[Outlook]Look closer at lessons from the pastThe section about the New Deal in the social studies textbook for junior students in middle schools must be revised. The description glorifies the New Deal unreasonably.
In the United States, economic historians these days maintain that it is wrong to say that the New Deal was faithful to Keynesian economics.
President Franklin Roosevelt was not a great student of Keynes. He was passive about expanding state expenditure and raised taxes. Statistics show that the U.S. state surplus at the time was minimal.
Price Fishback, a professor at the University of Arizona, states that most of Roosevelt’s policies exacerbated the Great Depression. Keynes wrote in the New York Times that the American president’s New Deal policy was going wrong and he should abandon the belief that a secure balance would be restored by itself.
Keynes argued that state expenditure must be increased substantially in order to avoid market failure. It is true that the U.S. economy revived somewhat thanks to the New Deal. But it was not until the outbreak of World War II in 1939 that the country’s economy was fully restored.
Instead, it was Germany and Japan that were good students of Keynes. Adolf Hitler was in power for 33 years and he was a big spender. He increased state expenditures without limit. He had weapons manufactured, increased military capacity, built airports and roads. He built countless concentration camps, as part of public investment.
The Japanese military did the same. For 10 years, Japan’s rearmament rate was double Germany’s. Germany raised its exchange rate and lowered interest rates. These are textbook Keynesian measures.
The two countries escaped from the Great Depression sooner than others. State expenditure led to a decrease in unemployment and restored their economies.
Nazi rule expanded the German economy by more than 10 percent annually. The unemployment rate of 0.9 percent, which means almost full employment, was an astonishing achievement, if one ignores the oppressive measures used, such as freezing wages and disbanding labor unions.
The problem with this model is that Germany’s version of the New Deal was undertaken during war. Meanwhile, Roosevelt spent money on developing the Tennessee River and providing relief to the unemployed. The New Deal was viewed as more significant primarily because it was much more peaceful and more focused on the economy’s efficiency than the European country’s model.
Many criticize the Korean government’s attitude towards the economic crisis. But it wouldn’t be reasonable to criticize the direction that President Lee Myung-bak and Finance Minister Kang Man-soo have set. Expanding state expenditure and lowering the key interest rate are not out of the ordinary.
Crying out for green growth, without exactly pursuing the goal, can be understood to be a result of the leaders’ excessive ambitions. The ruling party chairman’s expression about “making the entire country a construction site” is still much better than Hitler, who manufactured only weapons endlessly.
There is another reason, however, that excessive civil engineering projects don’t feel right.
The president has considerable experience in the civil engineering business. Roosevelt was similar. The American president owned a large farm and he was confident when it came to farming. However, the Agricultural Adjustment Act is regarded as the biggest failure among the New Deal policies. Excessive support aimed at increasing efficiency in farming gave rise to unemployment in the agricultural sector and excessive agricultural production.
President Lee needs to be careful not to make a similar mistake in civil engineering projects.
France’s failure can provide us a good lesson under the current circumstances. France did worst during the Great Depression. France wavered on its interest rate and strongly opposed depreciation of its currency because of concerns about the country’s status. The country lowered taxes before it suddenly raised taxes numerous times.
Inspired by Hitler in its neighboring country, France froze wages, only to induce fervent resistance from labor unions and the Communist Party. The administration changed several times. France was not able to exert its power properly amid chaos for 10 years before it faced World War II.
Looking at France’s past, our future seems also worrisome. The ruling party is powerless and the opposition party used violence to occupy the National Assembly. Major labor unions resist having dialogue among labor, management and the government. If this persists, we might end up like France of the past no matter how much money we may pour in.
Professor Fishback visited Korea two years ago and he said then the biggest effect of the New Deal was not improving the economy but giving the people hope that the economy would improve soon. That means we should pay more attention to Roosevelt’s political leadership than exact economic measures directed by Keynesian economics.
If we want to carry out Korea’s version of the New Deal properly we need to interpret it from a political viewpoint.
*The writer is an editorial writer of the JoongAng Ilbo.
by Lee Chul-ho