When Government Helped by Collins Sheila Goldberg Gertrude

Author:Collins, Sheila, Goldberg, Gertrude
Language: eng
Format: mobi, epub
Publisher: Oxford University Press, USA
Published: 2014-01-30T05:00:00+00:00

Figure 6.1 U.S. Unemployment Rate from 1933–1947.

If, instead of funding programs like the CWA and WPA, the Roosevelt Administration had used the same amount of stimulus money to pay for other types of government benefits (such as unemployment insurance), the private sector probably would have recovered at the same pace shown by the top line in Figure 6. 1; but it would have sacrificed the additional, direct job-creation effect shown by the difference between the top and the bottom lines in the figure.

The third thing Figure 6. 1 shows is that Keynesian critics of the New Deal are correct in noting that the Roosevelt Administration could have achieved a full recovery from the Great Depression far more quickly if it had engaged in more deficit spending during the 1930s. What the figure also shows, however, is that the best way to have spent that money would have been to implement the employment assurance proposal contained in the CES report.

If, in 1936, the WPA had been expanded to provide 4.7 million jobs instead of the 3.3 million actually provided, the economy’s unemployment rate could have been reduced to the full employment level of 2 percent in 1937, rather than waiting for wartime spending (and the draft) to do it in 1943. If they had also spent enough to increase the WPA work week to a standard 40 hours for full-time workers, and increased program wages to market levels, those jobs would have been fully comparable to their private-sector counterparts. The additional spending required to achieve that goal probably would have doubled the New Deal’s direct job-creation budget—from $2.6 billion (2.2 percent of GDP) to $5.2 billion (4.4 percent of GDP, or the equivalent of about $690 billion in 2012). The fiscal stimulus provided by that additional spending would have caused private sector unemployment to decline more rapidly as well; and if the mistaken 1937 attempt to balance the federal budget had been avoided, the private sector probably would have fully recovered by 1939 instead of 1943—and possibly with lower overall levels of spending on direct job-creation than were actually incurred during that period.

Why would this strategy have been superior to the standard Keynesian strategy—i.e., spending stimulus dollars on budget items other than the WPA? Both strategies would have achieved full recovery from the Great Depression at about the same rate. The difference is that the standard Keynesian strategy would have forced unemployed workers and their families to wait for that recovery in order to get their lives back on track, while the direct job-creation strategy would have given them the benefits of full employment immediately rather than years later.

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