Just a few facts

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

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