- Jan 8, 2011
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Like so much of what is taught in government schools, the truth about Great Depression won’t be found there. This spells it out rather succinctly.
Failure of the New Deal
At the outset of the Great Depression, 1929, the unemployment rate in America was 2.9% according to U.S. Dept. of Commerce statistics. Unemployment reached its peak in 1933 at 24.9%. There was a bit of a recovery as mal-investments were liquidated, but it only dropped the unemployment rate to 14.3% by 1939. It rose to 19.0% in 1938 and was still 14.6% in 1940, on the eve of American entry into World War II. Personal consumption expenditures were still lower in 1940 ($71.9 billion) than in 1929 ($78.9 billion). All of this despite eight years of unprecedented New Deal “stimulus spending,” regulating, controlling, subsidizing, lending, inflating, price-controlling, and taxing. The New Deal was an utter failure to the American people. Economists Richard Vedder and Lowell Gallaway estimated in their book, Out of Work, that the unemployment rate was eight percentage points higher in 1940 than it otherwise would have been without New Deal minimum-wage and pro-union legislation alone.
Nor did World War II end the Great Depression. It ended high unemployment only because some 16 million men were sent overseas during the war. Sending a man to die in a foxhole in Germany is not the same as that man going to work in his own country and returning home to have dinner with his family every evening, contrary to Keynesian folklore about how the war supposedly “ended the Great Depression.” The average American family back at home was even worse off because of the massive diversion of resources from the consumer and business side of the economy to the government’s military infrastructure. The production of new automobiles and other products was made illegal, food was rationed, and everyone sacrificed even more.
The Great Depression did not really end until after the war was over and the army was demobilized, returning billions of dollars of resources to the private sector. Federal government expenditures fell from $98.4 billion in 1945 to $33 billion in 1948. As a result, the year 1946 was the most prosperous year in all of American history in terms of the growth of the private components of GDP: private consumption and investment spending increased by 30% in that one year; no other year has ever been remotely close to that growth rate. Keynesian economists predicted another Great Depression because of the two-thirds reduction in federal spending while the exact opposite happened. That should have discredited Keynesianism forever, but the Washington establishment just ignored or lied about this fact, as it does to this very day.
It took some seventy years, but the “mainstream” of the economics profession finally caught on to this truth, a truth that was recognized by Austrian School economists all along. In an August 2004 article in the prestigious Journal of Political Economy by Harold Cole and Lee Ohanian entitled “New Deal Policies and the Persistence of the Great Depression” the authors concluded that “New Deal . . . policies did not lift the economy out of the Depression . . . the abandonment of these policies coincided with the strong economic recovery of the 1940s” (emphasis added).
Nevertheless, the New Deal was a political power bonanza for FDR and his fellow Democrats. According to a 1938 Official Report of the U.S. Senate Committee on Campaign Expenditures it was routine for the Roosevelt administration to demand that recipients of government make-work jobs, of which there were millions, register and vote as Democrats. As Jim Couch and William Shughart wrote in The Political Economy of the New Deal, “The distribution of the billions of dollars appropriated by Congress to prime the economic pump was guided less by considerations of economic need than by the forces of ordinary politics.” For example, the nation’s number one economic problem was the South, but since the South was solidly Democratic it received relatively little New Deal spending compared to other regions where FDR needed the votes. And, “The states that gave Franklin Roosevelt larger percentages of the popular vote in 1932 were rewarded with significantly more federal aid than less-supportive constituencies.” What else would anyone expect?
Green Socialism - LewRockwell LewRockwell.com
Failure of the New Deal
At the outset of the Great Depression, 1929, the unemployment rate in America was 2.9% according to U.S. Dept. of Commerce statistics. Unemployment reached its peak in 1933 at 24.9%. There was a bit of a recovery as mal-investments were liquidated, but it only dropped the unemployment rate to 14.3% by 1939. It rose to 19.0% in 1938 and was still 14.6% in 1940, on the eve of American entry into World War II. Personal consumption expenditures were still lower in 1940 ($71.9 billion) than in 1929 ($78.9 billion). All of this despite eight years of unprecedented New Deal “stimulus spending,” regulating, controlling, subsidizing, lending, inflating, price-controlling, and taxing. The New Deal was an utter failure to the American people. Economists Richard Vedder and Lowell Gallaway estimated in their book, Out of Work, that the unemployment rate was eight percentage points higher in 1940 than it otherwise would have been without New Deal minimum-wage and pro-union legislation alone.
Nor did World War II end the Great Depression. It ended high unemployment only because some 16 million men were sent overseas during the war. Sending a man to die in a foxhole in Germany is not the same as that man going to work in his own country and returning home to have dinner with his family every evening, contrary to Keynesian folklore about how the war supposedly “ended the Great Depression.” The average American family back at home was even worse off because of the massive diversion of resources from the consumer and business side of the economy to the government’s military infrastructure. The production of new automobiles and other products was made illegal, food was rationed, and everyone sacrificed even more.
The Great Depression did not really end until after the war was over and the army was demobilized, returning billions of dollars of resources to the private sector. Federal government expenditures fell from $98.4 billion in 1945 to $33 billion in 1948. As a result, the year 1946 was the most prosperous year in all of American history in terms of the growth of the private components of GDP: private consumption and investment spending increased by 30% in that one year; no other year has ever been remotely close to that growth rate. Keynesian economists predicted another Great Depression because of the two-thirds reduction in federal spending while the exact opposite happened. That should have discredited Keynesianism forever, but the Washington establishment just ignored or lied about this fact, as it does to this very day.
It took some seventy years, but the “mainstream” of the economics profession finally caught on to this truth, a truth that was recognized by Austrian School economists all along. In an August 2004 article in the prestigious Journal of Political Economy by Harold Cole and Lee Ohanian entitled “New Deal Policies and the Persistence of the Great Depression” the authors concluded that “New Deal . . . policies did not lift the economy out of the Depression . . . the abandonment of these policies coincided with the strong economic recovery of the 1940s” (emphasis added).
Nevertheless, the New Deal was a political power bonanza for FDR and his fellow Democrats. According to a 1938 Official Report of the U.S. Senate Committee on Campaign Expenditures it was routine for the Roosevelt administration to demand that recipients of government make-work jobs, of which there were millions, register and vote as Democrats. As Jim Couch and William Shughart wrote in The Political Economy of the New Deal, “The distribution of the billions of dollars appropriated by Congress to prime the economic pump was guided less by considerations of economic need than by the forces of ordinary politics.” For example, the nation’s number one economic problem was the South, but since the South was solidly Democratic it received relatively little New Deal spending compared to other regions where FDR needed the votes. And, “The states that gave Franklin Roosevelt larger percentages of the popular vote in 1932 were rewarded with significantly more federal aid than less-supportive constituencies.” What else would anyone expect?
Green Socialism - LewRockwell LewRockwell.com
