George Selgin on the New Deal and the History of Banking Crises

David Beckworth (0:02)

Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I'm glad you decided to join us.

Our guest today is George Selgin. George is a senior fellow and Director of Mercatus of the Center for Monetary and Financial Alternatives at the Cato Institute. George is also returning to be guest of the show, so please check out his past episodes. George, welcome back to the program.

George Selgin (0:42)

Thank you, David. I'm glad to be back.

David Beckworth (0:45)

It's great to have you on. Now today, we're going to cover a number of topics with you. We're going to catch up on the Fed's balance sheet. You're one of the earliest guests discussing this.

You've, in fact, introduced me to Bill Nelson, who's been on the show many times since then. But you're the reason I got on this topic. And some folks know I spent a lot of time discussing the Fed's balance sheet. And we'll talk about that, Kevin Warsh's task force on it and your thoughts on that area. Also, George, we're going to talk about Main Street Lending Facility that was used during the pandemic. One of the facilities the Fed set up, your assessment of it. You gave an assessment during the actual run of it. But now you've looked back and have some thoughts. We'll share that. And finally, George, I know you have some desire to address some fallacies and myths that really have you bothered, worked up. So we're going to give you a chance to do that as well. But before we do that, George, and get into all those great conversations, you had a book out titled Fall Ston, The New Deal and the Promise of Recovery 1933 through 1947 We did a previous podcast on it, but now it's been out for a while. It's been received. It's been discussed. Can you give us an update of where it stands?

George Selgin (1:55)

Well, the one thing I know is that my publishers, University of Chicago, they're happy.

They say the book is selling well. I actually don't have any statistics or anything like that, so I can't say how well. It was well-reviewed, though the reviews have kind of petered out recently. Though there is a recent one from the Journal of Economic Literature by Joshua Hausman. That was the latest. In general, I think the reception's been good from my perspective as well.

David Beckworth (2:32)

Well, I hope this book is widely read. I understand Ben Bernanke is working on a new book on the Great Depression as well.

David Wessel was on the podcast recently and he said Ben Bernanke is working on the role that borrowers played during the early stage of the Great Depression. So maybe he will reference your book and cite it. So Ben Bernanke, if you're listening, make sure to get a copy of George Selgin's book as well.

George Selgin (2:57)

Well, thank you. I will say that I think the borrowing aspect, of course, Bernanke some years ago wrote about the debt deflation angle of the Great Depression. I talk about that a lot in my book. I think the most successful New Deal recovery program was the one that involved the refinancing of residential mortgages. I put that very much on the plus side of the New Deal ledger as far as what it did that was healthy, as opposed to some programs that weren't.

David Beckworth (3:31)

All right. Well, let's move on to some more recent developments that have been happening. I mentioned at the top of the show, George, that you're the one that introduced me to these issues surrounding the Fed's balance sheet, operating system. You had a book.

Was it 2014? It was called Floored. Was that the publication date or sometime around?

George Selgin (3:50)

It's called Floored. It's called Floored with an exclamation mark, as in the economy getting floored. I don't know if it was 20 I think it was a couple of years later. I got to Cato in 2014 and wrote the book early on while I was there. But I think it was the first full length critical analysis of the ample reserve system.

So I do consider myself an early critic of that arrangement. Yeah.

David Beckworth (4:22)

You were the avant-garde leading the way.

As you step to the side in your semi-retirement, George, Bill Nelson and I, maybe Paul Tupiak at AEI, we all carried the torch. Now it's mainstream conversation. Right now, people are talking about it. Even champions and ample reserves are talking about how can we reduce the size of the balance sheet? Of course, the first way of doing that is to reduce the structural demand for reserves by banks. There's been a lot of conversations surrounding this. In particular, Chair Kevin Warsh has introduced these task force, one of them being a task force on the Fed's balance sheet. There are several things. He's going to look at the composition of its assets, also the size, as well as the operating system itself.