The nattering nabobs of Neanderthalism and other assorted know-nothings(1) have been inveighing against the New Deal in an attempt to discredit the premises of the stimulus package.Their main claims, based on ignorance, distortions and wilful disregard of economics and economic history, appear to be as follows:
- The New Deal didn't work anyway
- At least it didn't work till WW II gave the economy a bump around 1940
- Unemployment didn't go down by much till then either
Here are four easy to follow charts and relatively jargon-free exegesis that should help you nullify the niggling, nugatory negativism of the neocon naysayers.
Source: BEA(2)
Charts I presents indelibly the overall economy of the 1930s: the abyss into which the economy had fallen by 1932, thanks to I'm-not-the-vacuum-cleaner-guy Hoover (handicapped by a Stanford education, true). Real GDP declined by 25% in three years. ("Real" in economic jargon is used as an adjective to denote the elimination of the effects of inflation or deflation so that statistics are comparable over time.)
Under FDR's stewardship, the economy turned around almost immediately due to active Federal intervention and Real GDP grew at 7% per year compounded from 1933 through 1939.
Source: Census Bureau(3)
Per Capita Income Growth:
All the talk about growth in GDP or aggregate output (jargon, means the same thing) would be for nought if personal disposable income (i.e. after taxes) did not increase concomitantly.
Following a decline of 30% during the Hoover years, real per capita income in the US increased by 50% in the first seven years of the New Deal. By 1937 it had surpassed the highest it had been during the Hoover administration -- at its inauguration!
- By 1936, in just three years, GDP had surpassed the 1929 level where Hoover began his assault upon it.
- By 1937, per capita income, which had been also been Hoovered, surpassed 1929 levels.
- The economy continued to grow at this pace through 1939, despite a small hiccup in 1938 (when stimulus had been mistakenly reduced; but FDR was smart enough to recognize this and get back on course).
- WW II HAD NOTHING TO DO WITH ANY OF THIS. The recovery had been ongoing for six years when the war started in late 1939. ( GDP growth in the US accelerated to 11% per year during 1939-45(2), but only loonies living in undisclosed locations believe in wars as prescription for economic recovery.)
So what was that about the New Deal not working?
Source: Census Bureau(4), Darby(6)
"But Unemployment didn't really come down till the War":
This is the tack taken by Chief Minority Moron Mitch McConnell(1) (who memorably, in a Dan Quayle/GWB worthy line, said: "But one of the good things about reading history is you learn a good deal.")
Even the official Census Bureau series (solid blue line in Chart III above) shows unemployment falling from 25% to 15% by 1937, no mean feat, and to 10% by 1940.
Few would know that the only contemporaneous numbers in the series are the decennial ones i.e. 1930 and 1940 when the censuses occurred(4). The interpolating years are the result of brilliant econometric analyses done in the mid 1940s by Stanley Lebergott(5) at the Bureau of Labor Research. But it has a problem which has been known for some time: the series leaves out of the employment rolls an average of almost 2 million workers a year employed by the WPA during the peak years of the New Deal(6).
This was not by accident. Officials regarded these workers as the equivalent of welfare recipients(5), even though they could earn upto $1200 per year, almost twice the national per capita income at the time.
Michael Darby(6), another distinguished economist, was the first to correct the record in a 1976 article. His work is reproduced in Chart III above (purple line) to show the "adjusted" employment figures including WPA workers. In this view, unemployment fell rapidly from 25% to 10% and thence to 7% by the start of WW II. It should also be noted that the civilian labor force comprised "persons 14 years old and over"(4) in those days.
So, unemployment fell rapidly, with a concomitant increase in per capita income, from the very inception of the New Deal.
So what was that about the New Deal not working?
Source: OMB(7)
How this growth was achieved:
Gross Domestic Product, the aggregate measure of the size of a national economy, has just four terms.
GDP = Consumption + Investment + Government Spending + Trade
When consumers are beset by massive unemployment and investors, be they bankers or businesses, do not have the wherewithal or the stones to invest -- does the picture sound faintly familiar? -- there are not too many options left in terms of reenergizing the economic engine.
The New Dealers saw this and dealt with it immediately, as shown in Chart IV. From 1933 to 1939 Federal spending was doubled from $4.5 billion to $9.1 billion, in current or "then" dollars. And the economy responded by expanding almost 50% during that period in terms of Real GDP (more than 70% growth in current dollars).
So what was that about the New Deal not working?
WOOF
Next Post : Yeah, but the size of the debt will kill ya.
___________________________________________________
Notes:
(1)The usual suspects. Among them:
- Britt Hume on F*cks News:"Everybody agrees, I think, on both sides of the spectrum now, that the New Deal failed."
- Joined by Joe Scarborough and Mika Brzezinski on MSNBC.
- Amity Shlaes, an English major from Dartmouth, writing opinion pieces on macroeconomics for the Wash Post.
- And, of course, Mitch Moron McConnell: "But one of the good things about reading history is you learn a good deal. And, we know for sure that the big spending programs of the New Deal did not work. In 1940, unemployment was still 15%. And, it's widely agreed among economists, that what got us out of the doldrums that we were in during the Depression was the beginning of World War II."
(2) Bureau of Economic Analysis, US Department of Commerce National Economic Accounts: Current Dollar and "real" GDP
(3) U. S. Census Bureau: Selected Per Capita Income and Historical Income Tables
(4) U. S. Census Bureau: Historical Statistics of the United States, Colonial Times to 1970 (Bicentennial Edition) Part I D: Labor.
This is the Holy Bible. Many series are the original work of pioneers at the National Bureau of Economic Research(NBER) such as the late Simon Kuznets, professor at Penn and Harvard, one of 16 NBER researchers who later won the Nobel Prize for Economics. Stanley Lebergott is credited as the creator of the pre-1940 employment series.
(5) Stanley Lebergott, Manpower in Economic Growth: The American Record since 1800 (New York: McGraw-Hill, 1964) p.184-85.
Lebergott did the work cited while at the US Bureau of Labor Research. Kuznets was an advising consultant. Stanley Lebergott went on to a distinguished academic career as Professor of Economics at Wesleyan University (now Professor Emeritus) and is considered one of the deans of 20th century econometrics and economic history.
About the non-inclusion of the WPA workers, Lebergott wrote:
"These estimates for the years prior to 1940 are intended to measure the number of persons who are totally unemployed, having no work at all. For the 1930’s this concept, however, does include one large group of persons who had both work and income from work—those on emergency work. In the United States we are concerned with measuring lack of regular work and do not minimize the total by excluding persons with made work or emergency jobs."
(6) Michael R. Darby, "Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941,” Journal of Political Economy 84, no. 1 (February 1976): 1-16.
Michael Darby is Professor of Economics at UCLA. And just to prove that true scholars are not ideologues, Darby is no flaming liberal or particular fan of the New Deal. For one thing, he is a University of Chicago economist. For another, he worked as Undersecretary in the Treasury and Commerce departments of the Reagan and Bush Sr. administrations. But when it came to the numbers, he called it like he saw it.
(7) Office of Management and Budget : The Budget of the United States Government for Fiscal Year 2009 (Historical Tables)
- Table 1.1 Summary of Receipts, Outlays, p.21
- Table 1.2 Summary of Receipts, Outlays as % of GDP, p.24
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Comments
So where do I find a dog that can put together econometrics?
WOOF
nattering nabob Neanderthals
(a clever Nod to kNow it all do-Nothings Now going extinct)
Lies, Damn Lies & Statistics. You sure do turn that old saw on it's head.
The dog's in the house! rated
Paris, did you try the tag "Pornographs"? ;-)
WOOF
Good job Triple C
(rated)
Republicans, can't live with them and don't want to.
I don't mean to be a nabob (although I never wrote anything contrary to the New Deal, I suspect I might get lumped in) and I'm hoping you will also shed some sage and professional light upon my concerns about the FED, the banking system, the rule of fractional reserves, our digital money supply, and the proposed $2.5 billion morebailout of the banks who got themselves into such a deplorable mess while they were fleecing America with their unaccountable greed.
Go Sox.
And this does not even include the WPA workers of which my Dad was one, working in a forest camp where they got steak for breakfast.
This is brilliant.
(But you root for the wrong baseball team -- Go Yanks!)
HOWL!
Yo dyno, now you're talkin' 'bout some heavy liftin', bro. Colored charts are for free. But might have to activate my Tippem account for those next lessons. Don't worry: Debt 101 is next.
O'Steph: The non-inclusion of the WPA workers has been known for such a long time, and I believe it was a great disservice both to them and to the statistics. Did you write a post about your dad? I know Chicago Guy, Wayne and some others have had posts about the WPA.
Michael: Yan... nah, can't even get the word out. Ah, Yandroids!
Thanks, jimmy. But nattering Neanderthals can't read -- ever see any writing on those cave drawings? But maybe they'll learn from the pretty colored graphs.
WOOF
The Repugnants have a serious credibility problem on every score, but most obviously by virtue of the fact that they kited checks for trillions over the last eight years and only managed to put the economy in a tailspin from which it may not recover in spite of the stimulus.
That they did so at the behest of NeanderCons pursuing Pax Americana that has left us less safe and bankrupt only adds to their ignominy. Two to three trillion dollars was spent taking out Saddam Hussein, a task that could have been accomplished for less than a million in Black Ops money. None of that money went for infrastructure in either country, or at least the net effect in Iraq was far less infrastructure.
The R's can wail and gnash their teeth all they want, but the public will decide whether the bailout/stimulus money was worth the investment -- the public that is alive 50 yrs from now and paying the bills for it. It remains to be seen if the Republican Party will still be existence then, or whether it will have gone the way of all the other dinosaurs. Drill, baby, drill.
Also, you have to make a choice, don't you? Either they are abysmally stupid or chronic liars. Or, well, I guess you could say that they were both.
Tom, it is not too far beyond the realm of possibility that the Neanderthals living in undisclosed locations do start wars as means of economic recovery, if not to further energy policy.
Stellaa, and then, of course, there's Milton Friedman who famously advocated the Fed could just have printed money to fight off the Great Depression (Helicopter Ben was riffing on Milt with his helicopter quote). Bernanke famously replied: "Yes, Milt. We could have. And thanks to you we'll never do it again."
dyno, get those shekels shakin' for my Tippem jar. ;-)
Thanks, Susanne. Luckily I'm up too late at night to actually watch them in the AM.
Steve, you did a masterful job on the loony libertarians at Cato. I just thought I'd throw the rest of the nuts into the pot.
WOOF
Odette: Stalk me. Stalk me. And sorry about the quotation marks, but the comment editor gives you few other "options" , y'know. :-)
WOOF
Stacey, you too, eh? I was actually going to send this to my in-laws (who live in the reddest of red states) but I think they have me on retaliatory Spam Block, after I blocked their stupid scurrilous chain letter e-mails before the elections.
Catman: Barkley would make top drawer econometrician of the Perihelionite school. They deal with, nay create, uncertaities that make the most stalwart Quantumites (catamites viewed from the rear) quake.
And dydd da and diolch yn fawr iawn to you, Cymraeg.
WOOF
WOOF
Thank you for that whole facts thing. Wish the right wing pundits would try it some time.
Honestly, no offense to my favorite drug lord, but methinks your talents are wasted (heh heh) growing the wacky weed. Shit! You should be out saving the world with your PhD brain. Pastel charts an' all.
My favorite line besides the one already mentioned:
"jargon-free exegesis that should help you nullify the niggling, nugatory negativism of the neocon naysayers."
Paws up, Big Dawg! NDwoof! (New Deal Woof).
We need hosts to challenge them. When someone gets on a panel and says something like that, someone needs to interrupt the liar spreading his nonsense and say either you don't know what you're talking about or you're lying, because the numbers say otherwise. Yes, I'm calling you a liar, and I've got the facts to back it up.
Give them all the McCarthy treatment. Show that they're full of crap and humiliate them.
When we are done with these lying sacks of dung, I want their wives to divorce them because they can't trust them. I want their mothers to tell them stop lying when they say the sky is blue. I want them to wish they were dead.
Great post, despite my initial brain fog . . .
Why don't you pick on my home state of Alabama; give Kentucky a rest.
As to the facts of the matter of Depression and its relationship to the current situation in terms of the stimulus, the picture is more complex than anyone is talking about, which is not helpful now. No one is getting it right, because they are ignoring the Baby Boomer retirement problem which did not exist in 1933, and they are ignoring the fact that the role of the United States in the world is very different now than then, which must be incorporated in the proper analysis of the case in order to act optimally now.
The economy did not self-correct in the sense of Walras ever, until after the war, in the sense that private sector employment absorbed sufficient labor to avoid having to have work programs like the WPA, which I would have actually replicated now, or work programs like the draft, although the latter work program is certainly a risky one.
That is the real economic mystery; why so long to self-correct, or even correct with lots of fiscal and monetary stimulus under Roosevelt, and even Hoover in a comparative sense.
Unemployment remained well over the natural rate after 1937 even with your adjustments to the WPA, that actually prove the point as to their being a structural mystery at work in this era that is outside the framework of Keynesian views or Classical views, and in which the confidence intervals one would place on data from that time period are always dicey to put it mildly when dealing with indicators like that over time, and that recession in 1937 was by the monetary evidence for sure a deep decline in output.
So the real question of "Did the New Deal Work?," is, like most things in life, sort of, in the sense that we avoided the fate of the Germans, which means the Left and Right as usual insist on overarguing their case, but it remains the definitive fact that the lift-off to the natural rate unemployment in terms of the private sector is clearly the fiscal stimulus of preparing for war, which is in the graphs.
You can see it after the recession of 1937, and war has the advantage, if you will, that if you win, and fight on someone else's territory, which is what happened then, then your competitors are deleted.
This latter fact with respect to Western Europe and Japan is important to remember now, because it was unnatural after the war that the United States was so pre-eminent, which has become the main source of the problem currently: some people remember still.
One can be a "Conservative" and not be a moron from Kentucky. This is not helpful now, although I suppose inevitable in the age of Borking and Michael Moore and Rush and Coulter and increasing hostility in political discourse. Grow up Left and Right Boomers, a Pox on both your houses from Gen X that will as usual have to pick up the detritus, like you broken marriages and associated crazy personal B.S. I digress.
One final point. There were no entitlements in 1937 that mattered fiscally, and more importantly, this event was not preceeded by anything like the Greenspan Put which grossly overinflated global asset prices in a fashion that is vital, vital to understand now. This is not a question of Right and Left. Grow up Boomers, before you kill us all. I suppose you can take psychiatric medicines to cope with having finished off the country.
The U.S. dollar has been a reserve currency of choice for the last sixty years. Like Soros, and he is not a Republican moron-to be sure, has argued, this was unsustainable. The key going forward is how to preserve as much of that system as we can that kept the Long Peace without having a run on the dollar and/or a Great Power War, and see Putin in Davos for the hint of that.
What we need is a new monetary order to bring in Russia before it is too late, and a much more targeted type of stimulus, with a labor program to employ what is otherwise going to become cannon fodder surplus labor. I would strongly suggest outer space.
Why? Because first, if we don't leave this planet, our demonstrable inability to get along together is going to kill most of us some day.
Second, there exist ideas not in NASA that would generate technical advance. Technical advance in Keynesian models is the keyto long-run growth. Otherwise, you are moving money from one person to another, which is fine I guess, but you are not likely to return either to full employment or a continued upward trajectory of higher living standards. We are running out of time for these stupid Boomer Gingrich/Moore arguments. The real favor to be done to the economy, would be hack the Entitlements in the process, before they squash the young as well. Well, not hack. And there was an error or two in spelling that I saw but the functionality of the posting device would not allow me to correct. But rated. Nice graphs. But what they show is the New Deal sort of worked, not that it definitively worked, and what the Right will not acknowledge is the the capitalist system can generate terrifying events. So of course, can Socialism: see Germans and Russia respectively their national or communist versions of the full blown thing. But rated. Nice graphs. But the federal government is insolvent in an inter-temporal sense, and that matters too, because the long-run liabilities of the federal government are about to become short run problems. Very soon. And to the readers who speak to econometrics: why did the FRB/U.S.Global miss this? That should be cause for very, very grave concern as to the confidence one would place on their estimate of the consequences going forward. Nice dog: looks like a boxer I met once whose owner was a Sox fan too. Surely not? Et tu brutus?
You're right, DogWoman. As my hero, that great Republican savant J. Danforth Quayle said: " What a waste it is to lose one's mind. Or not to have a mind is being very wasteful. How true that is." But hey, this is the only "green" business I know that pays for the Kibbles 'n Bits ;-).
Give 'em Hell, Tony!
Liz, that's outstanding! Even in you brain fog you picked up a hitherto-unknown-to-man anagram: "Neanderthals" and "A Netherlands" :-). I'd hate to play you at Scrabble.
WOOF
Great post!
You reminded me of something I saw earlier on HuffPost, by Paul Abrams, a fellow with his own alphabet soup, and I thought you might want to check it out, because he also explains that small dip in the middle of the recovery.
I haven't seen the article you mention, but that "dip in the charts" or the "Roosevelt recession" was obvious to most of the New Dealers, they knew the policy mistakes and political pressures that caused it (including FDR's lingering doubts about Keynesian solutions), moved quickly to reverse their field and the economy was back on course. Kenneth Roose, then a professor at Oberlin, did the seminal work on it in the late 40s and 50s! So, academics have known this stuff for ages, why the neocons are trotting this stuff out now beats me :-).
spuds, from your great post on Idaho, you might need a lot of ammo :-). Go get 'em.
WOOF
Kenneth D. Roose "The economics of recession and revival: An interpretation of 1937-38 " (Yale studies in economics) Yale University Press (1954)
WOOF
Let's start with the genius (I assume, since s/he was a Sox fan) who owned the Boxer. Hmm, I see you have repented your excursion to Derridaland and are back on the correct coast, but the Main Line is a bit too rich for my blood ;-).
"The economy did not self-correct in the sense of Walras ever." But isn't that precisely the point? We needed Keynes because Walras fails in the face of a classic liquidity trap which we had then and clearly we have now (whither the TARP billions?), thus Keynes again and may the stake be driven forever (figuratively of course, I'm a pacifist) through monetarist hearts.
"Unemployment remained well over the natural rate after 1937 ." The data is not conclusive IMO (with the 37-38 recession obviously affecting the series). And the term "natural rate" itself is open to argument. Lebergott himself rejects the term and says by 1939 (the year is important, because no work I know of claims there was a provable "build up for war" by then) the US was at "normal employment" or "par for the course". One must remember that the interpolating data was derived analytically, sometimes two or three removes from primary sources, and also the "persons 14 years and over" makes it difficult to compare apples to apples. I suppose one could go back to the census and re-massage the data by attempting to excise 14 and 15 year olds, but it seems like a rather jejune exercise.
I lost you after "One can be a Conservative and not be a moron from Kentucky" in your discursive digression into Boomerology and then picked up the thread again at "Nice Graphs." Thank you.
WOOF
I am a big fan of color-coding in my projects so I am fine with the pastel-background charts :-)
I am the child of New Dealer parents. I grew up knowing what the alphabet soup of acronyms stood for and eventually could name most of FDR's cabinet. You are damn right it worked--but the bastard sons of the bastards who opposed the New Deal continue their efforts to undo it all on purely ideological grounds. They don't give a damn about their fellow citizens and most of them would be wealthy either way, so it isn't motivated solely by greed. No, they are blind ideologues, like fascists or racists who commit themselves to an (abhorrent) idea without regard for the evil it creates.
Yes, they piss me off. Could you tell?
Woof.
(1) Getting rid of the dollar as the lone international currency -- in favor of what? The Euro? The British won't do that even for the Common Market. Gold nuggets? McNuggets?
(2) Screwing all of us greedy bastard boomers about to live lavishly on the thousand or so a month Social Security provides us after 50 years of paying into the system?
Consider this: the $3 trillion we blew in Iraq, which will likely be more than $5 -$6 trillion before we tally up the long-term cost for caring for Iraq War veterans -- unless we desert them like Don wants to desert the vile "boomers" -- would have gone a long way to pay this country's obligations to those boomers who worked tirelessly to pay off debts from WWII and Viet Nam and worked their whole lives to make this a country that could provide economic opportunity and a modicum of social welfare for people like Don. Yeah, I know, Don, you've never taken a nickel from the govt for anything. Think again.
I'll agree with Don about one thing, Kentucky has no monopoly on ignorance. Alabama is right up there, too, Don. Wonder why?
Kentucky ranks 49th in per capita spending on elementary and secondary education, while Alabama "soars" to 39th. But take heart, my state, Tennessee is dead last in spending and first in ignorance, at least judging by the fact that it is also the state with the lowest percentage of college graduates.
I take it Don, that like Greenspan, you have been worshiping at the shrine of Ayn Rand, or at least studying with that mediocre college economics prof Phil Gramm. The only good thing to come out of this tragedy is that the idiocy of "supply-side" "no-tax" "free-market" economics has been drowned in Grover Norquist's bathtub, while Grover himself has been hauled off to the loonie bin where he belonged babbling all the way about communists.
I will grant one part of Don's argument -- if it is indeed true, and I believe it is, that the "free-market" financial wizards have managed to stack up $60 trillion in liabilities against $12 trillion in assets (now depreciating assets thanks to these wizards), our problems will not even begin to be over until somebody takes a $48 trillion dollar bath. Just imagine the bonuses the Wall Street wizards will want to pay themselves with bailout money for "accomplishing" that!!
Susan, precisely. It is purely ideological and an ideology based on enforcing "my property rights" is pretty close to fascism: protect and promote the already "strong," exploit or screw the "weak" and marginalized.
Smithbarney: My take on it is that is that they have the sound bites and prey on easily aroused fears. To counteract this through reasoned intellectual argument (especially to a people already conditioned against "eggheads") is a difficult task. But we must beat on....
Thank you, merwoman, but there's a lot of evil yet to be undone. GOBAMA.
WOOF
Now for those who don't know old Irv, he was a fine mathematical economist, a pioneer in econometrics and indexing, who began to go gaga when he ranged further afield, like delving into monetarist theories. (Yale has much to answer for.) He famously proclaimed in October 1929 that stocks were fairly valued, and to his credit, proceeded to lose everything in the market, including his reputation which never really recovered. So he then went into eugenics, vegetarianism, teetotalitarianism... in fact his health and hygiene books are more worthy of reading than his loony monetary theories.
And btw, I wouldn't buy into the sky-is-falling milleniarist type stuff on the $60 trillion liabilities yet, at least till you read one of my future posts. It is a bogus number. The current situation is bad enough as it is, without these meatheads making it worse with falsehoods that get in the way of rational attempts to help people needing jobs, homes, even food -- much of America today.
WOOF