If you open a newspaper in Chicago these days, you see city floating one crackpot scheme after another to raise cash. One day its ticketing half a million dog owners at $100 or $200 a pop – over 95% of Chicago dogs are unlicensed. The next day it’s a plan to put in automated cameras that lead to speeding tickets over half the city. The next day it’s about fining those who don’t shovel their driveways. The next it’s about making bicycle riders in the city pay a registration fee. And on and on and on.
With the economy in the crapper and incoming tax revenues at an all-time low as a result, local governments across the country, are trying all sorts of strange and dubious plans to make ends meet. In Chicago, things are doubly bad, in that tax revenues were already plummeting due to the loss of convention business to competition from other cities over the last decade.
Chicago appears to be headed down a very stupid path in an effort to raise revenues: ticketing and fining everything under the sun. These kinds of efforts are dishonest, cowardly, inefficient, intrusive, ineffective and cruel, and should be rejected in favor of straightforward spending cuts and/or tax increases (running a deficit is also an option, though a harder one than for the federal government, which pays much lower interest rates).
Let me explain:
1) Dishonest. In each case some sort of public good is asserted – preventing rabies, preventing car accidents in school zones, making sure driveways are plowed – when anyone who’s paying the slightest bit of attention sees these efforts for what they are – a cash grab. In fact, some indiscrete officials have said these areas are great potential revenue sources, while the official line is about the public good. This kind of dishonesty breeds cynicism about and alienation from our government.
2) Cowardly. Refusing to talk about the real issue, making ends meet, or a possible tax raise, is cowardice – it’s a divide and conquer strategy – pass fees/fines to people who “deserve it” in a way that it’s not as unpopular as a straight up tax increase.
3) Inefficient. This is probably the biggest reason to reject these schemes. The amount of time and money it takes to ticket people, collect the money, prosecute those who don’t pay, etc., means that we’re wasting money in a situation where resources are scarce. A straight up tax will cost us less.
4) Intrusive. A ticket or fine is much more of an intrusive pain in the ass than an automatic tax.
5) Ineffective over the long haul. This another big reason to reject these schemes. They are one-time cash grabs that put government in the same fix the following year, since people wise up and get their dogs licensed or don’t speed in camera areas or whatever, and the revenue dries up.
6) Cruel. These kinds of efforts are in effect, an extremely regressive tax that hits those struggling with the economy the hardest.
So Chicago, and every other municipality struggling with a budget crunch, do the right thing: cut services, raise taxes or run a deficit. Don’t try the kind of cowardly nonsense whose only advantage is to protect your political rear end.
For those in Chicago, you can make your feelings known toMayor Rahm Emanuel’s office by calling 311 or using the city’s online contact form.
If you’ve read my blog at all or watched my videos, you know that I’m making one big point with everything I’m saying: We can create jobs right now, and turn our economy around. But knowing that it’s in the realm of possibility and having an immediate access to making this happen are two different things. So here are a whole bunch of different things you can do, right now, to support job growth in America.
1) Directly contact your elected officials. This is one of the most useful and easy things you can do. Many people don’t bother because they think that letters or phone calls are ignored, or that their message would get lost among millions. They aren’t and it won’t. Millions of people vote, but in a given week only hundreds or at most thousands of people call your senator or representative. Most of these offices track how many calls, letters or emails they get on which side of a given issue.
To let your senators and congressman know that you support immediate policies to directly put people to work, while rebuilding our infrastructure and our economy, simply go to the Contacting the Congress website linked to here. At that site, you simply put in your address and it gives you the phone, fax, and online submission numbers for both of your senators and your congressman. Faxing tends to be better than just submitting a comment on line – it’s more visceral and real – but if you have the time, do both. If you fax, handwrite it clearly – that makes it less likely that it will be viewed as ad spam. Of course, the best way to give your opinion weight is to get your friends to write or call along with you.
Direct contacts really do matter and are often more important to elected officials than polls. Polls can tell a congressman what percentage of people feel a certain way, but they don’t track passion. Letters and phone calls do. A minority of people may support a given issue, but if its supporters are passionate enough they may get their way anyhow, because what’s important isn’t to a congressman isn’t necessarily how many people agree with them; it’s how many people will change their vote if they disagree with them. I’ll say it again – offices of elected officials do pay attention to the amount of calls and letters they give in support of a given issue.
2) Spread the idea that we really can create jobs now to as many people as possible. Email people, talk to people, share things on Facebook. Pass along this blog and my Youtube videos.
3) Get involved with organizations supporting job creation – there are dozens of organizations actively working towards creating jobs and a new deal for the 21st century – look them up and get involved. Rebuild the Dream is one of my favorites.
4) Join the protests! Been following the Occupy Wall Street protests on TV? Then jump right in. If you are wondering if Occupy Wall Street is about job creation, I can assure you that it is, and that its message is the message of those who bother to show up. Make a strong stand for job creation – Google ‘occupy wall street’ in your city and get involved!
5) Support a political candidate who supports a New Deal for the 21st Century! I didn’t put this first, because I think sometimes we can get too caught up in the illusion that if we elect the right politicians, then they will create the jobs for us, when the truth is that politicians are much more likely to take bold action when we have created a grassroots groundswell for a big jobs program. Also, the purpose of this blog is not to tell you how to vote. However, if you have candidates that are promoting a bold new job creation plan like I’ve been talking about here, by all means, go contribute and volunteer for them, and be sure to tell them that their stand on creating jobs is why you are doing so.
6) Get involved in unconventional job creation efforts, such as Starbucks’ Create Jobs for USA Program. I’m not usually much of a fan of Starbucks, but on November 1st the coffee chain is launching a microlending program to create jobs for small businesses, and anyone will be able to easily contribute at all of its stores.
7) Fire your bank! This isn’t directly a job creation idea, but given that the big banks in this country helped cause the financial crisis that put so many people out of work, took trillions of dollars in bailouts, and thanked us by laying off tens of thousands of workers while instituting new bank fees while raising old ones, if you’re still banking at one of these ‘too big to fail institutions’ – Bank of America, Citibank, Chase or Wells Fargo – I recommend on celebrating ‘Bank Transfer Day‘ on November 5th along with tens of thousands of other Americans. Research reputable credit unions in your area – here’s a good place to start looking – and see how much better you sleep when you’re not contributing profits to these companies.
8): Continue to get yourself educated on these issues – find our more details so you can clearly articulate these ideas to others. Here are some great articles and websites.
Video I shot today of ‘Take Back Chicago’ rally for economic justice which took place today.
A protest group called Occupy Wall Street has been marching in New York this week. If you were in charge of those protests, what do you think would be the most important issue for them to publicize?
I’ve noticed that the recent media hubub about the government’s loan to failing solar producer Solyndra has many of those who are passionate about increased government support of the clean energy industry on the defensive. It shouldn’t.
The furious tea party/anti-government attack on Solyndra and clean energy is simply a part of a defeatist ideology; the mistaken notion that government can’t create jobs or improve the economy. The proper response is to attack this nonsense head on, rather than shy away from discussions about clean energy in the face of Solyndra publicity. This is an opportunity to make the case that we need far more support and loans to clean energy projects, not less.
Frankly, I consider it a disgrace that the government has only spectacular failure in its energy loan portfolio. Why? Because if only one company has failed, we aren’t making enough loans.
Those of us who are paying attention know the facts: of the $38 billion loaned by the Energy Department’s Loan Guarantee program to 40 different companies, only Solynda and its half a billion dollar loan half failed – in other words about 1% of the value of the loans have gone bad.
In fact, if our success rate is this high, it’s a sign that we’re probably being too cautious. The government needs to be supporting the clean energy industry any way that it can, because it creates jobs, creates the infrastructure we need to compete internationally, and hedges against the likely increase in the price of fossil fuels once the economy/demand pick up again.
And government needs to be giving these loans because banks aren’t lending. They still have bad debt on their books from foolish bets they made during the financial crisis, and they are still spooked by the bad economy. Taking bold bets is exactly what they are not doing right now, so our servant, the government needs to be making them.
We also need to wildly increase our spending on straight R&D for new energy solutions. We spend a modest few billion a year on energy R&D, compared to the $36 billion we spend on health R&D, or the $77 billion we spend on defense R&D; or to make an even more appropriate comparison, to the over $100 billion annually that China spends on energy research.
The comparison to health care is appropriate because investment in clean energy companies and technologies is a bit like investing in cancer research – you never know where the next breakthrough is going to be, so you need to spread a lot of money around on a lot of promising lines of research. If you try to be 100% sure that you’re investing in cancer research that is going to be successful, you won’t be investing enough.
Another good analogy is to when a baseball team drafts players. The most effective draft strategies tend to be those which draft a lot of players – it gives you the most opportunities to succeed. Note that it also gives you the most drafted players that fail as well.
Like cancer research, like baseball research, we can’t run from failure or be intimidated when a single idea doesn’t work. We have to keep fighting for more and bigger projects and research to support the green revolution which will help turn around this country.
These facts and comparisons need to be laid out directly to anyone who has questions about Solyndra or clean energy. Don’t back off and agree that the government needs to be more cautious in its clean energy spending – forcefully assert that it needs to be much bolder.
None of this is to say that Solyndra was that right choice for investment – it picked a technology that turned out to be a loser, and allegations that there was political favoritism in its selection should be thoroughly investigated.
But as in Baseball, talking about how a certain draft pick failed is not a valid argument for not drafting players. A certain amount of failure is inevitable when you have big goals. Success in every gamble is both impossible and not to be expected – if we don’t have a healthy amoung of failure, then we’re just not trying hard enough.
I’m finally going to get into some of the politics of why implementing a big, bold jobs program isn’t even being proposed in congress today. A simple look at the two parties shows that on the one hand, there are the Republicans, with no interest whatsoever in the government spending money to create jobs, and on the other, the Democrats, whose proposals to create them under Obama have been relatively modest. Nowhere, then, in the dynamic between the two parties is there any discussion of a real, significant jobs program, a rather astounding fact considering the state of our economy and the current unemployment rate.
Note: Defenders of President Obama may think I’m being too hard on him and point to his recent jobs plan. In fact, what Obama’s proposing isn’t bad; it’s simply too small to restart the economy. Much of his proposal is an extension of payroll tax cuts already in place – new infrastructure spending would be a relatively modest $100 billion or so. That might sound like a lot, but it’s less than 3% of the federal budget, meaning that in real economic terms it won’t get it done – if everything went perfectly and everything he proposed became law, it would probably create about a million jobs, which while helpful would only modestly push down unemployment.
The risk of doing something too small is that then people become cynical and think that government job creation simply doesn’t work. This is what happened in large part with the 2009 stimulus program – it created only enough jobs to offset those being lost in the private sector, and stimulated the economy only enough stop the decline, not get it growing again, no people didn’t see any noticeable improvement. Much of it also focused on short term projects that could be implemented quickly, rather than on the long term infrastructure our country needs.
Coming back to the current situation in Washington, the question is how to change that dynamic where one party wants to do nothing and the other wants to do little. To understand how to reboot our politics it’s necessary to understand why neither party is taking a bold stand for job creation. The reason starts with the phenomenon known as the Tea Party.
The Tea Party is not so much a distinct movement as it is a rebranding of the core base of the Republican party. While almost all people who identify with ‘Tea Party principles’ are Republicans, only about half of Republicans identify themselves with the Tea Party. Tea Party identifiers tend to be older, educated, white and male; they tend to be religious and socially conservative. But the one thing that every Tea Party identifier has in common is a desire to reduce the size of the federal government. This can’t be emphasized enough – distrust of government and the desire to reduce its size and influence is quite simply THE reason for the existence of the movement.
Note: skeptics may point out that in many places, such as in social issues and foreign policy, Tea Partiers hypocritically support a more authoritarian government. While this may be true, it doesn’t change the fact that when it comes to the economy, Tea Partiers are truly and profoundly anti-government.
You can see that fact reflected in the chart from a CBS News poll below. Reducing the role of the federal government is at important to Tea Partiers as every other priority put together. Reducing unemployment is barely a blip on the radar. Think about that for a second – in our economy, for the Tea Party reducing unemployment is nowhere near the priority that reducing the size of our government is.
This hatred of government is rooted in a nostalgia for the early days of our country, for a time when government wasn’t omnipresent in our lives. They value self-reliance, liberty and god. In this view, the intrusions of government are responsible for most of the ills of modern society. A perceived decline in our moral fabric of our society is seen to flow from government replacing religion as a moral authority. Government intervention in our economy through taxes and regulations is viewed as sapping the incentive for good old fashioned American ingenuity and capitalist creativity. While they have a profound sense of history, their view of historical facts is distorted to fit their own ideals – for instance, believing that the founding fathers held their views on religion’s role in government, or in believing that government intervention in the Great Depression in the form of the New Deal didn’t work.
These principles are both idealistic and naively dangerous. They haven’t fully made peace with the fact that the benefits of modern society – security, a complex, thriving and yet stable economy, health care, etc. – come at the cost of government intervention in many aspects of our society and less freedom than was available in an earlier, more anarchistic age.
They bemoan government intrusions while taking for granted the accomplishments of 20th century government – a 40 hour work week, a national highway system, a national power grid, social security and much much more. In seeing faults of government – the bureaucracy, the waste, disincentives towards self-reliance – without fully appreciating its accomplishments, they don’t recognize the power of what government can accomplish in the kind of crisis situation we face today.
I should point out that the Tea Party is NOT, for the most part, the very rich or the corporate elite. Big business is a different part of the Republican Party – a part that appreciates their votes, and their advocacy of lower taxes and less regulation, which increase corporate profits, but they are two distinct factions. In fact, there are times when big business is squarely at odds with the Tea Party, such as during the recent debt limit crisis, when the business community was working desperately with Republican leadership to raise the debt ceiling and not default on our debt, while the Tea Party rank and file in congress was refusing to do so based on deficit cutting, small government principles. The Tea Party is more the Republican middle class and lower middle class, who like the rest of us have seen their own prosperity dwindle in recent years, and have decided that decline has been caused by the unnecessary actions of the federal government.
The Tea Party is also not the same as independent libertarians, who hold dramatically different views on social issues and foreign policy, but these libertarians are allied to the Tea Party in terms of spreading the view that lower taxes and less regulation are the keys to restarting the economy.
As I noted earlier, these Tea Party principles aren’t so much the result of a new movement as it is simply a new name given to the what the core base of the Republican Party has become. This core base takes its inspiration from Barry Goldwater and Ronald Reagan, who are famous for demonizing big government as the source of our problems.
In the case of Reagan, it was more rhetoric than reality – government didn’t shrink under Reagan at all. This core base waited through 8 years of Clinton’s presidency to get one of their own into office and thought the day of small government was at hand with George W. Bush. They were sorely disappointed.
While most Tea Partiers like Bush personally, he did little to reduce the size of government – the only thing he did associated with this goal was help force passage of a massive tax cut, mostly for the wealthiest Americans. But he fought to spend a ton of money on a new Medicare program, and didn’t have any success in reforming or cutting Social Security, blocked as he was by Democrats in Congress. And when the economy crashed in 2008, Bush worked with congress to pass a massive federal bailout program.
The Tea Party/core Republicans came into Obama’s presidency angrier and more disillusioned than ever. Government was as big as ever, and the federal deficit was higher than ever (due to the wars, the tax cuts, health care, the bailouts, etc.) George Bush was seen by many of this group to have betrayed conservative, small government principles – Obama, as a Democrat, was inevitably demonized by Tea Partiers, since he wanted to spend even more money on the economy and health care. Bitterness became the order of the day – the economic stimulus plan of 2009 and the health care bill became enemy #1 for the Tea Party, the latter for its perceived intrusions upon individual freedom and for its supposed cost – the fact that the health care bill actually doesn’t cost the government money is something the Tea Party refuses to believe even to this day. Because the stimulus program didn’t turn the economy around, it was seen as an example of government extravagance and waste.
I should note that I don’t believe the Tea Party is entirely wrong about government – the bank bailouts of 2008 can justifiably seen as wasteful, immoral, and ineffective. All of us know that there are plenty of examples of federal government waste and incompetence. But rather than looking with a clear eye about what does and doesn’t work about government, Tea Party ideology is a one-sided view of the world, rooted in a rage against government intrusion anywhere.
This anger has led the Tea Party to embrace some profoundly dangerous and stupid ideas. One of the dumbest was recently introduced by Texas congressman Louis Gohmert, who in response to Obama’s jobs plan, introduced his own plan of the same name, the only effect of which would be to lower the corporate tax rate to zero. Inside the ideology that government is bad, and that that if you lower taxes companies will start hiring, making corporations pay no taxes whatsoever is seen by the Tea Party as the ultimate jobs plan.
The most dangerous idea of the Tea Party has been the notion that the federal government was better off defaulting on its debts than raising the debt limit ceiling this year. Even Republican leadership knew this was a terrible idea, but they had a very hard time trying to convince any congressmen elected with Tea Party support to sign on to any plan that would avoid this default. Republican House Speaker Boehner’s own proposal to raise the debt limit in return for massive spending cuts to Social Security and Medicare were rejected by his own party. In his desperation to get a bill passed through the house of representatives (which is controlled by Republicans), he had to add in a provision where the debt limit would only be raised if there was an amendment to the Constitution requiring a balanced budget – an amendment as likely to become law as it would be for Charlie Sheen to become our next president. In the compromise bill to forestall a default that the house and senate eventually passed and which became law, Republicans got almost all of the spending cuts that they wanted, but less than half of the Republicans in congress voted for the plan, and many of those who did had to be bullied by Republican leadership into doing so.
A default on our debt would likely have been the most catastrophic event of the last 100 years of American history, comparable to the stock market crash of 1929, but distinct in that it would have been self-inflicted disaster. Consider then that over half of the Republican congress, despite extreme pressure from their own leadership, voted for catastrophe. The bill only passed because of Democratic support.
Republicans act this way because they know that Tea Party supporters are essential to being re-elected. While many Republicans don’t consider themselves to be Tea Party supporters, politicians know that the Tea Party supporters are the ones who donate and organize for the party in large numbers. And they know from the 2010 elections that those Republicans who aren’t seen as sufficiently responsive to Tea Party goals are likely to be challenged in a Republican primary by a Tea Party backed candidate.
So Republicans in congress have become more and more responsive to Tea Party objectives. This includes flatly rejecting almost any initiative proposed by Obama to aid the economy such as the recent jobs bill, and refusing to compromise in any fashion with Democrats over any legislation.
Obama, desperate to get his agenda passed and be seen as reasonable in negotiations, went to great lengths to try to accomodate Republicans in negotiations over the health care bill, the debt limit, the jobs bill, and so on, being sure to include Republican ideas in every plan. But Republicans haven’t been particularly interested in any kind of compromise, even those that include many of their own ideas such as tax cuts. Some people believe this is because they want to see the economy continue to fail so they can blame Obama for it and win the presidency in 2012, but I believe in a simpler explanation: they have no interest in compromising and passing any legislation because the Tea Party constituents who helped get them elected have no interest in them doing so. In one sense, they are simply listening to the core base of their own party.
Democrats, meanwhile, are a far more disorganized and less ideologically coherent bunch. If you look at the recent jobs bill proposed by Obama, all different kinds of Democrats criticized it for all different reasons. Some said the bill compromised with Republicans too much and didn’t go far enough to create jobs. Others were irritated that it didn’t help their districts enough. Others had issues with how the bill would be paid for. Still others wanted more free market solutions along the lines of what some Republicans wanted. Although almost all Democrats will in the end eventually vote for the bill, the disparate points of view on the bill underlines how disorganized Democrats are – unlike Republicans, they rarely draw a hard line in the sand in their negotiations, since they aren’t a unified body. Obama, eager to get something passed and appear as reasonable, keeps trying to get his proposals to seem more palatable to Republicans while trying to ‘herd cats’ with his own party.
The net effect of this is that the entire conversation for what’s possible has been driven by The Tea Party – the whole window of discourse has moved drastically in their direction. When one group wants to compromise and the other doesn’t, negotiations inevitably favor those who stand firm.
Note that this doesn’t require the Tea Party itself to be popular by the majority of Americans. Most Americans have a real unease with the Tea Party agenda, which includes drastically cutting programs such as Social Security and Medicare, and keeping taxes low on the wealthy. But the idea that government is to be distrusted, and that spending on our economy is likely to be wasteful and futile, have made it deeply into the public consciousness. Polls show that while Americans more than ever care about jobs (far more than the deficit), and that they don’t believe in the Tea Party agenda as a whole, support for government spending to directly create jobs has plumetted. The Tea Party has accomplished this not by trying to be popular, not even by getting candidates elected, but by getting this notion of distrust of government everywhere into the public discourse. Everywhere on television and on the internet you can find arguments about government waste. They are in fact far more loyal to this notion than they are to the Republican Party.
It’s hard to find this same kind of fervency for the type of bold government jobs program I’m talking about, and that’s why I started writing this blog and making these videos. We need to spread the idea that we really can turn this economy around, and that our government is our servant in making that happen. We can put people to work and create a competitive 21st century economy without waiting for the magic of the free market to help us.
But it will take something – spreading a vision as passionate and far-reaching as that which the Tea Party has succeeded in spreading. And people need to see that this vision transcends the idea of a jobs plan. It’s about whether we can pull together and have a prosperous free and fair society, or whether we are a hobbesian collection of individuals fighting for our own survival. Naysayers are polluting today’s media with the idea that there isn’t much we can do, and that it’s hubris and naivete to think we can. According to the pundits, only time, chance and the mystical powers of the free market will bring our economy around. We can do this, do this now, but first we need to make sure that this spirit of possibility gets much more powerful in the public discourse. Only then will politicians listen and give us a real choice at the ballot box.
Next: how we spread the word.
Defending the New Deal, Ridiculing Free Market Nonsense, and Asserting that Paying People to Do Important Jobs Actually WorksPosted: September 14, 2011
The thing that first inspired me to write a blog and start making videos is the pure economic quackery I encountered on the internet generally and Youtube specifically. These free market, usually libertarian, kooks like to argue that the government creating jobs doesn’t really work, or said another way, the government putting people to work doesn’t actually reduce unemployment in the long run. The free marketers generally make two arguments, one of which has a bit of merit while the other is complete nonsense.
The nonsense notion says that when the government creates jobs, it doesn’t really reduce unemployment because it takes capital from the from private enterprise that could do the job oh so much better. If we had cut taxes and reduced regulation, then free market juju would have created lots more jobs than, well, actually creating jobs.
Beware the hawker of unseen, indirect effects. When someone tries to tell you to ignore what is right before your eyes and believe in what you can’t see, you ought to be skeptical, and insist that the burden of proof be upon the purveyor of the less obvious explanation. I love baseball, and the good ol’ boy sportswriters used to a write a lot about the player that does all the things that ‘don’t show up in the boxscore’. This player may not hit home runs, or hit for a high averaage, or do any of the measurable things that a good ballplayer does, but by gum, he’s got the intangibles, the grit, the effort – he does the little things, bunts well, throws to the right base. The truth about baseball is that while there are useful things that don’t show up in the box score, most of the important stuff does. The guy who gets on base and hits home runs is a much better player than the gritty guy who bunts well.
While this sort of nonsense is thankfully less rare in baseball these days, magical thinking is alive and well among free market economists. When the government creates a job, that’s a real job, and it lowers the unemployment rate 100% of the time. There’s no need to rely on any magical secondary effects.
The second argument against government created jobs is that they are temporary – they go away eventually and then you’re left with nothing. I’m half inclined to argue that a temporary job is better than no job at all, but I’ll be charitable and grant that there is a logical point to be made here, which is that a government created job that sticks around, or at least creates something useful, is better than one that doesn’t. And this is at least a somewhat valid criticism of the 2009 stimulus plan, which could have been used towards creating jobs that really positioned our country for the long haul – smart grid jobs, energy R&D, mass transit, etc., as per my previous post.
But the real fair criticism is that the 2009 stimulus wasn’t big enough. It actually stopped the rise in unemployment and the decline in the size of our economy, but it didn’t reverse either of these trends; it just flat-lined them at a mediocre level.
About this time in the conversation a libertarian high on market juju wanders by and says that the magical powers of capitalism would have turned things around on its own, if only, if only, we had cut regulations and cut taxes on ‘job creators’ (code for the rich). Never mind that taxes on the wealthy were cut under Bush to their lowest level in over 80 years, and that cutting regulations got us into this mess by causing the banking crisis in the first place.
Now, to indulge in these kinds of delusions, the free marketers have to deal with history, which brings us to where the Great Depression and the New Deal come in. The New Deal gives us a clear example of where government job creation helped reduce unemployment and mitigate an enormous economic downturn. In order to explain history, the quacks have to try to sell the biggest lie of all: that the New Deal didn’t help end the Great Depression, but rather extended it.
The task of this lie is formidable, given the facts shown in the following chart:
Under Herbert Hoover, unemployment went from 5% in 1929, when the stock market crash occurred and the Great Depression began, to 25% in 1933 when Roosevelt took office. Under Roosevelt and his New Deal policies, unemployment went from 25% down to below 15% in his first term of office, spiked back up to 19% briefly in 1938, and plummeted down again towards 10% as World War II began, at which point it reached levels even lower than during before the Depression.
For those skeptical of the power of the government to create jobs, this kind of stark data is a challenge to their mindset, but never underestimate the human ability to deny the obvious if it doesn’t with one’s preconceptions.
The first challenge is to explain the run-up to 25% unemployment under Hoover. The lie told here by the deluded is that Hoover really sort of began the new deal with a lot of big government policies, which really didn’t work. There is a shred of truth here – Hoover did try a lot of things (though he didn’t try actually creating jobs until his term was almost over). He tried convincing industrial leaders to keep wages up, and he signed the infamous Smoot-Hawley Tariff Act, which imposed huge tariffs on imports, and had the effect of starting a trade war which shrank the world economy and deepened the Great Depression. Free Marketers try to blur these policies with those of the New Deal.
In the last year of his presidency, Hoover did start to enact actual job creation policies, which were too little, too late. All the details of the New Deal and their impact on our economy are far beyond the ability of a single blog post to describe – however, suffice it to say that numerous programs directly created jobs that built the 20th century infrastructure of our economy – highways, roads, bridges, buildings (schools, fire houses, etc.), utilities, including the electrification of rural areas, dams, ships and more. As show by the graph above, unemployment declined until it briefly spiked up in 1937-1938.
While the free marketers like to characterize this brief spike as definitive proof that the New Deal failed, the truth is more simple – in a misguided attempt to balance the budget and wind down some of the bigger government programs, New Deal programs didn’t put as many people to work during this period. Budget balancing and austerity doesn’t work now as a response to a shrinking economy now and it didn’t then. Programs were bumped back up to high levels and unemployment began to shrink again.
World War II ended high unemployment once and for all, which free marketers discount, despite the fact that it was the ultimate government jobs program. War is a bad thing you see, so increases in GDP and declines in unemployment don’t count during a war because they don’t create something of lasting value (I guess our modern industry of steel, cars, and planes which dominated the world for the next 30 years doesn’t count either).
So the free marketers say that Hoover’s decline doesn’t count because it was just like the New Deal, the decline in unemployment doesn’t count because there was a setback in 1937-38, and WW II doesn’t count because war is bad. And for the biggest lie of all, they say that unemployment would have declined on its own from 1933-1941 much faster if free market magic had begun to do its thing. Under this fantasy, it was pure coincidence that unemployment just happened to start going down in 1933 the same time as The New Deal started and had plummeted a decade later.
Remember, beware the hawker of unseen effects.
By the way, the data is more pronounced when one looks at the whole of the economy (GDP) over those years instead:
That grey line is the long term trend line while the green is actual GDP. Again, we can see it plummeting under Hoover from 1929-1933, spiking upwards during the New Deal, having a brief setback in 1938, and taking off again, going into World War II.
So why all this fuss to assert the rather obvious notion that the New Deal actually worked, and that free marketers are deluded in this regard? Why do I care so much?
It’s because this pernicious lie that governments can’t actually create jobs, or there’s something inefficient or ultimately ineffective in them doing so, that has poisoned the political discourse and made an enormous and bold government jobs and infrastructure program politically difficult to sell to the public. So don’t believe the nonsense, and challenge it when you hear it. Print out these graphs and throw them at people if necessary. More on the politics of all this next time around!