II, William F. Shughart
|Reviewer(s):||Fishback, Price V.|
Published by EH.NET (June 1999)
Jim Couch and William F. Shughart II, T he Political Economy of the New
Deal. Cheltenham, UK and Northampton, MA: Edward Elgar, 1998. xvi + 229
pp. $85 (hardback), ISBN 1-85898-899-3.
Reviewed for EH.NET by Price V. Fishback, Department of Economics,
University of Arizona.
The New Deal is certainly one of the most dramatic peace-time expansions of
government activity in recorded history. As a result, numerous social
scientists and historians have tried to understand the political economy of the
New Deal. In
particular, a great deal of effort has been devoted to trying to explain the
dramatic differences in per capita New Deal spending across states that were
first mentioned prominently by Leonard Arrington
(1970). Jim Couch and Bill Shughart offer a book-length study that is devoted
to explaining those differences using public choice theory.
Franklin Roosevelt gave speeches that argued that the New Deal was designed to
promote “Relief, Recovery, and Reform.” New Deal administrators like Harold
Ickes and Harry Hopkins also consistently talked about noble goals for the New
Deal programs. Yet Leonard Arrington’s simple comparison of New Deal spending
per capita across the states quickly raises questions about how well the New
Deal met these goals. There was substantial variation in the distribution of
New Deal funds per capita across the states; the West fared well, while the
South fared poorly. This has led a number of economists to perform econometric
studies of the New Deal. Donald Reading
(1973) found that
the distribution of funds seem to be associated with improving federal land,
building highways, and helping to promote recovery.
However, there was little sign that the New Deal money was designed to reform
society because money was not being distributed
disproportionately to poorer areas. Gavin Wright (1974) then added the issue
of presidential politics to the analysis. His results show that the primary
goal in distributing New Deal funds was to ensure the reelection of Roosevelt,
as money was primarily
distributed to swing states and to areas where the money could be used most
productively to increase presidential electoral votes. John Wallis (1987) then
expanded the sample by obtaining information on New Deal spending from year to
year and obtaining more information on the movement of the economic variables
over the course of the decade. Wallis emphasized that Congress had structured
the New Deal so that state and local governments played a role in determining
how much they would receive from
the federal government. Wallis also worried about problems of simultaneity
bias arising in the coefficients on the unemployment variables. Gary Anderson
and Robert Tollison (1991) then added Congressional politics to the mix. Couch
and Shughart’s contribution tot his literature involves a book-length study
that describes a wide variety of New Deal spending and loan programs, offers
numerous anecdotes about their impact, and performs further econometric
analysis on the determinants of New Deal spending and loan across states.
The focus of the book is on developing a public choice analysis of the New
Deal. This is not really a new emphasis because all of the previous work has
used the same notion that people in government were acting in a self-interested
manner. What is new in the book is the combining of the econometric analyses
with extensive descriptive material and a very strong negative tone about the
motives of the Roosevelt administration. The econometric results from nearly
all the studies generally imply that a focus on reelection by political
leaders and pressures from interest groups did a great deal to shape the New
Deal. Couch and Shughart’s econometric results show very little evidence that
reform, recovery, and relief were key factors, although earlier econometric
work suggests that recovery and relief motives might have played a role. To
supplement the econometric results, Couch and Shughart, offer numerous tales of
malfeasance in the book, which offer a counterpoint to many books that heap
unadulterated praise on the New Deal programs.
People interested in the distribution of New Deal funds should read the book in
conjunction with a recent paper by John Wallis (1998) in
Explorations in Economic History. Wallis’s paper in part serves as a
book re view in the sense that Wallis goes through the analyses of all the
prior authors mentioned in the book and tries to compare the results of each
analysis using the same data and the same variables as closely as possible.
Wallis also offers some new insights that are not in this volume because the
book was in press at the time that the Wallis article appeared. Couch and
Shughart expand on the earlier econometric work by offering additional material
and by dissaggregating and examining some of the specific programs.
One of the central issues that Wallis (1998, 1987) was trying to do in his
analysis was take into account the impact on New Deal spending of the matching
features that were included in some programs, as well as differences in the
attitudes of state and local governments toward seeking and obtaining New Deal
funds. His technique involved using a lagged value of grants in the New Deal
distribution equation in a panel data set. In addition for the period 1937
through 1940 Wallis has tried to directly examine the impact of state spending
on New Deal distributions. Couch and Shughart challenge the notion that
matching institutions and local attitudes had much impact on New Deal spending.
They found evidence from the Congressional Record on the share
of WPA projects funded by local sponsors. Regression analysis shows that the
sponsor’s share of the program was negatively related to the amount of WPA
expenditures. Therefore, they argue that there was no simple mechanical
relationship between the money provided by state and local governments and the
“match” from the federal government. I tend to agree that there was no
mechanical relationship, but it is likely that the attitudes and activities of
the state and local governments did influence how much effort they devoted to
obtaining New Deal funds. Couch and Shughart really do not address this issue
well because they do not try to take into account the issues of simultaneity
bias in their regression equations. Wallis (1987) has already made the
theoretic al case that federal government spending and state and local spending
are endogenous and that there are feedbacks between the two. Thus,
it is somewhat surprising that Couch and Shughart ignore the issue by running
simple OLS regressions that ignore the endogeneity issues. They do offer some
criticisms of some of the work Wallis has done on the impact of state spending
on New Deal funds, but it would seem very important to test the issue directly
in their regression analysis.
Couch and Shughart press their argument that state and local activity was
relatively unimportant further by claiming that leaders in the South, which
received less than other regions, did not oppose New Deal programs. They claim
that southerners only opposed the Roosevelt administration late in the 1930s
(p. 212). They argue that nearly all of the southern congressmen voted for the
Emergency Relief Appropriation Act, and that most of the southern opposition
came about in response to the court-packing plan in 1937. Their claims of la ck
of southern opposition to the New Deal are not very convincing. The vote for
the enabling legislation was not even remotely close, suggesting that everybody
expected that the legislation would go through because it was just continuing
the programs already in existence. Further, they appear to have missed the
work of Lee Alston and Joseph Ferrie, who have articles in the Journal of
(1985) and in the American Economic Review (1993) that show that
southern planters were strongly opposed to many New Deal programs,
particularly Social Security.
I was surprised by another omission. In their concise history of the Great
Depression, they do not mention the work on the impact of the gold standard on
the depression by Barry Eichengreen (Golden Fetters, 1992). My
impression is that most economists and economic historians see Eichengreen’s
book as the most comprehensive discussion of the issue.
So, what can we learn from the analysis in this book, which also summarizes
most of the literature on the issue? Couch and Shughart give strong emphasis
to the notion that politics and interest groups were the primary factors
shaping the New Deal. Their regression analysis finds little evidence that the
distribution of funds matched the noble rhetorical goals of reform, recovery,
and relief motives. They dismiss the notion that matching had much impact on
the distribution of funds. At this point I am not fully convinced that the New
Dealers did not at least partially try to achieve the noble goals in their
rhetoric. One issue that cannot be addressed with the econometrics is the idea
that the New Deal was conceived to solve a national problem of relief and
recovery. In fact, the 1930s led to all sorts of federal legislation on issues
that had been the state’s preserve because people seemed to believe that these
were national problems. It is clear that the Depression did not touch all
states equally, but it certainly touched each and every state to some extent.
received a significant amount of spending, at least $200 per capita. So
Roosevelt, Hopkins, Ickes and the rest of the New Dealers could at least claim
that they used resources to foster relief and recovery at a base level in each
state. The variation across states shows that other factors determined the
distribution beyond this base level. None of the regression analyses by any of
the scholars writing on this subject show any sign that the New Deal was
reform-minded, a finding consistent with most historians’
views of the Roosevelt
Administration. It is clear that political maneuvering played an important role
in this story in all of the analyses.
The question of whether or not the variation also reflected more noble motives
is still not fully answered. Different specifications show
different results. One problem with the Couch and Shughart analyses is that
they do not adequately control for problems with simultaneity bias, which was a
central feature of Wallis’s earlier analyses. My sense having followed all of
this literature care fully over the past decade is that the distribution of New
Deal funds was complicated. It was driven by some noble goals, some political
goals, and certainly by special interest pressures.
It was probably driven as well by sheer confusion because there we re so many
diverse programs that it seems likely (and historians have documented)
that the goals of some programs came into direct opposition to the goals of
other programs. All of these factors come together into a giant and very
complex stew that boiled
over into the largest peacetime expansion of government in U.S. history.
Price V. Fishback Department of Economics University of Arizona Tucson, AZ
Price V. Fishback is the Frank and Clara Kramer Professor of Economics at the
University of Arizona. His book with Shawn Kantor on the origins of workers’
compensation laws is forthcoming from University of Chicago Press early in
2000. Fishback and Kantor are currently collaborating with various scholars on
a large-scale project examining the economic impact of the New Deal on the
economy using county- and city-level data.
Alston, Lee and Joseph Ferrie, “Labor Costs, Paternalism, and Loyalty in
Southern Agriculture: A Constraint on the Growth of the Welfare State,”
Journal of Economic
History, 45 (March 1985): 95-117.
Alston, Lee and Joseph Ferrie, “Paternalism in Agricultural Labor Contracts in
the U.S. South: Implications for the Growth of the Welfare State,”
American Economic Review, 83 (September 1993): 852-76.
M., and Robert D. Tollison, “Congressional Influence and Patterns of New Deal
Spending, 1933-1939,” Journal of Law and Economics,
34 (April 1991): 161-175.
Arrington, Leonard J., “Western Agriculture and the New Deal,”
Agricultural History, 49 (1970)
Eichengreen, Barry, Golden Fetters: The Gold Standard and the Great
Depression, 1919-1939. New York: Oxford University Press, 1992.
Fleck, Robert Kenneth, “Essays on the Political Economy of the New Deal”
(Ph.D. thesis, Stanford University,
Reading, Don C., “New Deal Activity and the States, 1933 to 1939,” Journal
of Economic History, 33 (Dec. 1973): 792-810.
Wallis, John Joseph, “Employment, Politics, and Economic Recovery During the
Great Depression,” Review of Economics and Statistics, 69 (Aug.
, “The Political Economy of New Deal Spending Revisited, Again: With and
Without Nevada,” Explorations in Economic History, 35 (April (1998):
Wright, Gavin, “The Political Economy of New Deal Spending:
An Econometric Analysis,” Review of Economics and Statistics, 56 (Feb.
|Subject(s):||Government, Law and Regulation, Public Finance|
|Geographic Area(s):||North America|
|Time Period(s):||20th Century: Pre WWII|