I was commenting on a post on KnoxViews.com tonight, and it occurred to me to make a simplified chart of the depression era showing how government spending does not equate to economic stimulus for the economy.
Here’s part of my comment and the new chart.
A popular misconception is that Hoover cut spending and Franklin Roosevelt increased it. The facts are that Hoover increased federal spending from $2.9 billion in 1928 to $4.6 billion in 1932. That’s a 63% increase in 4 years – yet the unemployment rate rose from 3.3% in 1929 to 23.6% in 1932.
FDR’s New Deal then raised spending from $4.6 billion in 1932 to $8.2 billion in 1936 – a 76% increase which is not that much different than the increase under Hoover.
Despite these massive increases, which basically tripled total federal spending from $3.3 billion in 1930 to $9.4 billion in 1940, the unemployment rate was still 14.6% on the eve of WWII.
I made a table to see if there’s any correlation between spending and employment, and it’s pretty plain that there isn’t.
| Total | Percent | ||
| Year | Spending | Change in | Unemployment |
| (millions) | Spending | Rate | |
| 1928 | $2,961 | 3.64% | 3.3% |
| 1929 | $3,127 | 5.61% | 3.3% |
| 1930 | $3,320 | 6.17% | 8.9% |
| 1931 | $3,577 | 7.74% | 15.9% |
| 1932 | $4,659 | 30.25% | 23.6% |
| 1933 | $4,598 | -1.31% | 24.9% |
| 1934 | $6,541 | 42.26% | 21.7% |
| 1935 | $6,412 | -1.97% | 20.1% |
| 1936 | $8,228 | 28.32% | 17.0% |
| 1937 | $7,580 | -7.88% | 14.3% |
| 1938 | $6,840 | -9.76% | 19.0% |
| 1939 | $9,141 | 33.64% | 17.2% |
| 1940 | $9,468 | 3.58% | 14.6% |
Federal spending data is from the GPO and unemployment stats are from the BLS
Can you see any link between changes in government spending and unemployment? I don’t either – and that means Keynesian theory is bogus.
I’ll put it this way – if huge increases in government spending stimulate the economy, why aren’t we booming right now after Bush’s doubling of the national debt in just 8 years?
Bush was the biggest spender in US history, adding as much debt in 8 years as all the other presidents combined did in 212 years. Surely that should be enough to stimulate the economy if Keynesian economics actually worked.
Why didn’t it?
gk
Filed under: Economy, Political Tagged: | Debt, depression, economic theory, FDR, hoover, national debt, new deal Keynesian
