'A World War without War'

In a SPIEGEL interview, British historian Niall Ferguson discusses Barack Obama's historical election, Europe's hopes for the new president, the consequences of the economic crisis and his idea of "Chimerica" -- the economic alliance between Beijing and Washington.
SPIEGEL: Mr. Ferguson, were you moved when you saw the future president, Barack Obama, in Chicago?
Ferguson: Yes, it was a very moving moment. It was similar to the release of Nelson Mandela. When Obama was born, in 1961, mixed marriages between blacks and whites were still illegal in one-third of the American states.
SPIEGEL: Historically speaking, that was yesterday,
Ferguson: Of course. But we are talking about ordinary discrimination, not just the legacy of slavery. And it had not disappeared. It is astonishing that the transformation from a racist America to an America that elects a black man to the White House was possible within that period of time. Even the world's most dogmatic conservative ought to be moved.
SPIEGEL: You initially favored John McCain?
Ferguson: I have become a convert in the last six months because of Obama's extraordinary combination of rhetorical genius, coolness under fire and organizational skills. This was the best election campaign we have ever experienced.
SPIEGEL: Which doesn't necessarily have to mean a great presidency.
Ferguson: What it means is enough: the death of racism, the end of the original American sin and, most of all, the right reaction to end the economic crisis. Obama can stimulate self-confidence because he is so calm and collected. He will not simply put an end to the crisis or ensure that banks lend money again. He is a politician, not the Messiah. But he can change the national mood. Americans are lucky that they were able to elect him now, just as the panic reached its climax. It is as if they had voted Roosevelt into office earlier, in 1930, and not in 1933.
SPIEGEL: Shouldn't the world have seen it coming, the economic crisis we are now experiencing?
ABOUT NIALL FERGUSON
British historian Niall Ferguson, 44, is currently a professor at Harvard University. His most recent book is "The Ascent of Money -- A Financial History of the World," Penguin Press, New York; 432 pages; $29.95.
Ferguson: Of course, it has been clear since 2006. I know that for many people it doesn't feel that way. They are horrified because they were taken by surprise, and they are in a panic because the enemy comes from within. The system is the enemy. And they don't understand the nuances of the crisis, which makes them afraid.
SPIEGEL: In retrospect, historians are usually right. What did you foresee in 2006?
Ferguson: Excessive debt. The debts of private households and the financial institutions reached levels that could no longer be offset. Then came the bubble in the real estate market, when prices doubled even though the houses weren't worth the money. But most of all, there was the ignorance of the bankers, hedge fund managers and financial experts in the political arena, who did not want to recognize something that was plain as day.
SPIEGEL: Namely?
Ferguson: That a liquidity crisis could happen. That they would run out of money. "Impossible," everyone was saying at the time.
SPIEGEL: It sounds a little self-opinionated for you to claim that you had predicted all of this for years.
Ferguson: Oh, I've been wrong before. The thing I was wrong about was the trigger.
SPIEGEL: The trigger?
Ferguson: I had believed that the price of oil would be the cause of the world economic crisis, and that the necessary trigger would be a second defenestration, a second Sarajevo and perhaps even a war, a truly major war.
SPIEGEL: Iraq and Afghanistan don't count?
Ferguson: Too small. I had believed that a geopolitical event would lead to a credit crisis, but this crisis is so fundamental that it was capable of triggering itself. Money disappeared, and now companies can no longer refinance, can no longer borrow anything. Now it'll be bloody.
SPIEGEL: Are the bubbles happening with greater frequency than before, or is this just the way we perceive it? Or has the world economy consisted of a single super-bubble for some time now, as speculator George Soros says?
Ferguson: There have been bubbles large and small, again and again since 1700. First there was the tulip bubble and then, in 1890, it was all about the gold mines. No, we haven't even changed the rules of the game. If a central bank makes loans available to speculators at low interest rates, we have a bubble. Always, it's guaranteed. Yesterday, today and tomorrow again.
SPIEGEL: Do you consider the US government's so-called bailout plan and the Europeans' investments in banks to be pointless?
Ferguson: No, but it is not clear that they will work. We have a situation like 1914 or 1931, and the financial and fiscal authorities have learned from history. They are doing the right thing. They are trying everything to prevent us from getting into a Great Depression.
SPIEGEL: With success?
Ferguson: We will see. So far, success has meant that relatively few banks have collapsed, whereas in the 1930s it was thousands. At that time, the gross national product dropped by 30 percent and there was 25 percent unemployment in the United States. This time we will have a painful recession, but not figures like those. What I truly criticize is the fact that so much time was wasted.
SPIEGEL: What was lost as a result?
Ferguson: Flexibility. Clout. A lot of money. Many, many possible solutions. The US treasury secretary should have flown to Beijing and could have solicited investment in American banks, which would have benefited everyone. Those who combat a crisis early on can prevent its effects from becoming too entrenched.
SPIEGEL: Is confidence in the market's ability to purify itself dead?
Ferguson: Yes. But a true Armageddon was needed before the Republicans could be made to understand. A world war without war, a state of emergency, was needed. Now we are responding the way they did in World War I: with moratoriums, suspension of trading, new money. It's fascinating. And it wasn't the fault of Alan Greenspan ...
SPIEGEL: ... the former Federal Reserve Bank chairman …
Ferguson: ... who believed that the market would regulate everything, and yet the assignment of blame is too simplistic. We are all at fault. Who in America or Great Britain didn't take out a loan for a house that was far too expensive or for a car? And then all of these bubbles come to resemble one another, but the financial world is immune against the whole thing.
SPIEGEL: Why?
Ferguson: Most managers leave the educational system completely unequipped for the decisions they will have to make. They learn business as a mathematical discipline. They know nothing about what happened before their careers began. Many working on Wall Street today don't even know what happened in 2000, after the Internet boom.
SPIEGEL: Does the system teach people to be irresponsible?
Ferguson: And to be naïve. For these people, it must have felt as if nothing could go wrong between 2001-2007. When that happens, one is tempted to make one's own experience part of the theory of financial history.

SPIEGEL: Is it a coincidence that this crash began in the United States?
Ferguson: It could have started anywhere. The system was an upside-down pyramid, a pyramid made up of securities, derivatives, bets and loans, and all of it was balanced on a fragile tip consisting of mortgages. If it had happened someplace else, the consequences just wouldn't have been as dramatic. But it had to tip over. It was a crisis of the Western world, and then it turned into a global crisis.
SPIEGEL: Will Barack Obama truly change the world? Or world politics?
Ferguson: Yes, by virtue of his very existence. The world is waiting for him, ready for a different America. The United States has the opportunity to remake itself without Obama having to make many changes to its foreign policy. He will close Guantanamo and declare an end to torture. All he has to do is change the tone and the game will already change because he is the one playing it. That is the real phenomenon. By virtue of his sheer existence, he reestablishes American credibility.
SPIEGEL: There are concerns in Germany that a President Obama will demand more soldiers for Afghanistan. On the other hand, there is hope that he will pursue multilateral policies.
Ferguson: Both are justified. Obama will certainly focus on Afghanistan, while at the same time attempting to withdraw Americans and get international soldiers. A true challenge could arise if Iran or al-Qaida tried to test Obama. Al-Qaida hasn't been taken over by J.P. Morgan yet, and Iran won't abandon its nuclear policy just because a black man is in the White House. Both dangers still exist. However, I believe that all of these issues, including Kyoto, will initially fade into the background because the economic crisis will demand our attention for a long time.
SPIEGEL: What will the consequences of the crisis be?
Ferguson: New York could turn into Venice.
SPIEGEL: A museum of itself?
Ferguson: At least in the distant future, in 100 or 200 years. The more that happens in Asia, the better London's position will be, even from a geographic standpoint. The same, of course, applies to Shanghai, or Hong Kong.
SPIEGEL: Life is unfair.
Ferguson: Money has never been fair.
SPIEGEL: Isn't Europe better equipped for times of crisis? More modern?
Ferguson: Perhaps, but Europe will be more severely hit by the crisis. In Great Britain, Switzerland, Belgium and Germany, the financial sector constitutes a higher percentage of the gross domestic product than in America, which is why the impact will be far greater in Europe. And Russia, Iran and Venezuela are feeling the brunt of falling oil prices.
SPIEGEL: In other words, the United States could become a winner in the current crisis, for which it bears the blame?
Ferguson: Absolutely. Obituaries are premature. It depends on how China reacts. The Chinese have achieved exchange rate stability and protected the dollar with artificial interventions. They will continue their policies because they now own vast numbers of dollars and export goods that are paid for in dollars. The United States and China are involved in a marriage like my wife's and mine.
SPIEGEL: The wife ...
Ferguson: (laughs) ... spends what the husband saves and earns. A very healthy equilibrium. It will remain that way.
SPIEGEL: What is so healthy about it?
Ferguson: It has always been the case that one economy offsets the weaknesses of others. There is nothing wrong with that. The United States can afford to pay for this crisis as long as it gets cheap money in Beijing -- that is, by paying not much more than four percent interest. And China needs its exports to the United States to continue growing. Chimerica ...
SPIEGEL: ... that's what you call the structure of the Chinese and US economies in your new book ...
Ferguson: ... is no chimera, but rather a functioning alliance. Of the big three -- China, Russia and America -- two always join forces in a coalition, and neither China nor the United States has any reason to prefer Russia as a partner.
SPIEGEL: And yet the American deficit cannot be healthy.
Ferguson: Well, it'll balance itself out a little now. But if the United States had a balanced budget, it would be a shock for the global system. No one can seriously want this to happen. If the Americans started saving the way the Chinese do, that's when we would have a Great Depression!
SPIEGEL: That was one of Barack Obama's key warnings: "We borrow money in China and use it to buy oil in Saudi Arabia." During the campaign, he repeatedly promised that he would put an end to this.
Ferguson: A few foreign policy advisors will probably explain to him very quickly that he would be better off not to touch the relationship with China.
SPIEGEL: But there is some truth to his sentence.
Ferguson: That's true, but it is also an over-simplification. Americans want to buy goods inexpensively, and the Chinese can produce inexpensively. Does anyone want to upset this system? Imbalances should exist in a global economy. Nations grow at different rates, and the system is there to transfer profits and savings from one place to another. This makes much more sense than the financial autarchy of the 1950s, when there were no international transactions.
SPIEGEL: It's hard to believe. In the end, you think everything is fine the way it is?
Ferguson: No, but the subject isn't the deficit or America's dependence on China. China has become somewhat more self-confident and America somewhat more insecure, but China is no rival for America, neither militarily nor economically. The subject is dependence on oil, which is a technological subject, not a financial one.
SPIEGEL: Responsible politicians ...
Ferguson: ... would borrow money in China and invest in clean technology, in wind power and solar power. That would be a rational strategy. It was crazy to borrow money in China and burn through it by speculating in the real estate market.
SPIEGEL: So you don't think lending is the problem?
Ferguson: It never has been. Lending transactions are the basis of the economy. It isn't lending, it's investment. If you don't invest, but just consume, you bring about your own ruin.
SPIEGEL: Will European-American relations change?
Ferguson: Yes, but not in the way many Europeans expect. Democrats and Republicans are not that different on foreign policy. In fact, there is much more continuity than you would think. Will Obama be the antithesis to Bush? No, because the national interests of the United States have remained the same.
SPIEGEL: Obama has not had a relationship with Europe so far.
Ferguson: And for that reason he will see Europe as a single entity. He'll be surprised, because he doesn't know whom to call when he wants to speak to Europe. Europe will present itself to him as a group of sovereign states, and Messrs. Sarkozy and Brown, and Ms. Merkel, will all want to be his best friend, each of them on their own.
SPIEGEL: What will the new American president be able to achieve economically, if anything?
Ferguson: He promises a feeling of change, not necessarily real change. But the feeling is already important enough. This whole crisis has to do with trust and self-confidence. We need a US president who brings renewal.
SPIEGEL: So what can Obama do?
Ferguson: He can give a great inauguration speech.
SPIEGEL: And what else?
Ferguson: Give more great speeches.
SPIEGEL: He can't do more?
Ferguson: No, because he will have the least latitude of all presidents we can remember. Obama wants to assemble a nonpartisan government, and we will experience a more cautious first 100 days than we did under Bill Clinton. He will be cautious to the point of being boring. This will be precisely his great strength.
SPIEGEL: Where does the problem lie?
Ferguson: With Hank Paulson.
SPIEGEL: What does the current treasury secretary have to do with Obama?
Ferguson: Because of his big bailout plan, Paulson has already spent the money for Obama's healthcare reform and for his tax cuts. The money is gone.
SPIEGEL: Mr. Ferguson, we thank you for this interview.

The Great War

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New Solar Balloon Creates 400 Times More Energy Than The Average Solar Cell

There are many new forms of alternative energy but maybe none as interesting as the Cool Earth Solar “Balloon.” The concept behind this design is that they create an “inflatable plastic thin-film balloon (solar concentrator) that, upon inflation, focuses sunlight onto a photovoltaic cell held at its focal point.

The design produces 400 times the electricity that a solar cell would create without the company’s concentrator.” Cool Earth has already began construction on a power plant in Livermore, CA that will utilize this new technology. The plant is modest in size, creating only 1.4 Megawatts but if this plant works as well as they expect it to, they plan on launching a full sized plant next summer. One great thing about this device is that it’s made up of a very common and cheap material. “Plastic thin film is abundant and cheap,” said Cool Earth Solar CEO Rob Lamkin. “It only costs two dollars for the plastic material necessary for our solar concentrator.”

It’s ideas like this that I think will stick. It’s cost efficient. It’s made of an easy to find material and it’s an environmentally sound concept.

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Raped in the Military?

Raped in the Military? You'll Have to Pay for Your Own Forensic Exam Kit.
Sarah Palin's decision not to pay for rape kits when she was mayor of Wasilla, Alaska, was an issue in the campaign for the White House. But allow me to introduce the large pink elephant that has been sitting quietly in the corner of the room: TRICARE, the Pentagon's Military Health System that covers active duty members, doesn't pay for rape kits, either.
Spec. Patricia McCann, who served in Iraq with the Illinois Army National Guard from 2003 to 2004, raised the issue at the Winter Soldier Investigation in March. McCann read a memo issued to all MEDCOM commanders clarifying that "SAD kits" -- which are forensic rape kits -- "are not included in TRICARE coverage." *
That would put Alaska and the military in a very special category.
Women in the military are twice as likely to be raped as their civilian counterparts. In fact, "women serving in the U.S. military today are more likely to be raped by a fellow soldier than killed by enemy fire in Iraq," Congresswoman Jane Harman, D-Calif., told the House Subcommittee on National Security and Foreign Affairs in May.
Harman said,

"The scope of the problem was brought into acute focus for me during a visit to the West Los Angeles VA Health Center where I met female veterans and their doctors. My jaw dropped when the doctors told me that 41 percent of the female veterans seen there say they were victims of sexual assault while serving in the military, and 29 percent said they were raped during their military service."

In July, a House Oversight and Government Reform subcommittee hearing subpoenaed Kaye Whitley, director of the Pentagon's Sexual Assault Prevention and Response Office (SAPRO), to explain what the department is doing to stop the escalating sexual violence in the military. Her boss, Secretary of Defense Robert M. Gates, ordered her not to appear.
Whitley was finally made available to the committee on Sept. 10, but only after having been threatened with a contempt citation.
Whitley first informed the committee that the DoD was conducting a "crusade against sexual assault."
She then sought to reassure the committee with an accounting of all the heroic measures the Pentagon is planning to implement in the very near future.
But finally, she had to admit that in 2007 there were 2,688 sexual assaults in the military, including 1,259 reports of rape. Just 8 percent (181) of those cases were referred to courts martial, compared to a civilian prosecution rate of 40 percent. And almost half of those cases were dismissed without investigation. (And I say Whitley "had to admit" the number of cases because in 2004, Congress woke up to the fact that the DoD was blowing off the issue and required the military to make yearly reports on all matters relating to sexual assault in the Armed Forces. But those reports did not indicate either prioritizing or progress -- hence the hearings.)
Rep. John Tierney, D-Mass., asked the committee if anyone thought that "ordering its employees to ignore subpoenas to discuss the topic" sounded as if DoD was taking any of this seriously. "Let me be very clear. Preventing and responding to sexual assault perpetrated against our soldiers is simply much too important to be playing a game of cat and mouse." He later told Stars and Stripes that there are only seven people on Whitley's staff to devise and implement the military's sexual assault program for the entire military. That number speaks for itself.
This is not news. As far back as 1995, Reuters reported that "Ninety percent of women under 50 who have served in the U.S. military and who responded to a survey report being victims of sexual harassment, and nearly one-third of the respondents of all ages say they have been raped."
Furthermore, the Pentagon acknowledges that 80 percent of military rapes are not reported in the first place, suggesting that the actual number, if it were known, would be astronomical.
Cat-and-mouse games may sound like kid stuff, but refusing to pay for a rape kit is anything but. It implies that the victim is to blame. It does not encourage victims to come forward. And it makes it far more likely that soldiers will interpret the permissive climate as institutionally sanctioned misogyny.
In her Winter Soldier testimony, McCann noted, "The assistant secretary of defense is soliciting legislative changes to TRICARE benefits which will include these kits within covered TRICARE supplies."
I have been in touch with the office of the assistant secretary, S. Ward Casscells, M.D. It seems that he has indeed solicited such legislation, and it is due to go into effect in December as an amendment to the John Warner National Defense Authorization Act for fiscal year 2007. The amendment contains some "background" that is worth sharing.
Currently, forensic examinations are not covered for beneficiaries in civilian health care facilities through TRICARE medical plans because TRICARE "may cost share only medically or psychologically necessary services or supplies. Forensic examinations are not conducted for medical treatment purposes, but for the preservation of evidence in any future criminal investigation and/or prosecution."
The decision to treat rape kits as purely evidentiary, ignoring the very real medical and psychological benefits to the victim, is reprehensibly primitive thinking. Making sure that those legislative changes happen as planned would be a long overdue step out of the primal ooze that has slimed our military in the eyes of our citizens and the world.
Speaking to Palin's decision not to pay for rape kits, the former governor of Alaska, Tony Knowles, was quoted in Palin's hometown paper, the Frontiersman, as saying, "We would never bill the victim of a burglary for fingerprinting and photographing the crime scene, or for the cost of gathering other evidence. Nor should we bill rape victims just because the crime scene happens to be their bodies."
When Barack Obama decides who he will appoint to head the Department of Veterans Affairs in his administration, he should consider appointing someone who also understands how important it is that women's bodies, souls, dignity and health be taken seriously. Tammy Duckworth, who is reported to be at the top of his list, certainly has had personal experience with a health care delivery system she has called "a little bit arcane."
Duckworth is now director of the Illinois Department of Veterans Affairs, but in 2004, she was a Blackhawk helicopter pilot in Iraq and lost both of her legs in a crash. She describes the care she received at Walter Reed Army Medical Center as "excellent," but adds, "the comfort package I received contained men's Jockey shorts, and the local VA hospital carried Viagra but not my birth control."
There are currently about 1.7 million female veterans in the United States, and the Department of Defense estimates that there are about 200,000 women, 15 percent of the military, on active duty. Thirty-nine percent of those women return from Iraq or Afghanistan with mental health issues, and, for more than a third who seek VA health care, the precipitating trauma was a sexual assault.
Every VA center now screens both men and women for sexual trauma. That is an improvement. Still, Duckworth says, "I don't think the VA mental health care system is ready for (female veterans)." It would be encouraging to see a VA director who has some understanding of how important that is to fix.
*The overwhelming indictment of the wars in Iraq and Afghanistan -- and the heartbreaking devastation they have wrought on the souls of young American soldiers -- are now the subject of an invaluable book edited by Aaron Glantz and issued by Haymarket Books.

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Argentinian glacier begins rare winter rupture

Bold Is Good

What Obama Could Learn From Reagan
Just about everyone is giving President-elect Barack Obama advice based on one interpretation or another of what his victory really means. Obama should be wary of any counsel that the advice-givers had in mind before a single vote was counted.
The worst advice will come from his conservative adversaries, the people who called him a socialist a few days before the election and insisted a few days later that he won because he was really a conservative. The older among them declared after the 1980 election that the 51 percent of the vote won by Ronald Reagan represented an ideological revolution, but argue now that Obama's somewhat larger majority has no philosophical implications.
These conservatives are trying to stop Obama from pursuing any of the ideas that he campaigned on -- universal access to health care, a government-led green revolution, redistributive tax policies, a withdrawal of American troops from Iraq, more robust economic regulation.
Their gimmick is to insist that the United States is still a "center-right" country because more Americans call themselves conservative than liberal. What this analysis ignores is that Americans have clearly moved to the left of where they were four, eight or ten years ago.
The public's desire for more government action to heal the economy and guarantee health insurance coverage, along with its new skepticism about the deregulation of business, suggests that we are a moderate country that now leans slightly and warily left.
But that wariness means that progressives should avoid offering advice based on the assumption that an ideological revolution has already been consummated. They should not imitate the triumphalism of Karl Rove and his acolytes, who interpreted President Bush's 50.8 percent victory in 2004 as the prelude to an enduring Republican majority.
Fundamentally, ours is a non-ideological nation. Many who would like the government to act more boldly still need to be persuaded of government's capacity to succeed.
Here again, Obama's situation closely resembles Reagan's. Like our 40th president, Obama has been authorized to move in a new direction. If Reagan had the voters' permission to move away from strategies associated with liberalism, Obama has sanction to move away from conservative policies. Reagan was judged by the results of his choices, and Obama will be, too.
Yet Reagan offers another lesson: His first moves were bold, and Obama should not fear following his example. The president-elect is hearing that his greatest mistake would be something called "overreach." Democrats in Congress, it's implied, are hungry to impose wacky left-wing schemes that Obama must resist.
In fact, timidity is a far greater danger than overreaching, simply because it's quite easy to be cautious. And anyone who thinks House Speaker Nancy Pelosi and her followers are ultra-leftist ideologues has been asleep for the past two years. As Pelosi noted in an interview in her office this week, her moves have been shaped by a Democratic House caucus that includes both staunch liberals and resolute moderates. She knows where election victories come from.
"We have some fairly sophisticated people here who understand that you win seats in the middle," she said, noting that Democrats did not win their majority in 2006 and then expand it this year "by espousing far left views." The priorities of congressional Democrats, she added, are close to those of the new president.
That's true, and it underscores the fact that you don't have to be "far left" to be bold. This is something that Rahm Emanuel, the new White House chief of staff and no ideologue, understands. In interviews yesterday on both ABC and CBS, Emanuel made clear that Obama's overarching priority is to right the economy and that his other objectives fit snugly into that framework.
He sees Obama acting in four areas of concern to a middle class that "is working harder, earning less and paying more." The list: health care, energy, tax reform and education. All are issues on which Obama should not be afraid to be audacious.
The economic crisis, Emanuel said, provides "an opportunity to finally do what Washington has for years postponed." Here, the model is Franklin Roosevelt, who in the 1930s saw the objectives of economic recovery and greater social justice as closely linked.
President-elect Obama can spend most of his time fretting warily about the shortcomings of past presidents and how to avoid their errors. Or he can think hopefully about truly successful presidents and how their daring changed the country. Is there any doubt as to which of these would more usefully engage his imagination?

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Franklin Delano Obama?

By Paul Krugman
Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world?
The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.

About the New Deal’s long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation’s economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn’t insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security.

Can Mr. Obama achieve something comparable? Rahm Emanuel, Mr. Obama’s new chief of staff, has declared that “you don’t ever want a crisis to go to waste.” Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come.

But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself.

Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?

Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.

This history offers important lessons for the incoming administration.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

Lessons Across Six Decades As Clinton Tries to Make Jobs

By STEVEN GREENHOUSE

Eager to put his own stamp on economic policy, President-elect Bill Clinton promises to do what every President since Franklin D. Roosevelt has done: come up with a new program to create jobs.
After President Bush took a largely passive attitude toward creating jobs -- and paid a heavy price for the sluggish economy on Nov. 3 -- Mr. Clinton has made it clear that he plans to be more aggressive.
Hoping to do far better than the one million jobs created under Mr. Bush, just 16,000 in private business and industry, the President-elect has said he intends to use tax credits and increased public spending on roads, airports and high-speed trains. He also promises to provide more job training and cut taxes for the middle class. Judgments From the Past
History shows that such efforts can create jobs. But they can also lead to fraud and inefficiency, and they are sometimes put in place when they are no longer needed. The record from six decades of Federal programs to create jobs leads to several conclusions.
Public works programs are a powerful tool to create jobs while also improving the nation's transportation network and competitiveness. Better highways, railroads and airports make the transportation of goods and people faster and cheaper.
One problem, however, is it sometimes takes so long to establish these programs that by the time they are put into place, the economic slump they were intended to reverse has already ended. Still, according to one study, every $1 billion spent on public works produces 25,000 construction jobs and 15,000 spillover jobs for concrete producers, tractor manufacturers, restaurants and other businesses.
Cuts in personal income taxes do in fact give the economy a quick consumer-led boost that can create tens of thousands of jobs, but they are less effective than public works at making the economy more efficient because the money gained from tax cuts does not go toward job-producing projects, like highway building.
In addition, tax cuts spur the domestic economy less today than they did decades ago because consumers now spend a large percentage of their tax-cut windfalls on imported goods like Sony televisions.
Tax credits for business investment are perhaps the quickest way to give the economy a shove forward. They also encourage investments in new equipment that raise productivity. Some economists predict that if Mr. Clinton introduces a 10 percent investment-tax credit in 1993, it will create about 400,000 jobs next year at the cost of an estimated $3.5 billion in lost tax revenue.
Because of the huge Federal budget deficit, tax cuts and public works spending are less powerful engines than in decades past because by increasing the deficit these programs help drive up long-term interest rates. And that works against the desired effect by hurting housing construction and business investment.
This principle also held true in years past, but with the Federal deficit now at record levels, the negative effects are greater than before.
Still, even with the problems, it is generally agreed that the only sure way the Federal Government can create jobs quickly is to increase the Federal deficit, either by cutting taxes or increasing spending. If a President expands public works spending by $1 billion, while at the same time cutting $1 billion in spending from other programs, the total number of jobs may not increase. After all, some jobs are certain to be lost as a result of the cuts.
At present, the biggest Federal job program is highway construction. It began four decades ago and was expanded greatly by last year's transportation legislation. This year the program will spend $20 billion, creating 800,000 jobs across the nation.
In New Jersey, for instance, the program has put 20,000 people to work this year, completing Interstate highways, resurfacing highways, painting bridges and building new interchanges. Indeed, at just one job site in Northern New Jersey, in and around Wanaque, the highway financing has put 1,200 people to work, building one of the final stretches of Interstate 287, a six-lane, 20-mile leg with a cost of $700 million.
Speaking about the construction industry, Thomas M. Downs, New Jersey's Commissioner of Transportation, said, "I'm not saying that public-works investment is a silver bullet, but it is helping reduce unemployment in the sector with the highest unemployment."
Liberals tend to favor such government building programs because they generally help the poor and unemployed while also addressing pressing needs, like renovating subway lines. The programs also reduce income inequality and provide on-the-job training for the unskilled.
"These programs are a success in the sense that they add to the number of jobs and have a fairly good record of not being make-work, but of getting productive things done," said Robert M. Solow, a Nobel Prize-winning economist who teaches at the Massachusetts Institute of Technology. But many conservatives dislike the programs, saying they bloat budget deficits and bureaucracies. They argue that the best economic stimulus is tax cuts, which allow consumers and companies to spend more, thus providing a boost to the economy.
Despite the continuing debate over Federal job-creation programs, Mr. Clinton plans to embrace a variety of them. As he does, he is likely to draw on lessons learned since the 1930's. The New Deal Deficit Spending, Money in Pockets
President Roosevelt took office in 1933 in a time of searing despair, when one in four Americans was out of work. Desperate for a solution, he embraced the then-novel ideas of John Maynard Keynes, the British economist, and recommended increasing deficit spending to put money in people's pockets.
Soon the New Deal demonstrated for all time that government could fight a slump by putting millions of people to work. It also demonstrated that most people like living on welfare far less than holding jobs.
In 1933, Roosevelt created the Federal Emergency Relief Administration, which gave states money for relief payments and for creating jobs. Two years later, he set up the biggest New Deal program, the Works Progress Administration, later the Work Projects Administration, and within months it had employed three million Americans.
Although there were plenty of make-work projects in the New Deal's early days -- historians recall workers raking leaves from one side of the street to the other -- eventually the program improved. W.P.A. workers helped build and upgrade 2,500 hospitals, 5,900 schools, 13,000 playgrounds and 651,000 miles of roads, among other projects.
"With time, the kinds of work that was done and the efficiency with which it was done increased considerably," said Barbara Blumberg, a historian at Pace University.
Largely because of New Deal programs, the unemployment rate fell from 25 percent in 1933 to 14 percent four years later. But Roosevelt was worried about runaway deficits. So in 1937 he reduced spending on these programs, only to see the jobless rate jump back to 19 percent in 1938.
"Mr. Roosevelt was never fully committed to spending enough money to stimulate the economy sufficiently," said Eli Ginzberg, who began teaching economics at Columbia University during the Depression. "The nation didn't really recover fully until it mobilized for war."
The jobless rate was 14.5 percent in 1940, seven years after Roosevelt took office. Only after the war machine began running flat out did unemployment fall, to 4.7 percent in 1942 and 1.9 percent in 1943.
Still, the New Deal showed for the first time how effectively government programs could reduce unemployment. And with that lesson, future Presidents did not hesitate to try their own approaches. Kennedy's Tax Cuts Stirring Economy, Spurring Debate
John F. Kennedy defeated Richard M. Nixon partly because of the 1960 recession. In circumstances strikingly similar to those facing Mr. Clinton, he took office when the unemployment rate was near 7 percent.
He tried a new approach to get the economy moving: Boldly defying criticisms that he would unwisely push up the budget deficit, Kennedy was the first President to use investment-tax credits and major income-tax cuts. He showed that these tools could work.
Still, the tax credits for business investment have generated decades of debate. Some economists contend that the credits wrongly favored some types of investment, like equipment, over others, like factory buildings.
Kennedy's Council of Economic Advisers was loath to recommend deficit spending and urged him to adopt the tax credit for corporate investments. In 1962, Congress approved the White House's proposal to give a 7 percent tax credit on equipment purchases.
"The investment tax credit looked like a good way to get a lot of bang for the buck," recalled James Tobin, a Nobel Prize-winning economist at Yale University and a member of Kennedy's Council of Economic Advisers.
There certainly was a bang; corporate investment in durable equipment doubled from 1962 to 1964, and employment jumped by 2.5 million.
But the President wanted to do more, hoping to reduce the jobless rate from 5.5 percent to 4 percent. So in 1963 he called for cutting income taxes as well.
Congress did not pass those cuts until 1964, after Kennedy had been assassinated. They reduced the range of personal income tax rates to 16 percent to 77 percent, down from 22 percent to 91 percent. Economic growth rose by 5.6 percent in both 1964 and 1965, and the jobless rate fell to 4 percent in 1965, causing Administration officials to congratulate themselves once again.
The Kennedy tax cuts inspired President Ronald Reagan's economic advisers, who pointed out that after the tax cuts, the Government's revenue actually increased, thanks to faster economic growth. But most economists say the main reasons tax revenue rose were inflation and and the way it pushed people into higher tax brackets.
Looking back today, some economists say Kennedy's advisers may be receiving too much credit. They say the effects of the Federal Reserve's low interest rates were overlooked at that time.
And now the wisdom of investment-tax credits is being called into question. Prof. Dale Jorgenson, an economist at Harvard University, believes they improperly skew investment toward certain areas, like machinery, and borrow from the future by moving up to today investments that would more properly have been made tomorrow.
"The Kennedy investment-tax credits did a lot of good in the early 1960's and a lot of harm at the end of the 60's," he said. When the tax credits were suspended in 1966, corporate investment slipped badly. Carter's Programs Help for Jobless, But With Catches
When Jimmy Carter took office in 1977, he had two big economic worries: high unemployment lingering from the 1974-75 recession and severe unemployment among young blacks in cities and the rural South.
He attacked both these problems by vastly expanding the Comprehensive Employment and Training Act, CETA, a Federal jobs program that was established in 1973. He doubled its size to cover 725,000 people and directed its focus to the hiring and training of the hard-core unemployed.
His efforts showed that government could provide training and valuable work experience for these generally neglected Americans. The employment act also showed that public service programs usually do more than public works spending to provide jobs for these hard-core urban unemployed. Under CETA, many people were hired as City Hall secretaries or park maintenance workers for example.
Had the same sums been spent on gleaming public works projects like highways or high-speed trains, these people would probably not have been hired because they lacked the skills and membership in the unions that often controlled the hiring.
But the act underlined the difficulties of rapidly doubling the size of a government jobs program. It was marred by accusations of fraud, nepotism and inefficiency. For example, city halls hired receptionists who sat in rooms where the phone never rang.
"CETA was a flop," argues William A. Niskanen, chairman of the Cato Institute, a Washington research group, and a member of President Ronald Reagan's Council of Economic Advisers. "It created jobs in the government sector where the work was of no particular value."
Some economists cite CETA, as well as an accompanying public works program, as the foremost examples of jobs programs that came too late, after economic growth had picked up. They say the Carter programs helped produce the economic overheating and double-digit inflation of the late 1970's. But Carter Administration officials say the huge increases in the prices of oil from Arab nations in 1979 caused the high inflation, not CETA.
Although Mr. Carter's Secretary of Labor, Ray Marshall, admits CETA was unwieldy and occasionally inefficient, he praised the program for helping young blacks.
"Thanks to this program, black male employment increased for the first time in the 1970's," he said in an interview. Reagan's Tax Cuts Boom Is Sparked As Debt Deepens
President Reagan stormed into office with a mandate to cut taxes, saying this would unleash American enterprise and spur economic growth. In his first months as President, he muscled Congress into passing the largest tax cut in history, a measure that reduced taxes by $280 billion over three years and included a 20 percent cut in personal income taxes as well as a corporate income tax reduction.
Although the Federal Reserve's high interest rates pushed the nation into a deep recession soon after the tax cuts were enacted, the extra money the cuts put in people's pockets helped pave the way for an economic rebound once interest rates fell.
"The tax cuts played an important role in the long expansion that started in late 1982," argues Murray Weidenbaum, Mr. Reagan's first chairman of the Council of Economic Advisers. Which Perspective Is Right?
A decade later, it is hard to find a dispassionate analysis of the Reagan tax cuts. Indeed, economists and politicians are still locked in a sharp ideological debate. Conservatives argue that the cuts lifted the economy by encouraging companies to invest more and people to work harder. In their view, the cuts helped produce 17 million new jobs in Mr. Reagan's two terms.
But Democratic economists heartily disagree. They note that the Reagan tax cuts did not, as promised, generate enough growth and tax revenue to prevent the deficit from ballooning.
And they say the main reason revenue did not increase as much as taxes were cut, as had happened under President Kennedy, was that the Reagan tax cuts were so much deeper.
These Democratic economists also assert that the tax cuts merely stimulated the economy in the old Keynesian way: generating growth by increasing the Government's deficit.
The truth probably lies somewhere in between. The tax cuts did stimulate consumers to buy more and businesses to invest more. Still, investment increased less than had been predicted and remained weak, compared with both Japan and Germany.
As for the 17 million new jobs created in the Reagan years, Democratic economists argue that they were created mainly because so many baby boomers entered the labor force and so many wives found jobs to supplement their husbands' stagnating incomes.
Whatever the effect of the Reagan tax cuts in the early 80's, most economists agree they have undercut growth late in the last decade and in the early 1990's. By the late 80's the cuts, combined with stepped-up military spending, had created annual deficits of close to $200 billion, leading to high long-term interest rates that dampen business investment and home building.
"Yes, they helped move the economy up" in the early 80's, said Charles L. Schultze, chairman of President Carter's Council of Economic Advisers. "But they did that with far too much consumption and far too little investment needed to prepare America for the future."
With its focus on increasing investment, the program that President-elect Clinton has outlined is in many ways a reaction to the perceived shortcomings of the Reagan tax cuts.
By calling for investment-tax credits, investment in public works and carefully monitored job training at the same time, Mr. Clinton hopes to improve on the job creation experiences of all the Presidents since Roosevelt.

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