The Forgotten Math: Pre-WWII New Deal Saw Biggest Drop In Unemployment Rate in American History

by: David Sirota

Tue Jan 06, 2009 at 16:30


(Bump. - promoted by Daniel De Groot)

Cross-posted from the Campaign for America's Future

On Christmas Eve, I appeared on Fox News to discuss the upcoming economic recovery package, only to be told that FDR's New Deal "prolonged the Great Depression" (you can watch the clip here). This is the latest consevative talking point - one specifically aimed at stopping President Obama and the new Congress from passing a New Deal-sized package of public spending.

And so after appearing on Fox, I decided to devote my first newspaper column in the New Year to looking into whether conservatives have any shred of evidence to support their claim that the New Deal prolonged the Great Depression. And what do you know, they don't...at all. In fact, as government data shows, the pre-WWII New Deal era from 1933-1940 - even including the much-hyped recession of 1937-38 - saw the single biggest drop in the unemployment rate in American history (skip down to see the graphs and data that conservatives want us to forget).

David Sirota :: The Forgotten Math: Pre-WWII New Deal Saw Biggest Drop In Unemployment Rate in American History
In my column, I cite data about this, noting that the economy grew at stellar rates and that unemployment dropped. I also concede that the New Deal wasn't perfect. But the basic macroeconomic data about jobs and growth - the data points we use to judge every presidential economic agenda - confirms this positive record.

Since my column came out, I've received an overflow of angry email from conservatives citing Amity Shlaes since-discredited book "The Forgotten Man" as "proof" that the New Deal prolonged the Great Depression. But note - the operative phrase is "since-discredited." As University of California historian Eric Rauchway has noted, Shlaes both wholly omits some relevant data and deviously manipulates other numbers:

Shlaes makes a different argument about numbers, because she uses different numbers. She starts each chapter with a rat-a-tat of just-the-facts, but instead of GDP, which represents the overall economy, she quotes the Dow Jones Industrial Average, which represents the maybe 10 percent of Americans who owned stock...Let's look at a figure Shlaes gives twice in her book and again in her Wall Street Journal editorial: She has unemployment at 20 percent in the 1937-38 recession. That's appalling-almost as bad as 23 percent in 1932. Based on such a statistic, you could think the New Deal wasn't alleviating the Great Depression. But that number hides something: A third of the people Shlaes counts as unemployed had a job that the New Deal gave them through its relief programs.

By this measure, government jobs don't count as jobs, and therefore their estimates of unemployment are far higher. To understand how manipulative this is, imagine the howls of protest conservatives would be airing if, in criticizing George W. Bush, Democrats took today's unemployment data and then inflated it by counting the millions of people who work for federal, state and local governments as unemployed.

Shlaes is backed up by other conservatives, who are slightly more honest than her in acknowledging  unemployment may have decreased during the New Deal. But these right-wingers then inevitably claim that unemployment only decreased a little bit in the New Deal, and only significantly dropped when World War II and the subsequent defense buildup started.

So to end this historical revisionism once and for all - to compare apples to apples, rather than apples to conservatives' fuzzy math - let's go to the great equalizer, the Census Data, and specifically Census document HS-29 (available in PDF or Excel formats). Quoting directly from Census data, here are the unemployment rates and total number of official unemployed at the beginning and end of the presidential terms since the Great Depression:

ROOSEVELT PRE-WWII NEW DEAL
1932 Unemployment Rate: 23.6% (12.8 million total unemployed)
1940 Unemployment Rate: 14.6% (8.1 million total unemployed)
Unemployment Rate Change: -9.0
Total unemployment percentage change: -36.7%

ROOSEVELT WWII
1941 Unemployment Rate: 9.9% (5.5 million total unemployed)
1944 Unemployment Rate: 1.2% (670,000 total unemployed)
Unemployment Rate Change: -8.7
Total unemployment percentage change: -87.9%

TRUMAN
1945 Unemployment Rate: 1.9% (1.0 million total unemployed)
1952 Unemployment Rate: 3.0% (1.8 million total unemployed)
Unemployment Rate Change: +1.1
Total unemployment percentage change: +81.0%

EISENHOWER
1953 Unemployment Rate: 2.9% (1.8 million total unemployed)
1960 Unemployment Rate: 5.5% (3.8 million total unemployed)
Unemployment Rate Change: +2.6%
Total unemployment percentage change: +110.03%

KENNEDY
1961 Unemployment Rate: 6.7% (4.7 million total unemployed)
1963 Unemployment Rate: 5.7% (4.0 million total unemployed)
Unemployment Rate Change: -1.0%
Total unemployment percentage change: -13.6%

JOHNSON
1964 Unemployment Rate: 5.2% (3.7 million total unemployed)
1968 Unemployment Rate: 3.6% (2.8 million total unemployed)
Unemployment Rate Change: -1.6%
Total unemployment percentage change: -25.6%

NIXON
1969 Unemployment Rate: 3.5% (2.8 million total unemployed)
1974 Unemployment Rate: 5.6% (5.1 million total unemployed)
Unemployment Rate Change: +2.1%
Total unemployment percentage change: +82.0%

FORD
1975 Unemployment Rate: 8.5% (7.9 million total unemployed)
1976 Unemployment Rate: 7.7% (7.4 million total unemployed)
Unemployment Rate Change: -0.8%
Total unemployment percentage change: -6.6%

CARTER
1977 Unemployment Rate: 7.1% (6.9 million total unemployed)
1980 Unemployment Rate: 7.1% (7.6 million total unemployed)
Unemployment Rate Change: 0.0
Total unemployment percentage change: +9.24%

REAGAN
1981 Unemployment Rate: 7.6% (8.2 million total unemployed)
1988 Unemployment Rate: 5.5% (6.7 million total unemployed)
Unemployment Rate Change: -2.1%
Total unemployment percentage change: -19.0%

BUSH I
1989 Unemployment Rate: 5.3% (6.5 million total unemployed)
1992 Unemployment Rate: 7.5% (9.6 million total unemployed)
Unemployment Rate Change: +2.2
Total unemployment percentage change: +47.2%

CLINTON
1993 Unemployment Rate: 6.9% (8.9 million total unemployed)
2000 Unemployment Rate: 4.0% (5.6 million total unemployed)
Unemployment Rate Change -2.9
Total unemployment percentage change: -36.3%

As you can see, in terms of the unemployment rate - that is, the percentage of the total workforce not working - the pre-WWII New Deal era saw the single largest drop in American history. Yes, I'll say that again for conservatives, just to make sure they get it: The PRE-WWII New Deal era from 1933-1940 - not the WWII era - saw the largest drop in the unemployment rate in American history. And by the way, that even includes the recession of 1937-1938. You can see it right here in graphical format:

Now, it is certainly true that the percentage drop of total unemployed was bigger in WWII than it was in the pre-WWII New Deal era. But as the data show, even by that metric, the pre-WWII New Deal era saw the second largest percentage drop in total unemployed in the 20th century, going from 12.8 million unemployed in Roosevelt's first year in office to 8.1 million unemployed at the end of his second term in 1940. That's a 36.7 percent drop - larger than the Clinton era (36.3%) and, yes conservatives, larger than the Reagan era (a mere 19%). At the absolute minimum, that would suggests the New Deal was a positive - not negative - economic force (and empirically more positive than, say, Reagan's free-market agenda). Again, here it is in graphical format:

These are the hard and fast numbers conservatives would like us all to forget with their claim that history proves massive spending packages like the New Deal will supposedly harm our economy. Indeed, as the numbers show, we'll be very fortunate if Congress and President Obama delivers as robust an agenda as the New Deal delivered kind of job success that Roosevelt delivered in the pre-WWII New Deal era.  


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Interesting data (4.00 / 4)
I want to highlight something I think you are missing, and it gets to the core of the dishonesty that Shales et al are selling.  The table below contains the key economic numbers from 30-41.  I have highlighted 1938 - and it is a critical year to understand if you want to truly get to the central dishonesty of the conservative argument.

From 1933 to 1937 economic growth was pretty significant, and unemployment was reduced substantially as well.  As you correctly note, the official numbers overstate actual unemployment, but even in the official numbers it is clear real progress was made.  There is no way to look at these numbers and conclude the New Deal impeded economic recovery.

Now look at 1938.  First, note the deficit is near zero - a result of FDR's determination to balance the budget.  This was a disastrous decision and unemployment increased dramatically as a result.  The deterioration in 1938 was the result of FDR's abandonment of pump priming, and not a result of the New Deal's Failure.  Of course, this table also shows how Shales cherry picks the data.  If you choose any other year and the story of the New Deal becomes one of economic recovery.

I include the M2 data (which is a measure of money supply) because much of Friedman's work suggested that the cause of the Great Depression was the Fed's decision to contract the money supply.  In addition, some have attributed the growth in 1940 to the significant expansion in M2.  Both of these are respectable economic arguments, though I think the data clearly show that focusing on the expansion of aggregate demand  clearly worked in the mid-30's.  

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Right (0.00 / 0)
Money supply and aggregate demand both mattered.

Walking and chewing gum?  No one could have imagined....

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
interesting deficit numbers in 1932 (0.00 / 0)
Was that deficit in 1932 really Hoover's doing? Or was it congress forcing it on him? What form did that year's deficit take? Was it public works or tax cuts or what?

Also would be neat to see (I've seen this before somewhere else) the deficit during this time as a percentage of GDP (You have GDP in 1958 dollars here). Makes for good comparison at what level you actually start to see some increase in demand and employment as a function of government spending.


[ Parent ]
Excellent post, David. (4.00 / 1)
One of your best.

Shales is a fraud, but that never stops the right and walthy from using her.  


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