Matt Yglesias notes that the financial community was strongly opposed to dollar devaluation in 1933, despite the fact that most businesses benefited from the policy.
Economic recovery would be good for business, but businessmen who may be good at running businesses are extremely bad judges of macroeconomic policy. Consider, for example, the Great Depression, and the monetary stimulus that economists from Milton Friedman on the right to Christina Romer on the left now agree ended it.
The Depression was not good for big business. Nor was it good for banks and large financial institutions. Ending the Depression required stepping on some toes, but fundamentally the Depression was a negative-sum experience and everyone was better off when growth returned. But here’s a couple New York Times articles from June of 1933 — “Plea” from June 2, “Return to Gold” from June 4 — showing the business community’s intense hostility to the expansionary monetary policy that eventually saved all their skins:
I agree with the implication Matt draws from this example; businessmen can’t be trusted to know what’s in their own best interest. But it was actually a bit more complicated—and in an interesting way. The dollar devaluation policy was strongly supported by stock investors, and also some manufacturers. It was opposed by the American Federation of Labor. Keynes initially supported the policy, but later turned against it went he felt FDR had gone too far. Irving Fisher, who’s now often seen as being to the right of Keynes, supported it throughout 1933. Right wing populist Father Coughlin was a strong supporter of FDR’s policy, whereas a number of FDR’s advisers resigned in protest.
I’m sure one can come up with reasons for all these splits. The policy helped stockholders but hurt holders of Treasury bonds. It helped unemployed workers but raised the cost of living for those with steady jobs. But I also think many people simply misjudged the effects of the policy. Unfortunately, we’ll never know for sure how effective it could have been, as an explosive recovery was aborted in July 1933 by the NIRA. But until that time, industrial production had risen 57% in 4 months, an annual rate of nearly 300%.
How about today? One difference is that in 1933 there really wasn’t much doubt that dollar devaluation would have some effect, at least on prices. Today many on the left discount the possibility of monetary stimulus. However I recall Joe Stiglitz and Robert Reich complaining about the effect of QE2 on the value of the dollar. And where are the unions demanding easier money? I don’t recall a single utterance from them on the subject. Might they have the same concerns as the AFL had in 1933?
On the right you have splits all over the place. Quasi-monetarists vs. old monetarists. Stock investors vs. bond investors. Perry criticizes monetary stimulus while Romney refuses to criticize monetary stimulus. There’s even a split within the National Review. Undoubtedly the right is much more hostile than the left, but it’s hardly monolithic. And in Britain there are press reports that the Cameron government favors monetary stimulus.
There are good reasons for this. Monetary stimulus has (greatly overrated) implications for the distribution of income. But it also has non-zero sum effects that reasonable people can interpret differently. In my view the non-zero-sum effects of monetary stimulus right now are so large and positive that even savers would benefit as a class (albeit not in every single case.)
