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I Wrote the Guide to Extend Rothbard

May 15, 2009

Tags Booms and BustsEducationThe FedHistory of the Austrian School of Economics


With all of the comparisons between President Obama and FDR, and especially all of the "lessons" we are told about the Great Depression, fans of the free market need a single volume to get up to speed as well as to educate their interventionist friends. I have written such a book in the newly released The Politically Incorrect Guide to the Great Depression and the New Deal.

In another venue I gave an infocommercial for the book for the general reader, but in the present essay I will explain the book's relevance for the Austrian reader.

Picking Up Where Rothbard Left Off

The first question that springs to mind — and many potential readers have indeed emailed me this — is to wonder, "What's in your book that's not in Rothbard's America's Great Depression?"

As with any economic history from an Austrian perspective, obviously I consulted Rothbard's scholarship for those topics that he had covered. In particular, my chapter on Herbert Hoover draws most of its statistics and quotes from Rothbard's work.

Unfortunately, as great as Rothbard's book is, he ends with the Hoover administration. So I extend the Austrian analysis to explain the failures of the New Deal. For example, the official unemployment rate in 1938 averaged 19 percent. Inasmuch as Roosevelt was sworn in five years earlier in 1933, this is a rather damning indictment of the New Deal as a recovery program. All previous US depressions (or "panics") had been long gone five years after the trough, and yet here we have the unemployment rate at 19 percent under the alleged savior of capitalism.

The next step in the argument is for the apologist for FDR to claim that Hoover handed over the worst economy in US history, and hence it's not surprising that things recovered more slowly under the New Deal.

Ah, not so fast. I dispose of that counterobjection by digging up Canadian unemployment statistics from the 1930s. Comparing them year by year with the official US figures, I discovered the following interesting factoid: From 1930 to 1933, the US unemployment rate averaged 3.9 points higher than the Canadian rate. Yet from 1934 to 1941, the US rate averaged 5.9 points higher. (Both rates tended to fall over time from their 1933 peaks, but Canada's fell faster.)

Why is this significant? It shows that not only did the US economy recover from depression under FDR more sluggishly than at any other point in US history, but it also recovered more sluggishly compared to Canada's experience during the Great Depression itself. What else do we need to do to show that the New Deal did not "get us out of the Depression"?

Damn Lies and Statistics?

The astute reader may have wondered why I kept using the odd term "official" in reference to US unemployment rates in the section above. The answer is that FDR's fans dispute the unemployment rates listed in, say, the Historical Statistics of the United States. In other words, in my book I use the government's own records as to what the unemployment rates were during the 1930s, mainly because I didn't want a skeptical reader to think I was relying on something from a Cato fellow's econometric model. No, my arguments about the awful "recovery" under FDR are based on the official numbers told by the same government that preaches the success of the New Deal.

Yet if you are going to use the numbers put out by the Bureau of Labor Statistics, you should be careful, because leftist economists and historians will say you are lying. The controversy centers around the status of workers who had "make-work" jobs (through the WPA, etc.) under the New Deal. The "official" government numbers do not count those people as truly being employed, whereas if you did count them, then obviously the unemployment rate would drop a lot more due to the New Deal. For example, the unemployment rate would get back into the high single digits by 1937 (before shooting up again) if you remove WPA workers from the ranks of the "unemployed."

So which unemployment series is correct? This is a somewhat philosophical question; Bob Higgs says that there is no objectively "right" answer, it rather depends what you are using the series for. If the issue is to assess the plight of Americans and gauge how bad the human suffering was during the 1930s, then it would be misleading to say that 19 percent of the workforce had no job during 1938. After all, these people weren't starving because they were getting government checks.

On the other hand, if you are trying to assess the ability of the New Deal to restore soundness to the American economy, then surely it is relevant that the private sector was incapable of finding useful employment for 19 percent of the workforce in 1938, five full years into the New Deal. That is also the "official" number that the BLS and other government websites will show you if you look up historical unemployment rates. It is perfectly fine to use that number as an indication of just how sluggish recovery was under FDR. After all, there wasn't a massive WPA program during prior depressions (or "panics").

Let's use an analogy to make the point: Imagine that in the last days of his presidency, George W. Bush declared a new policy. His spokespeople explained, "It is rather misleading to say that the unemployment rate in October 2008 was 6.6 percent, because that implies millions of Americans are destitute. But in fact they are all receiving generous assistance from the government in various forms. If we say that their 'job' is filling out the paperwork for unemployment claims, then the true unemployment rate is more like 0.4 percent. Those are the people who truly have no source of income, and need to be helped."

Would any left-liberal sign on to that rationale? Of course not. Now, there is no objectively hard and fast line between a "real" government-provided job versus a "phony" job such as "filling out unemployment forms." In fact, a purist could note that all government jobs are artificial and not indicative of true productive value for consumers, since their compensation is derived through involuntary taxation.

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But even for more mainstream economists, who consider government-school teachers to have jobs just as legitimate as private-school teachers, it is still not an open-and-shut case how to classify Americans who were on make-work rolls during the 1930s. They weren't being "hired" because of a dire need to plant more trees or build more schools, but rather they were getting checks first, and then the "jobs" were invented as an afterthought.


Besides the application of Austrian economic analysis to the broad sweep of events during the Great Depression, my new book also draws on some of the truly shocking anecdotes that Burt Folsom and other historians have found. For example, there is a letter from a Democratic party boss telling a woman that if she wants to stay on the WPA rolls, she needs to make a campaign contribution. At the risk of sounding clichéd, I can honestly report that my book presents a side of the New Deal that Americans were not taught in school.

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