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Old 02-08-2009, 05:48 AM   #1
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So Heres Why Unemployment Fell Below 10% Under FDR

There was a debate brewing for some time over some numbers I put up that said under Roosevelt unemployment dropped to around 9% before he pulled back on government spending and tried to balance the budget which lead us back into a deep recession. The numbers were disputed by posting the bureau of Labor statisitcs numbers. Through a little research I have found out why their was a discrepancy between the numbers I quoted from the original stimulus draft and the numbers people cited as a counter point.

Well the discrepancy exists because the numbers posted on the Bureau of Labor statistics site and used by places like the Heritage foundation list those who were employed by any program in the New Deal as unemployed. Which means the substantial amount of people gainfully employed by the WPA and other federally created emergency work programs were counted as unemployed, not as employed. The numbers I quoted and the Obama stimulus drafters reported on were from Chicago School economist Michael Darby who went back and redid the numbers inserting those who were employed by the government into the unemployment equation, which re-alligned the numbers to a range that is much more comparable to how it is calculated today.

The original unemployment numbers that counted workers in government created jobs as unemployed:



unemployment chart when you include those employed by government programs:


http://edgeofthewest.wordpress.com/2...-in-the-1930s/
http://papers.ssrn.com/sol3/papers.c...ract_id=259399

As a side point one can also make the case that our real unemployment today is a lot worse than what we commonly are told. if you use the U-6 unemployment numbers over the typical U-3 numbers which are commonly used and typically the only ones mentioned by TV and politicians. The U-6 is different and argued as more thorough because it accounts for people who are both underemployed and those who have given up believing they will find another comparable job, if you are to believe that unemployment figure we are at 13.9% unemployment right now.

http://blogs.wsj.com/economics/2009/...ment-rate-139/
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Old 02-08-2009, 12:44 PM   #2
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Good post. I agree that the U-6 unemployment numbers are more accurate than U-3 because people fall off the U-3 analysis when they give up looking for work or take a part time job thus understating the figures.

Also, if numbers come out of the Heritage foundation they're biased.
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Old 02-08-2009, 02:50 PM   #3
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Maybe World War II had a little something to do with it.
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Old 02-08-2009, 02:53 PM   #4
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Maybe World War II had a little something to do with it.
Well considering the chart and study is talking about 1929 to 1940, nah I dont think it did.
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Old 02-08-2009, 02:53 PM   #5
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Maybe World War II had a little something to do with it.
Explain, don't repeat.
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Old 02-08-2009, 06:31 PM   #6
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I doubt most tax payers would consider WPA type jobs a success--especially at a cost of $800 B.
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Old 02-08-2009, 06:58 PM   #7
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I doubt most tax payers would consider WPA type jobs a success--especially at a cost of $800 B.
Some where, some werent, but the successes paid huge dividends in the future and the graph shows perfectly that the spending in the public sector made huge gains in the private sector and the demand those public sector jobs created lead to demand for more workers in the private sector.
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Old 02-08-2009, 07:42 PM   #8
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Thanks for the follow-up.

Of course, there's another side to the coin that you haven't mentioned, and is covered pretty well in this blog entry.

http://www.marginalrevolution.com/ma...oyment-du.html

Quote:
Unemployment During the Great Depression
Regarding unemployment during the Great Depression, Andrew Wilson writing at the WSJ recently said:

As late as 1938, after almost a decade of governmental "pump priming," almost one out of five workers remained unemployed.

Historian Eric Rauchway says this is a lie, a lie spread by conservatives to besmirch the sainted FDR. Nonsense. In 1938 the unemployment rate was 19.1%, i.e. almost one out of five workers was unemployed, this is from the official Bureau of Census/Bureau of Labor Statistics data series for the 1930s. You can find the series in Historical Statistics of the United States here (big PDF) or a graph from Rauchway here. Rauchway knows this but wants to measure unemployment using an alternative series which shows a lower unemployment rate in 1938 (12.5%). Nothing wrong with that but there's no reason to call people who use the official series liars.

So why are there multiple series on unemployment for the 1930s? The reason is that the current sampling method of estimation was not developed until 1940, thus unemployment rates prior to this time have to be estimated and this leads to some judgment calls. The primary judgment call is what do about people on work relief. The official series counts these people as unemployed.

Rauchway thinks that counting people on work-relief as unemployed is a right-wing plot. If so, it is a right-wing plot that exists to this day because people who are on workfare, the modern version of work relief, are also counted as unemployed. Now if Rauchway wants to lower all estimates of unemployment, including those under say George W. Bush, then at least that would be even-handed but lowering unemployment rates just under the Presidents you like hardly seems like fair play.

Moreover, it's quite reasonable to count people on work-relief as unemployed. Notice that if we counted people on work-relief as employed then eliminating unemployment would be very easy - just require everyone on any kind of unemployment relief to lick stamps. Of course if we made this change, politicians would immediately conspire to hide as much unemployment as possible behind the fig leaf of workfare/work-relief.

There is a second reason we may not want to count people on work-relief as employed and that is if we are interested in the effect of the New Deal on the private economy. In other words, did the fiscal stimulus work to restore the economy and get people back to work? Well, we can't answer that question using unemployment statistics if we count people on work-relief as employed. Notice that this was precisely the context of the WSJ quote.

One final thing that one could do is count people on work-relief as neither employed nor unemployed, i.e. not part of the labor force which is what we do for people in the military. Rauchway has data on this and it shows almost the same thing, nearly one in five unemployed, as the original series. (In this case, however, Rauchway counts nearly one in five unemployed as a win for the New Deal because the same series also shows higher unemployment earlier in the Great Depression.)

Any way you slice it there is no right-wing plot to raise unemployment rates during the New Deal and a historian should not go around calling people liars just because their judgment offends his wish-conclusions.
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Old 02-08-2009, 07:50 PM   #9
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Also, if numbers come out of the Heritage foundation they're biased.
Are they biased if they come out of the Bureau of Labor Statistics? Because that's where the numbers came from, not the Herritage Foundation.
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Old 02-08-2009, 07:51 PM   #10
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Quote:
Originally Posted by dapperdan View Post
Thanks for the follow-up.

Of course, there's another side to the coin that you haven't mentioned, and is covered pretty well in this blog entry.

http://www.marginalrevolution.com/ma...oyment-du.html
Touché

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Old 02-08-2009, 08:35 PM   #11
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Originally Posted by saintfan View Post
Maybe World War II had a little something to do with it.
In the late 30's England had started placing large industrial orders because of the impending war. 1939 Germany invaded Poland, by 1940 England was in full scale combat and placing massive orders for military equipment. The United States didn't officially enter the war until 1942 but they had long been supplying the allies before a shot had ever been fired. The Germans massive U boat campaign in the Atlantic was to prevent goods from flowing from the U.S. to Europe.
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Old 02-08-2009, 08:35 PM   #12
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I like the idea of taking guys that were making $75K a year in finance and are now unemployed and paying them $30K a year to build bridges. That ought to fix things.
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Old 02-08-2009, 09:01 PM   #13
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Quote:
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Are they biased if they come out of the Bureau of Labor Statistics? Because that's where the numbers came from, not the Herritage Foundation.
Yes because they do not present the fact that the figures do not include those employed as a result of the new deal. If you were doing an honest and forthright analysis you should footnote this.
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Old 02-08-2009, 10:17 PM   #14
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I like the idea of taking guys that were making $75K a year in finance and are now unemployed and paying them $30K a year to build bridges. That ought to fix things.
but $75,000?? One of our clients was a mortgage broker making about $250,000/year.
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Old 02-08-2009, 11:13 PM   #15
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Yes because they do not present the fact that the figures do not include those employed as a result of the new deal. If you were doing an honest and forthright analysis you should footnote this.
It's not a fact. It's an opinion on how those jobs should be classified. A minority opinion. The Bureau of Labor Statistics has considered this alternative, and, at least as of now, rejected this "statistical adjustment".

btw, there is nothing wrong with statistical adjustments. There are seasonal adjustments with most data sets that come out from the government. In fact, there's quite a heated debate going on right now about employment adjustments, because at an economic bottom such as we have now, unemployment data is understated. I haven't reviewed last week's report other than the headline numbers, but my guess is that while the nonfarm payrolls data came in at 598,000, the unadjusted data is probably around 900,000. Reality is worse than what's being report. Does that make the BLS a bunch of liars? No, it's a part of their methodology.

The BLS using it's numbers, and the Herritage Foundation and countless other organizations citing those numbers without footnotes is perfectly honest.

I would look at it this way: There is something to be said for a person simply going to work. Pretty much any work, earning a day's pay. It is personally demoralizing to be without a job. It breaks up families. It's just terrible. I know, I've been without a job. I've slept in the back of abandoned gasoline stations. I've slept in parking garages. I've done my share of afternoon shopping at Costco or Sam's Club just to eat the free samples because I couldn't afford lunch. It's not enjoyable and it's humiliating. So if you can give someone a make-work job, there's something to be said for that. But if you're trying to gauge the economic effectiveness of a program, and monitor the economic health of the country, counting the make-work jobs during the Depression era is illusionary. And the workers at the BLS knew it was illusionary at the time, that's why they didn't count those people as employed.

Last edited by dapperdan; 02-08-2009 at 11:27 PM.
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