The Krugman Recipe for Depression?
I think both sides are wrong. Debt should be a tool to drive wealth. As long as national debt is increasing jobs, wages and savings rates, then it is positive, otherwise it will catch up with you. That is why financing tax cuts or spending without creating enough revenue to drive down the debt is fools gold.
WSJ-Massive government spending is no solution to unemployment.
Paul Krugman of the New York Times has been on the attack lately in regard to the New Deal. His new book “The Return of Depression Economics,” emphasizes the importance of New Deal-style spending. He has said the trouble with the New Deal was that it didn’t spend enough.
He’s also arguing that some writers and economists have been misrepresenting the 1930s to make the effect of FDR’s overall policy look worse than it was. I’m interested in part because Mr. Krugman has mentioned me by name. He recently said that I am the one “whose misleading statistics have been widely disseminated on the right.”
Mr. Krugman is a new Nobel Laureate, teaches at Princeton University and writes a column for a nationally prominent newspaper. So what he says is believed to be objective by many people, even when it isn’t. But the larger reason we should care about the 1930s employment record is that the cure Roosevelt offered, the New Deal, is on everyone else’s mind as well. In a recent “60 Minutes” interview, President-elect Barack Obama said, “keep in mind that 1932, 1933, the unemployment rate was 25%, inching up to 30%.”
The New Deal is Mr. 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.
This reality shows most clearly in the data — everyone’s data. 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% 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. Mr. Lebergott went on to become one of America’s premier economic historians at Wesleyan University. His data are what I cite. So do others, including our president-elect in the “60 Minutes” interview.
Later, Lee Ohanian of UCLA studied New Deal unemployment by the number of hours worked. His picture was similar to Mr. Lebergott’s. Even late in 1939, total hours worked by the adult population was down by a fifth from the 1929 level. To be sure, Michael Darby of UCLA 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% (1934) but never gets below 9%. Nine percent or above is hardly a jobless target to which the Obama administration would aspire.
What kept the picture so dark so long? Deflation for one, but also the notion that government could engineer economic recovery by favoring the public sector at the expense of the private sector. New Dealers raised taxes again and again to fund spending. The New Dealers also insisted on higher wages when businesses could ill afford them. Roosevelt, for example, signed into law first his National Recovery Administration, whose codes forced businesses to pay an above-market minimum wage, and then the Wagner Act, which gave union workers more power.
As a result of such policy, pay for workers in the later 1930s was well above trend. Mr. Ohanian’s research documents this. High wages hurt corporate profits and therefore hiring. The unemployed stayed unemployed. “If you had a job you were all right” — the phrase we all heard as children about the Depression — really does capture the period.
Why does all this matter today? Because lawmakers are considering new labor legislation containing “card check,” which would strengthen organized labor and so its wage demands. Because employees continue to pressure firms to spend on health care, without considering they may be making the company unable to hire an unemployed friend. Piling on public-sector jobs or raising wages may take away jobs in the private sector, directly or indirectly.
What the new administration decides about marginal tax rates also matters. Mr. Obama said in a Thanksgiving talk that he wanted to “create or save 2.5 million new jobs.” People who talk about saving new jobs are usually talking about the private-sector’s capacity to generate jobs in the future — not about the public sector alone. We know that the new administration is going to spend. But how? It can try to figure out a way to do that without hurting the private sector. Or it can just spend, Krugman-wise, and risk repeating the very depression we seek to avoid.
Ms. Shlaes is senior fellow at the Council on Foreign Relations and the author of “The Forgotten Man: A New History of the Great Depression” (HarperPerennial, 2008).
FYI
Same Old New Deal?
by George Will
Early in what became the Great Depression, John Maynard Keynes was asked if anything similar had ever happened. “Yes,” he replied, “it was called the Dark Ages and it lasted 400 years.” It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.
The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America’s biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending — President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt — unemployment was 17.2 percent.
http://townhall.com/columnists/GeorgeWill/2008/11/30/same_old_new_deal
This sums up your intrusive government approach pretty well John — “New Dealers raised taxes again and again to fund spending. The New Dealers also insisted on higher wages when businesses could ill afford them. Roosevelt, for example, signed into law first his National Recovery Administration, whose codes forced businesses to pay an above-market minimum wage, and then the Wagner Act, which gave union workers more power.”
UNION YES right John?
How does this help Americans if he has an open border policy? The Council on Foreign Relations is pro-business/anti-Union, but they view “countries” as detrimental to “free” trade. So what you’ll get is illegal aliens building dams to accommodate “shareholder value” and “increasing demand” from a “growing population”.
Illegal Immigration: A Rich American’s Game
This is one of the best articles I have ever read about explaining the core issue behind illegal immigration and trade. Congress has formed an unholy alliance with the lobbyist money changers in Washington to sell out small business and the middle class.
By Froma Harrop
RCP-There’s a popular game in America that goes, I’ll cut your wages, but you don’t cut mine. And the outsourcing of your factory job to China is a good thing, because it makes my paycheck go further at Wal-Mart. We hear this theme a lot in the debate over illegal immigration.
Consider the recent raids on Swift meat-processing plants. Federal agents arrested 1,187 illegal immigrants at facilities in six states. Mere hours later, economists warned that depriving the industry of illegal labor could raise hamburger prices.
http://controlcongress.com/uncategorized/illegal-immigration-a-rich-americans-game
…..The U.S. Chamber of Commerce likes to wail about the “labor shortage.” It says there aren’t enough chambermaids, dishwashers, etc. to work for its members at lousy wages. Odd, but when there’s a shortage of labor — or anything else — doesn’t the price of it go up? The price of unskilled labor in the United States hasn’t gone up. It’s gone down. Because of immigration, American-born high-school dropouts experienced a 5-percent loss in wages during the ’80s and ’90s, according to a study by Harvard economist George Borjas.
For some reason, the job of keeping prices low has fallen entirely on the shoulders of the most vulnerable Americans. If we banged down CEO compensation and sliced lawyers’ pay by a third, the same thing would happen. Everyone’s prices would drop. The corporation could sell its products for less, and the cost of legal services would fall.
No vocation keeps a tighter lid on immigration than the medical profession. “If we let in 100,000 immigrant doctors,” Richard Freeman, another Harvard economist, recently told a group of journalists, “everyone in this room would benefit.” Except the American doctors.
Suggest a U.S. labor policy that depresses professional pay as a means of keeping prices in check, and you get laughed out of the room. But say that sitting on the wages of unskilled factory workers stems inflationary pressure — a frequently made argument — and the PhDs quietly nod in agreement.
And that’s how the game is played. High pay for me. Low pay for you. The folks at the economic bottom are obviously not making the rules….
Union Yes…right John?
Simple formula to bankrupt America — more unions, less trade, higher taxes and increased government control of the general economy. That’s the agenda of John Konop.
Bart
Less than 2 dollar an hour wages with limited rights is the problem. As far as unions, associations….they all think they are looking out for the best interest of the membership. The issue is do our lawmakers weigh the lobbying dollars vs, the best interest of all.
John,
You want more unions. You oppose global trade deals. You support higher taxes. You repeatedly call for more government. That sums up the problem John and represents the agenda of those who led America into the Great Depression.
Bart
Did you read and or understand my comment?
Yes and yes, thus my reply.
When did I say I was against trade? Do you think anyone against a poorly negotiated trade deal is against trade? The art of any deal is the ability to walk away! Horse trading 101!
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