THE RECIPE FOR DEPRESSION

December 2, 2008

The New Deal is president-elect Obama's context for the giant infrastructure plan his new team is developing.  If he proposes FDR-style recovery programs, then it is useful to establish whether those original programs actually brought recovery.  The answer is, they didn't.  New Deal spending provided jobs but did not get the country back to where it was before, says Amity Shlaes, a senior fellow with the Council on Foreign Relations and the author of "The Forgotten Man: A New History of the Great Depression" (HarperPerennial, 2008).

During the Depression the federal government did not survey unemployment routinely as it does today. But a young economist named Stanley Lebergott helped the Bureau of Labor Statistics in Washington compile systematic unemployment data for that key period.  He counted up what he called "regular work" such as a job as a school teacher or a job in the private sector.  He intentionally did not include temporary jobs in emergency programs -- because to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects.

The result is what we today call the Lebergott/Bureau of Labor Statistics series:

  • They show one man in four was unemployed when Roosevelt took office.
  • They show joblessness overall always above the 14 percent line from 1931 to 1940.
  • Six years into the New Deal and its programs to create jobs or help organized labor, two in 10 men were unemployed.

Later, Lee Ohanian of the University of California, Los Angeles, studied New Deal unemployment by the number of hours worked.  His picture was similar to Lebergott's:

  • Even late in 1939, total hours worked by the adult population was down by a fifth from the 1929 level.
  • Michael Darby, also of the University of California, Los Angeles, has argued that make-work jobs should be counted; even so, his chart shows that from 1931 to 1940, New Deal joblessness ranges as high as 16 percent (1934) but never gets below 9 percent.

Nine percent or above is hardly a jobless target to which the Obama administration would aspire, says Shlaes.

Source: Amity Shlaes, "The Krugman Recipe for Depression; Massive government spending is no solution to unemployment," New York Times, November 29, 2008.

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