series.  


This is a chart of gross private domestic investment in 2000 chained dollars.  It shows that in 1929 total investment was $91.3 billion and in 1937 total investment was $91.1.  In other words, according to the BEA total private domestic investment rebounded to 1929 levels in 1937 in chained 2000 dollars.

Here is a chart of GDP in 2000 chained dollars:


Also note that by 1937 GDP had rebounded to 1929 levels.

Also remember the graphs of GDP growth for each year from 1934 to 1937 from the third installment.  Total private domestic investment was responsible for 25% of growth in 1934, 50% in 1935, 19% in 1936 and 50% in 1937.  So, in chained dollars there was investment and in the growth of real (inflation adjusted) GDP there were two years where investment was responsible for half of all GDP growth.  So someone was obviously investing.

Higgs presents this information in two graphs.  Here is the first one.


The skinny line represents gross private domestic investment in 1987 dollars.  According to this graph gross private domestic investment was higher in 1929 than 1937.  With me so far?  Good.

Also note the following:


According to Higgs, the columns are GDP, again in 1987 dollars.  

Anyone notice something funny?

Look again at the skinny line.  This chart is in 1987 constant dollars.  It shows GDP rebounding to 1929 levels by 1937 but private investment not rebounding.  The BEA's chained dollar chart directly contradicts Higgs' first chart.  

Higgs next shows investment as a percent of GDP in the following chart:


According to him, the second chart has investment at 16% of GDP in 1929 and 13% in 1937 -- much more in line with the official BEA data and hardly the dearth of investment that he later claims existed in the Great Depression.

Why did Higgs provide this second chart? The first was in 1987 dollars; in other words it was inflation-adjusted.   Higgs admits that the second chart "avoids the distortions potentially effecting data shown in exhibit 1".  In other words -- by Higgs' own admission -- the first chart is misleading.  If the second chart was more accurate -- if it avoided "distortions" (again his words) -- why include it at all?  Wouldn't the second chart -- which by his admission is more accurate -- suffice?  

So far we have the following:

1.) Higgs' included two charts, the first of which is (in his own words) "misleading"

2.) The BEA's data directly contradicts Higgs' assertion regarding inflation adjusted gross private domestic investment.

3.) Higgs provides a second chart which is much more in line with the information provided by the BEA.

Higgs than argues that "regime uncertainty" created a lack of investment.  He argues that literally every major New Deal Program "substantially attenuated or threatened private property rights" (here is the list)


And then uses polling data that shows business was hostile to the New Deal.  This is the cause of "regime uncertainty" which lead to the lack of investment.

Higg's list of New Deal programs that threatened private property rights is, well, delusional.  What he's really saying is any law is bad.  Period.

But more to the point, Higg's spends a great deal of energy avoiding the most logical conclusion.  The country was in a deflationary spiral from 1929-1934.  There was no reason for there to be any investment over these years -- as evidenced by the BEA's decreasing chained numbers above.  Also remember that by 1934 the country had lost 25% of its total GDP.  This is not an environment where business opens their wallet and builds mammoth new projects.  Also remember the country grew at strong rates from 1934 - 1937 and gross private domestic investment was responsible for a lot of that growth.  Total private domestic investment was responsible for 25% of growth in 1934 when the economy grew 10.8%, 50% in 1935 when the economy grew at 8.9%, 19% in 1936 when the economy grew 13% and 50% in 1937 when the economy grew 5.1%.  Bottom line -- the economy was growing as fast as it could (given that it was getting out of the worst economic slump in its history) and gross private domestic investment was responsible for a lot of that growth.  Higgs is saying "it could have grown faster" -- but can't prove that with any facts save those lovely Chicago school models which we discuss below.

While consumer demand started to return for the years 1934-1937 unemployment was still above 10% in 1937.  In addition, GDP has just at 1929 levels by 1937, so arguing investment should have been higher (especially with 10% unemployment) is a stretch -- at best.

3.     Ultimately, Amity Schlaes charges that, had the evil New Dealers not intervened,

" the economy would have quickly equilibrated by itself, with wages and share prices quickly 'marked to market.'

Why didn't it? Because

The most useful economic philosophy for understanding what went on is not Keynesianism. It is the public choice theory of James Buchanan and others, which says that government is a competitor that will annihilate what comes in its path.

Here Ms. Schlaes finally gets to the third prong of New Deal denialism:  she is a true free market fundamentalist.  As before, alas, her book hit the shelves only a year before the 1980s, 1990s, and 200s worshiping of free markets without regulaton came home to roost in the biggest Wall Street financial collapse ever, that has economists worried that the next Depression might be just around the corner.   And the reference to "public choice theory"  is telling.  This is the theory by which, in its hard version preferred by RW ideologues, the Let's-Pretend-as-if Fairyland of Econ 101's "perfect competition" is enshrined in "Pareto optimality" meaning that if 1 million starving people can only be saved by causing heartbreak to Paris Hilton due to her inability to get pedicures,  then intervention to save the starving is "sub-optimal" and therefore should not be done.

Thus, when overmatched by a credentialed opponent, such as Prof. Krugman, she like all the other New Deal denialists, goes running back to the other academic sourcewater of the third  argument, an economic paper by Profs. Ohanian and Cole of UCLA.  These papers purport to demonstrate that New Deal policies actually prolonged the recovery from the Great Depression.  So, to refute the RW noise, we need to examine Ohanian and Cole's paper.

To summarize, the authors note that wages and prices increased dramatically beginning with the "First New Deal" of 1933 which featured the National Industrial Recovery Act (NIRA) which encouraged collusion among manufacturers and collective bargaining by workers in those industries.  When the Supreme Court struck down the NIRA, in the "Second New Deal" collective bargaining was enshrined by the National Labor Relations Act (NLRA) which explicitly permitted unions and collective bargaining, plus de facto encouragement of collusion in industries by declining to enforce the Antitrust acts.  Not surprisingly, this led to inflation in prices and wages.  Ohanian and Cole posit that workers and employers would seek to become part of this cartelized economy in which wages and prices were higher.  Therefore there would be more employment and effort in these industries than would otherwise be the case.
Again, not surprisingly, when compared with an alternative universe  in which these things didn't exist, wages and prices are higher than they would otherwise be.  The authors posit that, had the New Deal not happened, lower wages and prices would have led to rapid rise in production and output, and faster growth.  This faster growth would have returned the economy to its 1929 growth path in 1936, as opposed to a later parity in 1943 for which they claim the New Deal was responsible.

This argument sounds very powerful, until you recall the axiom that "Assumptions make an ass out of u and me."  And in this case, that axiom is spot on.  Let's look at the actual critical paragraphs of their paper.  In the first place

These data [from the 1930s] contrast sharply with neoclassical theory, which predicts a strong recovery from the Great Depression with low real wages, not a weak recovery with high wages.

Ohanian and Cole tell us up front that the "data" (i.e., "reality") from the Great Depression conflicts with neoclassical economic "theory."  Now, if a physicist, neurobilologist, or behavioral psychologist were confronted with such a conflict, there would be a focused effort to determine what might be wrong with the theory.  Not so RW neoclassical economists.  Ohanian and Cole never give a moment's thought to questioning the theory; instead, their entire endeavor is focused on what went wrong with the reality!

And on page 18 of their paper, they cut to the chase.

Our model abstracts from monetary and financial factors, which substantially simplifies our analysis.  This abstraction seems reasonable since, as [we] note, the money supply grew substantially after 1933, and banking panics ended shortly after the introduction of deposit insurance.  Both of these developments might be expect to foster a rapid recovery, rather than have impeded the recovery.

In other words, the authors are going to say that the New Deal was bad, by starting out with an assumption that the FDIC, a New Deal enactiment, "foster[ed] a rapid recovery"!

 Our analysis also abstracts from explaining the downturn of 1929-33, but rather focuses on what happened after New Deal policies were adopted.  By abstracting from the downturn of 1929-33, our analysis proceeds by assuming that either the negative shocks that caused the downturn no longer depressed the economy after 1933 -- as argued [previously] ... -- or that if the effects of these shocks did continue, that they did not significantly affect the impact of New Deal policies.

in more simple, layperson's terms, the two bedrock assumptions of their work are:

  1.  the New Deal is not compared with other historical panics and recoveries, such as those of 1837 and 1873, but rather with the Fairyland of Let's-pretend-as-if Econ 101 perfect competition!
  1.  In their alternate "reality", the Let's-pretend-as-if Fairy magically sprinkled pixiedust on the economy and it spontaneously started to recover in Spring 1933 with no effort whatsoever.  No need to worry about banking panics, debt deflation, starvation and privation, the Let's-pretend-as-if-onomic Fairy gave everybody a clean slate on FDR's first day in office!

It is only under these two explicit assumptions, which at no point in the paper are relaxed, that their results are valid.  Nowhere in their paper is there an attempt to compare the actual reality of the 1930s with a comparable period that did not feature government intervention (such as the 19th Century great Panics).  At best they make a theoretical comparison to a 1920s which featured some monopolies, and surprise, surprise, even under that limitation they concede that their results are considerably more tepid.

Our results suggest that New Deal policies ... reduced consumption and investment about 14 percent relative to their competitive balanced growth path levels.  Thus, the model accounts for about half of the continuation of the Great Depression between 1934 and 1939.
    New Deal labor and industrial policies did not lift the economy out of the Depression as President Roosevelt and his economic planeers had hoped.  Instead, the joint policies of increasing labor's bargaining power, and linking collusion with paying high wages, impeded the recovery by creating an ifefficient insider-outsider friction that raised wages significantly  and restricted employment.  The recovery would have been stronger if wages in key sectors had been lower.

In fact, all they have proven -- theoretically, not experimentally nor even by real historical comparisons -- is that the New Deal slowed down recovery compared with an imaginary world where there was Econ 101 perfect competition and magical economic pixiedust ended the contraction in spring 1933.  Take away the two preposterous assumptions, and Ohanian and Cole have proven nothing except the ability of neoclassical economists to indulge in thoeretical autoeroticism.
(hat tip to Mr. Francesco for the images of the fairygodfriedman)

    In short, as Bruce Wilder has said, they "compare and contrast an entirely imaginary, right-wing fantasy economy with the actual economy, and then blame the actual economy for falling short of the imaginary economy," without even bothering to "test the realism of their imaginary economy."  To which we can add, under the substantially "lower real wage" rate desired by Ohanian and Cole -- a rate apparently close to 1932-33 wage rates -- there would certainly have been a great deal more privation and death.  But no concern to the economist authors.  After all, it would have been much more efficient privation and death.

    In Conclusion, our series of essays on the Great Depression and the New Deal has shown that:
    1. The Republican reaction to the Great Contracition of 1929-32, the first-ever globalized contraction of industrialized economies, was to insist on balanced budgets and to resist virtually all efforts to directly relieve the privation of tens of millions of Americans who suffered even unto starvation.
    2.  As soon as FDR and the New Deal democrats took office, they immediately passed measures to Relieve the suffering of ordinary people, to promote economic Recovery, and to Reform the system to try to prevent similar meltdowns in the future.
    3.  The effort was tremendously but not perfectly successful.  Faith in the banking system was almost immediately restored, as was confidence in the future.  The economy grew in more rapid and sustained fashion through 1937 than in virtually any other period.  Millions were relieved of unemployment, and we still are beneficiaries of their legacy of laws and sweat and toil.  The most significant shortfall, the Recession of 1938, was in part brought on by Roosevelt's effort to become more conservative, even balancing the budget!  
    4.  The New Deal doubters cannot dispute the numbers and the overwhelming accomplishments, so they focus on the few incomplete successes (persistent unemployment) and compare the New Deal to "let's pretend as if" fairyland economies that never existed.



Originally posted to bonddad on Thu Jan 08, 2009 at 04:44 AM PST.

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Comment Preferences

  •  Why aren't you working for Obama yet?!?! :-) nt (22+ / 0-)

    "Every man is guilty of all the good he did not do." ~Voltaire

    by The BBQ Chicken Madness on Thu Jan 08, 2009 at 04:55:25 AM PST

    •  Really! (14+ / 0-)

      Bonddad, you explain economic issues in the clearest fashion. Perhaps a new post like the Surgeon General needs to be created on the economy, to counter the propaganda efforts of the greedy rich.  

      •  If there were such a position... (4+ / 0-)

        If the GOPranos regained power, it would become a part of the propaganda efforts of the greedy rich.

        I am here to represent the democratic wing of the Democratic Party.

        by Josiah Bartlett on Thu Jan 08, 2009 at 06:51:38 AM PST

        [ Parent ]

      •  That is an AWESOME idea (3+ / 0-)
        Recommended by:
        mkor7, fernan47, NCrissieB

        But I don't know that it needs to be one position.

        It's too easy for someone to be compromised by taking money from any entity unless they have total freedom and can't be fired.

        We need a SC of economists to explain things and provide advice to the govt. A small group, tenured for life, paid a decent salary, who spend their time examining economic policies, possible outcomes, financial regulations, etc., and who give regular updates to the public and the President/Congress.

        Then they could be objective, and since they would be there until they died or resigned, you'd eventually get a variety of views, just like on the SC.

        •  Many economics professors (4+ / 0-)

          have tenure.

          Many also have stupid ideas.

          Economics is a system that should function to provide human wants and desires.

          One needs to analyse why the system isn't working very well now.

          This includes dishonesty in financial markets, too much/too little labor union power, lack of price display in the medical industry, excessive/insufficient regulation, lack of licensing categories, lack of skills, excessive patent categories, currency manipulation, lack of balanced trade internationally, unilaterally modifiable "con"tracts too dangerous to enter into, unemployment insurance deficiencies (a 50%+ disapproval rate means unsecured lending can be too dangerous for banks+), high health insurance costs, unknown future health care cost allocation which make it impossible to predict the future profits of a potential new business, etc.

      •  And whoever ends up handing out the cash (0+ / 0-)

        we could refer to as the U.S. Splurgin' Generous...:D

        May I bow to Necessity not/ To her hirelings (W. S. Merwin)

        by Uncle Cosmo on Thu Jan 08, 2009 at 11:35:00 AM PST

        [ Parent ]

      •  There is such a post... (3+ / 0-)

        It's called "president" and the job was actually done quite nicely by Teddy, Franklin and Lyndon Baines... though, sadly, Lyndon will forever remain under the atrocious cloud that was Vietnam.

        Montesquieu and Locke are rolling in their graves right now...

        by Mannabass on Thu Jan 08, 2009 at 12:14:30 PM PST

        [ Parent ]

        •  I wanted my beautiful bride, (2+ / 0-)
          Recommended by:
          Oaktown Girl, Mannabass

          and instead, I got that bitch of a war.
          LB Johnson

          •  Disagree. (0+ / 0-)

            What he got was Medicaid and Medicare.  What he's remembered for is the escalation of a conflict that was started by Eisenhower, at the urging of the French.
            You know, the Vietnamese were our allies in WWII... they helped us fight Japan.  After their success at throwing the Japanese out for us, at the victory ceremony, festivities were kicked off to the Star Spangled Banner, played by a local Vietnamese marching band.
            Too bad Americans don't understand the finer points between Soviet style communism and Asian style Nationalist communism.  Not the same at all, Vietnam originally wanted to be an American client state, post WWII.

            Montesquieu and Locke are rolling in their graves right now...

            by Mannabass on Thu Jan 08, 2009 at 04:36:24 PM PST

            [ Parent ]

            •  The thought wasn't mine, (1+ / 0-)
              Recommended by:

              but Johnson's.
              And yes, I have read Carol Young's Vietnam Wars.

              •  Yes. (0+ / 0-)

                I was disagreeing with Johnson.  The Great Society wasn't perfect, but the fact that our government could pass that amount of legislation through Congress is mind blowing.
                LBJ will forever be the quintessential deal maker.
                I have not read the book you reference, but perhaps I will check it out.  I'm kind of over reading about that war... too depressing.

                Montesquieu and Locke are rolling in their graves right now...

                by Mannabass on Fri Jan 09, 2009 at 12:08:02 PM PST

                [ Parent ]

    •  1930sStimulus Worked for England Germany & Japan (17+ / 0-)

      The problems with Americans is we know little history and even less geography and even less when you combine the two.  

      The best evidence of the success of fiscal stimulus in the 1930s is how well it worked overseas.

      Japan was actually the first nation to implement what would soon be called "Keynesian Economics".  In 1932 the MoF (Minister of Finance) Implemented deficit spending (the spending went to munitions).  By 1933 Japan was out of the depression.  

      Germany is a more famous case. It implemented deficit spending in 1933. By 1934 it was out of the depression.  

      England implemented deficit spending in 1934 and was out of the depression by 1935.  

      The case of Japan is profound. The MoF was figured that the deficits could be paid off during good years.  By 1934 there were signs of inflation, the economy now cured, he moved to reduce the deficit spending - which meant a cut back on armaments. Right wing military fanatics assassinated him. The affect was to keep the deficit spending in place and chilling affect on the civilian bureaucrats in the government.  As a result the Military increasingly came to dominate the government.  To counter act inflation, price controls were introduced, to limited effect. By 1939 Japan's industrial production had doubled - placing it in a position to where it felt it could stand up to the United States that was worried about fighting a war on two fronts.

      Deficit spending does work.  The problem is 30 years of supply side economics has gutted the demand side of the economy. This is just stupid policy that has prevailed based upon well funded propaganda - complete with its own news opperation.  There is no history of it work, and much history of it causing epic collapse, such as the Great Depression.

      Obama can tax the sh*t out of the wealthy and it won't hurt the economy one bit, and implement public spending to help generate demand while improving society's efficiency.

      •  The thing is... (1+ / 0-)
        Recommended by:
        The Wonder Moron

        If there is a major theme that Obama peppers every speech he makes with, it's history.  Never before have I heard a public officeholder reference the past so much.  Nearly every major address looks back before it looks forward, and that's a trait I'd imagine he hold for more than just good oratory.

        Thank goodness.

        "Every man is guilty of all the good he did not do." ~Voltaire

        by The BBQ Chicken Madness on Thu Jan 08, 2009 at 10:06:53 AM PST

        [ Parent ]

      •  And why should seventy million (0+ / 0-)

        older retirement people be further impoverished by inflation?

        Why not simply top-up their interest income?

        If a bank CD pays say 1.75%, have a 3.25% top-up paid by the Federal Reserve.

  •  Thank you for reading our series (117+ / 0-)

    I know this last part is particularly long, but it is a lot easier to fling **** at the wall than to scrape it off.

    I'm curious -- how easy/hard was it to tell who wrote what?  

    "When the going gets tough, the tough get 'too big to fail'."

    by New Deal democrat on Thu Jan 08, 2009 at 04:55:49 AM PST

  •  Liberals need to get balls again (32+ / 0-)

    FDR was not afraid to use strong language in defending his policies which eventually led to top tax brackets of 91% on personal income, 45% on corporations and 70-80% on estates.

    Will these high taxes destroy the economy? Well, the post WWII economy was pretty damn good up until the 70's.

    Harry Reid are you listening?

    "Injustice anywhere is a threat to justice everywhere." MLK

    by Mo on Thu Jan 08, 2009 at 04:57:37 AM PST

    •  no wonder the industrialists (8+ / 0-)

      asked Smedley Butter to lead a coup.  What were the top tax rates before FDR?  Like 22%?

      Article 6: " religious test shall *ever* be required as a qualification to any office or public trust under the U.S."

      by billlaurelMD on Thu Jan 08, 2009 at 05:33:25 AM PST

      [ Parent ]

    •  The post-WW2 economy was an historical anomaly. (15+ / 0-)

      We shouldn't set up the post-WW2 (1945-70) economy as the standard by which economic progress is judged, as that was an historical anomaly.  The U.S. was the only industrialized economy that hadn't been bombed to dust during the war, and thus in 1949 the U.S. accounted for over 50% of the world's GDP.  That was never going to last once the world's other industrial economies rebuilt, and even less so now since huge new industrial economies (China and India first among them) have joined the club.

      Indeed a big part of what's gone wrong since 1970 has been the U.S. trying to sustain an anomalously high standard of opportunity.  If you were male, white, and willing to work in the 50s and 60s, you could have a comfortable, middle-class lifestyle, because you had no competitors at home or abroad.  As one of my professors put it to us back in the 1980s, "You've been sucking at the sugar tit of history and didn't know it."

      •  You are right. Every time is different. (2+ / 0-)
        Recommended by:
        4Freedom, fernan47

        We can look at the New Deal for inspiration and some ideas, but we should remember that then was then and now is now. We need to pay attention to the parameters of our world which includes more competitors, globalization (for better or worse), and different political and environmental crises.

        No more nonsense, please.

        by ohiolibrarian on Thu Jan 08, 2009 at 08:54:14 AM PST

        [ Parent ]

        •  Not to forget that the New Deal was proffered as (1+ / 0-)
          Recommended by:

          a bone for the masses.

          Communists and socialists abounded during the era. FDR policies were watered down compared to the rhetoric and proposals of firebrands like populist Huey Long.

          It took much social pressure to enact New Deal legislation. The current level of social suffering hasn't generated the level of discontent necessary to implement current populist demands for less war and more social and infrastructure spending.

          Liberty cannot be preserved without a general knowledge among the people - John Adams

          by 4Freedom on Thu Jan 08, 2009 at 11:40:28 AM PST

          [ Parent ]

      •  Why should the fact that other economies (2+ / 0-)
        Recommended by:
        NCrissieB, pragmatic optimist

        have grown make US workers poorer?  The average productivity of US workers has grown much faster than median wages.  If the shares of GDP were distributed now as they were in the 50s and 60s, the average worker would be better off.

        Sometimes I think that conservative economists seeking "Pareto optimality" would prefer to have GDP be 1 percent greater even if that meant 1 person got all of the wealth.  It does not work that way.  First of all, wealthy people do not put as much of their money back into the economy as poor people.  After years of trying to cut wages, all of the sudden business wonders why demand is down.  Debt managed to paper over the demand problem for a while, but now we have hit the wall.  Meanwhile, the wealthy did not want to invest much of their in the production of goods and services, since consumer demand was stretched to the limit, so they ended up creating these financial bubbles investing in paper money games.

        Even more important is that all dollars do not have equal value to all people.  The difference between being poor and being middle class is much greater than the difference between having 100 million dollars and having a billion dollars.  In terms of "marginal utility", just going by overall dollars is very misleading, so an "optimal" economy is not the total number of dollars, but the total number of people who have access to goods and services.

    •  Liberalism is Still Treason. We Say "Progressive" (2+ / 0-)
      Recommended by:
      wu ming, wader

      because the progressive era was safely long before traitor FDR who worsened and prolonged the Sole Depression.

      You can look it up.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Thu Jan 08, 2009 at 06:38:59 AM PST

      [ Parent ]

    •  we live in a much different time now (2+ / 0-)
      Recommended by:
      wader, NCrissieB

      One lesson of that era was that, eventually, the big business community and the top-one-percenters were willing to subordinate their short-term financial interests to save the United States, which was in their long-term financial interest.

      That's not going to happen this time.  Any president suggesting those tax rates today would be deposed, likely at the urging of Amity Schlaes.  It's a sad irony that, while our constitutional rights are negotiable, real progressive economics is off the table.

      •  willing? no way, they hated FDR!! (6+ / 0-)

        These rich people were dragged kicking and screaming from the gilded age. Listen to FDR's own words in 1936:

        For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

        We had to struggle with the old enemies of peace--business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

        They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

        Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me--and I welcome their hatred.

        Now that's a liberal with balls!

        "Injustice anywhere is a threat to justice everywhere." MLK

        by Mo on Thu Jan 08, 2009 at 08:09:32 AM PST

        [ Parent ]

        •  They were "willing" because of the alternative (1+ / 0-)
          Recommended by:

          Make that "grudgingly compliant" if you will, but the "economic royalists" of the 1930's allowed their arms to be twisted was because they were smart enough to see that it was twisted arms, figuratively - or lopped-off heads, literally.

          Today's economic royalists - not so smart.

          Yes We Did! Yes We Will!

          by TheOtherMaven on Thu Jan 08, 2009 at 09:15:15 AM PST

          [ Parent ]

    •  I don't have balls (1+ / 0-)
      Recommended by:

      Oh please stop with this already.

    •  Actually, I'd say liberals need their souls back (0+ / 0-)

      Part of the ability of FDR and others "back in the day" was the appeal to common decency and fairness, as well as the generosity and kindness demanded by the acquisition of great wealth (to whom much is given, much will be required).

      As "compassionate conservatives" get sick of the failures, greed, and selfishness of cutthroat capitalists, you will see a major shift in the priorities of people of faith.

      This is underestimated, but it's a huge part of future success - kudos for Obama's willingness to tap into spiritual language, to go directly into the core of the social conservative movement, and to talk about social justice.

      It worked for Teddy.  It worked for FDR.  Reagan co-opted this and made angry conservatives reject the Jimmy Carter approach.  But now, there has been an equivalent rejection of the GW Bush approach.

      Watch what happens.

      Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

      by Benintn on Thu Jan 08, 2009 at 02:54:49 PM PST

      [ Parent ]

  •  Thanks for this series. As a finance illiterate, (9+ / 0-)

    I have found it easy to understand and grasp the information in these diaries.  Where were you guys 30 years ago when I was failing economics?

  •   Informative, good job (6+ / 0-)

    The young man who has not wept is a savage, and the old man who will not laugh is a fool. George Santayana

    by Bobjack23 on Thu Jan 08, 2009 at 05:15:21 AM PST

  •  I am still saying 10% unemployment is not a (1+ / 0-)
    Recommended by:

    a recovery.  It is better than 20% for sure, but it is wholly an unacceptable level of unemployment to claim that the depression was over.  I also take some issue with the credit given to the New Deal for the growth in the mid-30's.  The economy was already on its way to GDP recovery/growth by the time FDR was inaugurated and besides the Bank Act/holiday, none of his policies had time to circulate to get into the GDP numbers of 1933, so it is very unlikely that the other New Deal programs had any effect on GDP (at least in 1933, which also brings into question how much impact they had going forward since it is simply impossible to measure them independently).  The legacy of the New Deal is not what it did to get us out of the depression (which I don't believe it did), but that it has effectively prevented another depression and provided economic stability for the 70 years since.

    •  You dont' get to redefine meanings (6+ / 0-)

      Economists have specific, technical definitions that describe what is going on in the economic cycle. You may not like them because they don't always fit with a lay "common sense" definition, but if you conflate the two, you add nothing to the discussion but confusion.

    •  so you think FDR shouldn't have done anything? (11+ / 0-)

      There's more to this than the strict economics.  He may well have saved capitalism from itself, IMHO.  Lots of psychology here; and if he hadn't saved the banks, what would have happened then?  And the laws that were put in place to give rules of the road for finance (which we have now flagrantly violated to our own detriment) were, again IMHO, VITAL to the restoration of confidence.

      I find it amusing that the libertarian guy said that FDR increased business uncertainty; on the contrary, by setting rules of the road, he acted to DECREASE uncertainty.

      Article 6: " religious test shall *ever* be required as a qualification to any office or public trust under the U.S."

      by billlaurelMD on Thu Jan 08, 2009 at 05:36:50 AM PST

      [ Parent ]

      •  Wrong (2+ / 0-)
        Recommended by:
        Sparhawk, NCrissieB

        Almost everything he did has benefited us over the following 70 years.  What I am saying is there is no real evidence that other than inspiring confidence with his election and the Bank Act his programs did anything for the economy in the 30s.

        •  So, what do the econometric models show? (3+ / 0-)

          What would have happened if FDR had done nothing?

        •  Going out on a limb here.... (3+ / 0-)

          I'm going to go out on a limb and try to make SilverOz's argument for him/her.  It's going out on a limb because doing so assumes I correctly understand what SilverOz is trying to say.  That said....

          SilverOz's argument seems to be that while FDR's New Deal policies might not have been the proximate cause of the 1933-40 recovery, they were still important and worthwhile government policy, because they prevented a repeat of the 1929-33 collapse until they were dismantled in the Republican Revolution of 1981-2009.  (Do I have that right, SilverOz?)

          In other words, SilverOz is saying the U.S. economy was already recovering from the 1929-33 contraction, and probably would have even if the New Deal hadn't been enacted, but without the New Deal policies we'd have seen other Great Depressions since.

          I'm not saying I agree with SilverOz's argument.  I'm just trying to describe what I perceive the argument to be, so we can discuss what SilverOz is really saying rather than critiquing him/her for an argument he/she is NOT making.

          •  That's pretty close (2+ / 0-)
            Recommended by:
            Sparhawk, NCrissieB

            Up until the "great depression" we were averaging one depression every 10 years or so.  Following the policies of the New Deal protections we have had zero.

            •  but NONE of them were the magnitude (1+ / 0-)
              Recommended by:
              Ice Blue

              of 1929-33.  Nor were they worldwide, I don't believe. I could be wrong, after all, IANAE.

              Article 6: " religious test shall *ever* be required as a qualification to any office or public trust under the U.S."

              by billlaurelMD on Thu Jan 08, 2009 at 07:06:59 AM PST

              [ Parent ]

            •  we've had them. we just stopped calling them (2+ / 0-)
              Recommended by:
              Ice Blue, liberalconservative

              depressions. JK Galbraith used to do a little rhetorical riff on this: how the term Panic was replaced with Depression which was replaced with Recession which was replaced with Market Correction.

              i'll note that you are basically buying Shlaes' argument: all of the other metrics don't matter, because the unemployment rate was still 10%. yet, the trend line is indisputable. unemployment fell steadily until 1937, when there was an uptick (whose cause is evidently subject to some dispute), and then continued to fall steadily, and was trending downward right through 1940. the fact that it had not yet reached a level "acceptable" to you is not proof that it would not have had the war not rendered the entire discussion moot.

              i'm willing to admit, however, that 10% might be the "natural" level of unemployment that one would have in a "New Deal Economy" functioning at equilibrium. whether you find that figure acceptable or not is evidence of nothing other than where you like to draw lines. somebody who had been through 20% unemployment (with no UI) might find your argument pedantic at best.

              I am further of the opinion that the President must be impeached and removed from office!

              by UntimelyRippd on Thu Jan 08, 2009 at 07:08:59 AM PST

              [ Parent ]

      •  Saved Capitalism, Hmmm (0+ / 0-)

        You might be on to something there.  Communism may have been the enemy of the ownership class and they were always frantically painting it as evil, but as an ideology, it hadn't had a chance to fail in the 30's.  I'm sure there were an overwhelming number of people being ground up under the wheels of the depression who could care less about political ideology and would have welcomed any policy which would provide the ability to feed, clothe, and house their families.

  •  propaganda is our growth industry/no jobs lost (6+ / 0-)

    pundits seem to be working in full strength as we wallow in misinformation .Thanks to you Bonddad for bringing us better understanding.

  •  Book TV: After Words with Amity Shlaes (3+ / 0-)
    Recommended by:
    javelina, Mz Kleen, imchange


    Amity Shlaes re-examines the financial history of the Great Depression and critiques the New Deal in her book "The Forgotten Man: A New History of the Great Depression." The author argues that it was the fortitude of the individual citizen and not President Roosevelts economic plan that sustained people throughout the depression. Ms. Shlaes recounts the lives of these individuals as well as the proponents and critics of the New Deal. Amity Shlaes discusses her new book with Nick Gillespie, editor-in-chief of Reason magazine.

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Thu Jan 08, 2009 at 05:39:25 AM PST

  •  This is only tangentially related (6+ / 0-)

    but a whole bunch of anarcho-capitalist, Libertarian, Austrian School economists (Ron Paul types) have invaded the comments at NPR's Planet Money blog. There are only three so far, but they're prolific. And if you're familiar with Ron Paul types online, they tend to spread like weeds if you let them. If a few of us could go over there to keep that blog from being totally overrun, which would just destroy what's been a nice blog so far, that would be nice. Here's a comment thread that's been infested. Comments are newest-first.

  •  Amity Shlaes at the Hoover Institution 9.12.08 (2+ / 0-)
    Recommended by:
    imchange, NCrissieB

    34 min. "Government made the Great Depression worse" sums it up, and she says so explicitly.

    Amity Shlaes challenges the received wisdom that the Great Depression occurred because capitalism broke and that it ended because FDR, and government in general, came to the rescue. According to Shlaes, it was the government that made the Great Depression worse. And was FDRs progressivism, as evident in the New Deal, really all that new, or was it a step along a progressive continuum that already had been established?

    The Hoover Institution on War, Revolution and Peace is a public policy think tank and library founded in 1919 by U.S. President Herbert Hoover located at, and part of, Stanford University, his alma mater. Over time the Institution has amassed a large archive of documentation related to President Hoover, World War I, and World War II, specifically focusing on theories about the root causes of these wars.

    The Hoover Institution mission statement [1] expresses the basic tenets for which it stands: representative government, private enterprise, peace, personal freedom, and the safeguards of the American system.

    The Hoover Institution is influential in the American conservative and libertarian movements, and the Institution has long been a place of scholarship for high profile conservatives with government experience. A number of fellows have connections to or positions in the Bush administration, and other Republican administrations. A non-political figure who played a key role in the Bush Administration's Iraq policy, Retired Army Gen. John P. Abizaid, former commander of the U.S. Central Command (CENTCOM), recently joined the Hoover Institution (as the first Annenberg Distinguished Visiting Fellow) [2]. Other fellows of the Institution include such high profile conservatives as Condoleezza Rice, George Shultz, Thomas Sowell, Shelby Steele, and Edwin Meese.

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Thu Jan 08, 2009 at 05:57:01 AM PST

  •  Schlaes, Higgs, Ohanian, Cole?? (4+ / 0-)

    They sound like they’re trying to invent economic creationism intelligent design.

    Liberté, Egalité, Fraternité

    by snaglepuss on Thu Jan 08, 2009 at 06:02:47 AM PST

  •  pdf? (4+ / 0-)
    Recommended by:
    Ice Blue, spacejam, imchange, NCrissieB

    Bonddad, this is an awesome series. Is there any way you can make it available as a white paper/pdf or post it on the Bondad blog? I have friends who might find your data persuasive, but if I send them a dailykos link, they will not read it at all.

  •  I think I missed an installment (2+ / 0-)
    Recommended by:
    imchange, NCrissieB

    Were 'chained dollars' vs 'inflation adjusted dollars' explained in the last installment, or is this something for which I should just google/wiki up an explanation?

    Hi. If I quit replying to your comments, I've either A) left the thread, B) felt it didn't require a reply, or C) decided you're an idiot. You choose.

    by drbloodaxe on Thu Jan 08, 2009 at 06:23:25 AM PST

  •  as always (2+ / 0-)
    Recommended by:
    liberalconservative, NCrissieB

    a great read for us wonks  :)

  •  Here is the key economic (6+ / 0-)

    data from the great depression.

    The essential dishonesty of shales becomes pretty evident when you look at the numbers.  She typically cites 1938 - and the ecomony did go into decline that year, but as this shart shows the decline was largely attributable to FDR backing off pump priming (not the deficit number for 1938).

    From 1934 to 1937 the economy grew at double digits a year. (the number ois citoff here, but in '34 the economy grew 17%, in '35 it grew 10% and in '36 it grew 14%) Unemployment declined - and it is worth noting that most regard the unemployment numbers for '35 to '40 as overstated.

    •  The 1930s started (0+ / 0-)

      with huge numbers of unpaved streets.

      There were no interstate highways.

      We can spend a few hundred billion on infrastructure, but the bridges that are carrying traffic are almost invariably sound.

      Our problems lay most in dishonesty in financial markets, domestic profit opportunities greatly reduced by better foreign opportunities, and lack of skill/government licensing matches.

      Someone may feel a bit better by a stimulus of injected heroin, but the debt junkie economy of America needs structural reform.

  •  yeap (1+ / 0-)
    Recommended by:

    Our inability to translate evidence into policy continues to frustrate.

  •  Put a saddle on it and ride it (4+ / 0-)

    The assumptions of the RW are wrong, that left to itself the free market provides the best solution. This is demonstratively nonsense over more than 200 years of US history. Concentration of wealth, poverty, income inequality, opportunity inequality, regular depressions and a host of human tragedies, including a chronically poor senior sector are the predictable results of unfettered capitalism.

    The free market is a means to an end, not an end in itself. This diary is really important in that it is critical that the RW never gets to rewrite economic history.

  •  The promoters of poverty (7+ / 0-)

    always bait-and-switch their victims with promises of a "healthy economy."  Then the definition of "healthy economy" is manipulated so that "healthy economy" means that, as long as the executives are getting their bonuses, all's well with the world.  Before you know it, you're living in a world with 1,125 billionaires, a bottom 40% living off of less than $2/day, and a "healthy economy."

    "It all makes perfect sense/ Expressed in dollars and cents/ Pounds, shillings and pence" -- global anthem, from Roger Waters' song "Perfect Sense"

    by Cassiodorus on Thu Jan 08, 2009 at 07:16:41 AM PST

  •  Spending vs saving (2+ / 0-)
    Recommended by:
    flecktones, NCrissieB

    So, what do ya think?  Are Americans who nurture their savings (rather than "patriotically" spending everything & then some) really destroying the economy?

  •  Shlaes: Lavish Bar Mitzvahs (5+ / 0-)

    are an argument to get rid of the Estate Tax!

    A few years ago I received a free subscription to the New York Sun.  For awhile I enjoyed reading the Sun's over-the-top wild and crazy neo-con op-eds.  Then I read this one by Shlaes

    It starts:

    Lawmakers who have already decided how they will vote [on repeal of the "death tax"] might want to head down Connecticut Avenue to take in ``Keeping Up With the Steins.'' The movie features two Los Angeles families competing to host the splashier bar mitzvah.

    Literally splashier -- the first bar mitzvah party takes place on an ocean liner. A trained orca dons a yarmulke and leaps through a giant Star of David. The second family wants to top that by renting Dodger Stadium. Neither parental pair seems especially concerned about the effect on their 13-year-olds.

    I thought, "wow" a pro-estate tax op-ed in the Sun.  However, Shlaes somehow concludes that the grossly conspicuous consumption in the movie provides an argument for repeal of the estate tax:

    In its silly way, the bar mitzvah market itself demonstrates this. Two generations ago, a bar mitzvah was a simple affair involving cupcakes. Weddings too were often modest. Now everyone and his brother rents a hall and hires a rap DJ. Yet ask a caterer: other people's parties haven't made the country poorer.

    Even weaker is the argument behind the argument: that parents need the Internal Revenue Service as nanny to help them produce upstanding children. Inheritances do need to be curtailed. But it is the parents who need to summon the strength to do the curtailing.

    Two and a half years later I'm still scratching my head about what her argument is: repeal is necessary because grossly lavish parties help caterers?  Wealthy parents must curtail lavish parties for their kids so they can use their non-estate-taxed money for something else?

    She's an incoherent, doctrinaire soulless hack (who nonentheless is a fellow in economic history at the Council on Foreign Relations!

    Don't get me started . . .

    by Upper West on Thu Jan 08, 2009 at 07:34:30 AM PST

    •  Reminds me of the point at which (0+ / 0-)

      Paul Harvey lost me. I grew up listening to him and thought most of his stuff was pretty commonsensical. Then I was driving up to Cleveland with my husband and PH came on with a commentary on public radio and publicly supported arts.

      He described how his son had been exposed to classical and recorder music through publicly funded radio and arts programs, and how he himself had gone to a concert and enjoyed it very much and how this resource wouldn't be there if not for federal funding. His conclusion? The federal government shouldn't fund NPR/PBS or the arts.


      No more nonsense, please.

      by ohiolibrarian on Thu Jan 08, 2009 at 10:38:52 AM PST

      [ Parent ]

  •  A Great and Comprehensive Series. You should (3+ / 0-)

    put all four parts into a pamphlet and circulate it widely.

    The current attack on the New Deal is just the opening salvo in Capitalism's last desperate attempt to reduce the Americn Middle Class to Serfdom.

    Only well organized facts and cogent argument will keep the truth in front of the public and allow us to restore this country to  greatness.

  •  Thanks Bonddad- Best series of diaries yet (1+ / 0-)
    Recommended by:

    A real treat for a layman who really wants to understand what's happening with the economy.

    Should be taught in our schools.  

    'Can someone die from a broken finger?' Miami Blues

    by Psychotronicman on Thu Jan 08, 2009 at 07:39:31 AM PST

  •  Hey Bonddad, answer this: (0+ / 0-)

    Why did FDR ignore Keynes' advice in 1936 to stimulate the economy with government spending and instead try to balance the federal budget in 1937?

    Why have YOU ignored my idea to stimulate the economy with tax breaks for buying cars and houses?

    Too radical for you, just like Keynes was too radical for FDR in 1936?

    •  I'm not bonddad (1+ / 0-)
      Recommended by:

      Not even close, but I will try to answer your second question.

      Stimulating the economy through tax breaks for buying cars and houses is a classic.  My parents lived through the Depression, both of them.  My mother supported her parents.  She was their sole support.  Do you honestly think that a tax break for her to buy a house or a car would have helped her? Here's the short answer - it would not.  She couldn't afford to buy a house or a car.  But the jobs she got kept her parents housed and fed.

      She got those jobs because of the "New Deal".

      Tax breaks help only the people who have the cash to buy the house or the car. And in this economy, housing sales are down, as are car sales.  That's due to a lot of reasons, of course, but I can assure you of one thing - tax breaks are NOT the way to go.

      We do not rent rooms to Republicans.

      by Mary Julia on Thu Jan 08, 2009 at 03:08:07 PM PST

      [ Parent ]

      •  Plenty of Old Timers Still Around (1+ / 0-)
        Recommended by:
        Mary Julia

        The Depression deniers are hoping we have all lost our marbles or are deceased.  My parents lived through the Great Depression and talked about it frequently.  It spooked my dad so bad that he spent the rest of his live waiting for the next one.  

        The Busby Berkeley film musicals of the 1930's would slip in a picture of FDR in each film usually in the middle of the finale.  The FDR picture always caused the audience to break out with applause and cheers.  

        Most of the US was still agrarian at the time.  People who lost their house would double up with another family, junior high kids would become hobos so there would be one less mouth to feed at home.    

        Don't look back, something may be gaining on you. - L. "Satchel" Paige

        by arlene on Thu Jan 08, 2009 at 03:57:39 PM PST

        [ Parent ]

        •  I don't want to double up (0+ / 0-)

          And I don't want my kids to become hobos either.

          That is why we need to turn the economy around with timely, targeted, temporary stimulus to consumer spending on cars and houses, as Keynes said.

          FDR ignored Keynes in 1937 and tried to balance the budget when Keynes was advocating more spending for a full employment budget.  FDR made a lot of mistakes and listened to the wrong people, just like Obama is doing now.

      •  Here's why you are wrong (0+ / 0-)

        My mother supported her parents.  She was their sole support.  Do you honestly think that a tax break for her to buy a house or a car would have helped her? Here's the short answer - it would not.

        How about if your mother, her parents and everybody else in the town got good jobs at high wages building cars and houses because "wealthy" people were buying them?

        Would that have been a good thing or not?

        It is not about cars and houses. It is about jobs and wages versus unemployment and destitution.

        Seems like a no-brainer to me.

  •  Krugman claims that the great jobs program called (3+ / 0-)
    Recommended by:
    oloos, Sparhawk, AmericanRiverCanyon

    WWII ended the great depression.

    It takes a rather distorted view of economics to claim that an event that destroyed the industry of most of Europe and Japan was good for the economy.

    WWII did not destroy our country since the bombs were not falling here and we were the only country left standing.

    •  Deconstruct it for what it is (5+ / 0-)

      WWII was a massive government spending program, no different than the New Deal in that regard.

      But hey, if we need government spending to get the economy going, maybe we can do it without leveling half the world?

      An argument a lot of conservatives would make (myself included, once upon a time) is that all that destruction helps fuel new production.

      Technically true, if horrifyingly heartless. But the irrefutable point remains; there's nothing intrinsically necessary about the destruction serving as a prerequisite for the production.

      So when somebody comes at you with the idea of, "Well, WWII is really what got us out of the Depression and government spending otherwise is evil," rebut them with, "If government spending to level cities and kill hundreds of thousands isn't evil, why is government spending without those nasty side effects so evil?"

      They'll likely jump on you, believing you've just stated that we shouldn't have fought Hitler, but just remind them that you're talking about the economic effects of World War II spending and not anything else.

      If God hadn't wanted us to fly, he wouldn't have given us Bernoulli's Principle.

      by HamillianActor on Thu Jan 08, 2009 at 09:22:49 AM PST

      [ Parent ]

  •  those not counted as being employed (0+ / 0-)

    I heard on the radio that WPA workers and those put to work by the government were not counted as being employed.  I do not know how true it is or who said it because I listen to a lot of radio instead of watching World Entertainment News.

  •  Thanks for this (3+ / 0-)
    Recommended by:
    opinionated, 4Freedom, Calamity Jean

    I borrowed my mom's copy of "FDR's Follies" while I was home (since I refuse to pay for such things) to see what they're attack will consist of. Once Obama takes office and starts his recovery programs, I have a feeling the "New Deal didn't solve the Great Depression" arguments are going to come out in force as a vehicle to oppose Obama's efforts.

    Here's to being ready.

    If God hadn't wanted us to fly, he wouldn't have given us Bernoulli's Principle.

    by HamillianActor on Thu Jan 08, 2009 at 08:09:03 AM PST

  •  "if we want to end this crisis, we must change (0+ / 0-)

    ... the idea that "anything goes" in this (business) enviroment"

    paraphrased, but listening to Pres. Elect Obama now giving an economics speach

    "this plan must begin today... it's not just a public works program"  

    He's pointing out that there's millions of people needing work and thousands of things that need to be done....  

    I wonder how they plan to over sight this.

    "Toads of Glory, slugs of joy... as he trotted down the path before a dragon ate him"-Alex Hall/ Stop McClintock

    by AmericanRiverCanyon on Thu Jan 08, 2009 at 08:23:21 AM PST

  •  US debt does need to get paid off. (5+ / 0-)
    Recommended by:
    Sparhawk, opinionated, Pozzo, 4Freedom, ColoTim

    A reactionary flaw in the diary is that it advocates forever increasing the US debt. FDR prudence in following Keynesian theory, borrow in recession and pay off borrowing during boom, was correct.

    Currently JUST THE INTEREST on the Reagan/Bush debt, run up over the last 25 years of Reagan Republican power, is 13% of the Federal Budget.

    As Clinton demonstrated from 1992-2000, we can pay have budget surpluses to pay down the debt and not have recessions. Debt/GDP was 33% in 1981, lowest in post-WWII era of paying down the WWII debt. It rose to 60% during Reagan/Bush term, declined to 50% range during Clinton's term and then back to 70% range during Bush Jr's disastrous term.

    Part of the economic plan has to be to set benchmarks so that in two years when US economy is out of recession we do start running budget surpluses and paying down the debt. Long term economic health requires it.

  •  I thought they liked unemployment? (2+ / 0-)
    Recommended by:
    leftcoastindie, opinionated
    1.  The New Deal doubters cannot dispute the numbers and the overwhelming accomplishments, so they focus on the few incomplete successes (persistent unemployment) and compare the New Deal to "let's pretend as if" fairyland economies that never existed.

    What are they complaining about? in their idealized fantasy economy excess jobless helps keep wages down they hate full employment, Labor shortages are anathema to them... it tends to raise costs and they control less of the total wealth. Though having a population with money to spend is better for them overall... but they are too shortsighted to see that.

    In an otherwise ideal (for them) Hirers market (jobs scarce) Unions and collective bargaining muddies things a bit, but why complain about something that they otherwise think is a "Good" thing? When they are causing it they like it even more... They should see the lingering unemployment  in the late 30's as a boon to industry. But that is not the point of their use of unemployment numbers, they use them to fool ordinary people; non-believers in voodoo economics etc. with "facts" and figures that have a direct connection to their own prosperity.

    Pogo & Murphy's Law, every time. Also "Trust but verify" - St. Ronnie

    by IreGyre on Thu Jan 08, 2009 at 08:35:20 AM PST

  •  Outstanding work. (2+ / 0-)
    Recommended by:
    Pozzo, 3goldens

    Recommended to all, and to wingers especially.

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Thu Jan 08, 2009 at 08:36:22 AM PST

  •  Bonddad, can you talk about 1937? (0+ / 0-)

    I've read some about the contraction of 1937 and if there was a failure in FDR's policies, it was his attempt to reduce the debt and do other things harmful to recovery when the economy wasn't ready to handle it and the contraction that resulted.

    I'm sure a large part of the right's misleading statistics will include using any stumbling in '37 to justify the failure of the New Deal as a whole.

    If God hadn't wanted us to fly, he wouldn't have given us Bernoulli's Principle.

    by HamillianActor on Thu Jan 08, 2009 at 08:39:53 AM PST

    Recommended by:
    opinionated, Mary Julia

    OK, now you owe me one keyboard cleaning, sir :-)

  •  International Trade (1+ / 0-)
    Recommended by:

    It has been well argued previously by many here that the US occupied, at the start of the Depression, China's position today, as a net exporter of both goods and capital in an environment of increasing production overcapacity and market saturation.  I see few discussions of the impact of oversupply on price, leading logically to price deflation (contextualizing Depression within a supply/demand framework), and even less discussion of the impact of international trade then or now on the dimensions and velocity of our economic roller coaster.

    It seems obvious from what you wrote above (thank you!) that expectations of recovery in the late 30's, for example a wish for return to full employment, need to be measured in relation to decoupling of world demand for US exports of both goods and capital.

    It is the extreme volatility of international exchange of goods and capital that is so worrisome now.  We have a system of spinning plates, many of them, and all are starting to wobble at once.

    Bad theory can be corrected by good observation.  At this point I feel that both sides of the argument about the New Deal have oversimplified in a way that makes extrapolation of forward looking policy guidelines difficult.

    The Shock Doctrine by Naomi Klein -- best book ever, I nominate for a Nobel Prize!

    by xaxado on Thu Jan 08, 2009 at 09:59:47 AM PST

  •  Privation of Tens of Millions of Americans (1+ / 0-)
    Recommended by:

    was to insist on balanced budgets and to resist virtually all efforts to directly relieve the privation of tens of millions of Americans who suffered even unto starvation.

    Sounds like Republicans!

    Worldview of a nasty, brutish humanity that is meant and predetermined to suffer? Check.

    Government that everyone pays into but that somehow can't serve its denizens substantially, except for the elite? Check.

    Wet dreams for historical time periods that never existed as they happened, not to mention worshipping the same generations that voted for the biggest government/most liberal regimes in history but denouncing liberals and deficits, even when practiced by themselves? Check.

    Indifference to impending disaster? Check.

    When such human rights luminaries as Nancy Pelosi and leading Republicans call Hugo Chavez a "thug" and a brutal dictator, how could you possibly disagree?

    by Nulwee on Thu Jan 08, 2009 at 10:13:05 AM PST

  •  How does Schlaes get away with (1+ / 0-)
    Recommended by:

    This in July:

    A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ.

    and this in December:

    The folks at the NBER must be blinking hard. All they did was say we were in a recession, and date the start of it to December 2007. Since everyone knew something was wrong with the economy, that shouldn’t have come as such a shocker. Besides, American recessions aren’t that long -- a year or so on average.

    And how does she (1) still have a job reporting/writing on economics and (2) not get called on this by anyone?

    Also, how about this:

    The federal government may not be talking about it much yet, but inflation plagues the country

    I mean, this is contradiction and ignorance of the Dick Morris variety, but at least people keep tabs on him, if just for laughs.

    •  Blame her simplistic definition of recession (0+ / 0-)

      The NBER has never said that it was as simple as two quarters of shrinking GDP, probably because they don't automatically accept the government figures about nominal or price-chained GDP.

      •  I blame her (0+ / 0-)

        Not the definition. That's  commonly used, if erroneous definition. A journalist who gets her stuff published by Reuters et al, ought to be able to do a little research. It also goes beyond defintions. In the first article, she agreed with Gramm. We were whiners and the recession was all in our heads. Now, supposedly, the NBER is telling us what we knew all along, accoding to Schlaess, everyone knew this. Since the recession began in 2007, both of her statements about whining and about everyone knowing something was wrong with the economy occurred at the same time and they are diametrically opposed.

  •  Great diary as always Bonddad, but (1+ / 0-)
    Recommended by:

    could you correct the link to Part I? It goes to Part II.

    No more nonsense, please.

    by ohiolibrarian on Thu Jan 08, 2009 at 10:55:16 AM PST

  •  How does Schlaes have any credibility w/o econ (2+ / 0-)
    Recommended by:
    Pozzo, arlene

    degree?  She's a journalist and yet the RW yoyos are gonna place their faith in WS Journalist who has no real economics background and an economist with years of research and experience

    The only thing we have to fear is fear itself - FDR. Obama Nation. -6.13 -6.15

    by ecostar on Thu Jan 08, 2009 at 11:07:06 AM PST

  •  I DESPISE Friedmanites (7+ / 0-)

    And all Chicago Schoolers (the "Let them eat cake" School of Economics).

    Any increase in wages for people that actually DO productive work for a living is BAD.  Any increase in benefits for people that do productive work for a living is BAD.  Exorbitant pay (obscene pay) for CEOs and other execs is GOOD.  Starvation, dying at the side of the road, etc, are GOOD and NECESSARY.  Worker rights are BAD.

    Here's the only way I would agree with removing any protections for worker wages (per se):  Corporations and private companies are free to pay their workers as little as they wish - but your corporate/company taxes will be tied to the disparity in executive compensation and worker compensation.  The higher the disparity, the higher the taxation.  Corporate taxes are minimized if executive compensation (in any and all forms) is no more than 6x that of their average worker.

    No write-offs.  You want to minimize your taxation?  Then minimize the spread between your average worker pay and your executive pay.

    Reichstag fire is to Hitler as 9/11 is to Bush

    by praedor on Thu Jan 08, 2009 at 11:07:17 AM PST

    •  Beware of adjectives (1+ / 0-)
      Recommended by:

      Try to use absolutes since adjectives can cause problems like executives giving up all executive type duties and technical people being given management responsibilities they aren't qualified for.

      Use say the ratio between:
      (the average of top 10% plus the twice the standard deviation of that upper 10%) and
      (the median of the lowest 50% minus the standard deviation of that lower 50%)

      Where the lowest 50% will include outsiders such as contract employees, franchise employees, etc. if the amount of tax would increase and if historically and/or currently such outside work was/is done predominately in-house.    

    •  Perhaps the income tax rates (1+ / 0-)
      Recommended by:

      on corporate income should be:

      100% less
      a. 20% for having a ratio less than 6
      b. 15% for having a labor supply chain with wages uniformly above $10/hour
      c. 15% for having a labor supply chain with wages uniformly above $15/hour and being totally outside the medical/legal/defense contracting fields
      d. 15% for being a 90%+ private sector sourced income entity

  •  reaction to Ohanian & Cole (3+ / 0-)
    Recommended by:
    MouseOfSuburbia, ggwoman55, mkor7

    Was there an outcry to O & C paper since it (seems to me) was based on very false premises?  Just curious.

    I hope history is making a come back because I am so sick of the stupid.  Ask anyone who lived through the Depression, there is no doubt in their minds that the New Deal worked and they really loved FDR.

    The reforms and new policies geared to the poor and middle class so upset the rich ruling class that they tried to remove FDR through a military coup.  Chimpy's grandfather was involved.  But typical of this country unlike a good old military dictatorship, no one was killed or imprisoned.  In fact, it is never mentioned, wouldn't be nice.  Let's forget and move on.  Sound familiar?

  •  Abolish the Fed! (0+ / 0-)

    Since the Fed's inception, the frequency and severity of recessions has grown dramatically.

    The Fed is the backstop to the fractional reserve lending Ponzi scheme, or counterfeiting scheme, to be more accurate.

    There is no problem making credit available when it is used directly to create wealth. The purchase of a tractor or house or factory, but not to pay a bill, purchase a consumable, or a discretionary purchase.

    Then only one thing has to be watched, and that is concentration, which forms bubbles. You can't have everyone building a house at the same time.

    At a bare minimum, reserve requirements for banks should be greatly increased right now.

    We said we want change, and they gave us a handful.

    by MouseOfSuburbia on Thu Jan 08, 2009 at 01:53:03 PM PST

  •  Am I just misreading this? (0+ / 0-)

    If the second chart was more accurate -- if it avoided "distortions" (again his words) -- why include it at all?  Wouldn't the second chart -- which by his admission is more accurate -- suffice?

    Shouldn't it say "If the second chart was more accurate ... -- why include the first one at all?"  This changes "it" to "the first one".

    I struggle at some of the concepts, but this is one where I'm wondering if I'm not subject to a mis-type and that's why I can't understand it.  Thanks for any clarification.

  •  A point maybe missed, re stock as % of GDP (0+ / 0-)

    An interesting additional point of this chart is in regards to the rightwingnut meme about, "Only WWII brought us out of the Depression."

    Notice the ratio in the 1940s, and into the early 1950s.  The ratio is down well below the historical average, and it stayed there throughout the war years and into the Korean War years.

    Not only does at least this one meter put the lie to that conservative meme, but look at how much BETTER this ratio was in the New Deal years.

    If this ratio tells us anything it is that investment was UP during the New Deal years.  Absolutely.

    But also that the war did NOT improve investment, but actually RETARDED it, for whatever reasons.  It looks like the dive began somewhere around the beginning of Lend-Lease. . . interesting.


  •  I added the 'teaching' tag (0+ / 0-)

    and will include this in Daily Kos University, which goes up every Saturday at 9 AM Eastern, but stays open all week.

    No fees, no tests, no grades, just learning.

    We are all Earthlings, spinning around together on a planet of the Sun -- Sesame Street

    by plf515 on Thu Jan 08, 2009 at 05:05:30 PM PST

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