‘We’re Spending More Than Ever and It Doesn’t Work’

William Beach

January 14, 2009 at 7:28 pm

“We have tried spending money. We are spending more than we have ever spent before and it does not work.”

Sound like, oh, Rep. John Boehner of Ohio or some other exasperated Republican stalwart lamenting proposals to spend our way out of the recession?

Listen again:

“I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises.”

Sound more like a liberal Democrat pushing job creation — say, Harlem’s Rep. Charlie Rangel?

What about this:

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”

Surely this must be House Speaker Nancy Pelosi or another leading Democrat denouncing President Bush’s economic policies.

Wrong. Wrong. And wrong again.

The words are those of none other than Henry Morgenthau Jr. — close friend, lunch companion, loyal secretary of the Treasury to President Franklin D. Roosevelt — and key architect of FDR’s New Deal.

The date: May 9, 1939. The setting: Morgenthau’s appearance in Washington before less influential Democrats on the House Ways and Means Committee.

Morgenthau made this “startling confession,” as historian Burton W. Folsom Jr. calls it, during the seventh year of FDR’s New Deal programs to combat the rampant unemployment of the Great Depression.

“In these words, Morgenthau summarized a decade of disaster, especially during the years Roosevelt was in power. Indeed average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover,” Folsom writes in his new book, “New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America.”

Indeed, with those words, Morgenthau confessed what so many keepers of FDR’s flame won’t admit today: The New Deal was failed public policy. Massive spending on public works programs didn’t erase historic unemployment. It didn’t produce a recovery.

And neither will a “new” New Deal.

Some of the most desperate defenders of New Deal doctrine are getting a little shrill about this hard truth. It’s an important truth, nevertheless, especially because the same characters insist that Barack Obama must push through a “bold” economic stimulus that depends on hundreds of billions in new government spending to create or “save” jobs.

Budget and financial experts here at The Heritage Foundation are among cooler heads cautioning that President Obama ought not to repeat President Roosevelt’s mistakes. In one such effort, Heritage last week distributed a chart showing that FDR’s programs didn’t succeed in pushing unemployment below 20 percent.

Some observers — not just hysterical big government junkies but also dispassionate policymakers and news editors — took issue with the unemployment data used by Heritage because they’d seen different numbers elsewhere.

One commentator, Media Matters senior editor Terry Krepel, warns the numbers “appear to be significantly inflated.”

“Leading FDR slanderers,” David Sirota hyperventilates on Huffington Post, “base their claims that unemployment during the New Deal didn’t go below 20 percent by counting government workers as unemployed.”

Sirota, who calls himself a “political journalist,” adds: “And those claims are being echoed by right-wing rags like the National Review and fringe think tanks like The Heritage Foundation.”

If Heritage and our conservative principles are “fringe,” then FDR’s trusted Treasury secretary was what — a duplicitous traitor?

What are we to make of a “journalist” who seriously holds that folks on public assistance must be considered employed — much less “government workers”?

In fact, Heritage plotted New Deal unemployment using widely accepted Census Bureau data, the only “official” numbers compiled at the time. (See page 6 of PDF, Series D, column 10.)

They didn’t count Civilian Conservation Corps workers, prisoners or anyone else who got only “three hots and a cot” as a government employee. Neither does Heritage.

This reasoning remains standard practice today, as George Mason University economist Alex Tabarrok blogs, since “people who are on workfare, the modern version of work relief, are also counted as unemployed.”

“[I]f we counted people on work relief as employed,” Tabarrok adds, “then eliminating unemployment would be very easy — just require everyone on any kind of unemployment relief to lick stamps.

“[D]id 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.”

So why the different sets of numbers out there?

Over the years, economists and academics working in good faith calculated “alternative series” of unemployment statistics for the Great Depression years in hopes of painting a more accurate picture. All begin with census data. The alternative numbers, generally showing somewhat lower levels of unemployment, are available on the Web site of the Bureau of Labor Statistics.

Such restatements of unemployment — including a change by BLS that didn’t count “discouraged” job seekers amid President Lyndon B. Johnson’s Great Society programs of the mid-1960s — tend to lower the jobless rate by shrinking the size of the work force.

During the Depression, though, if you were an able-bodied man you were assumed to be looking for work.

In any case, the statistics preferred by such New Deal acolytes as University of California historian Eric Rauchway reveal that FDR’s policies didn’t drive pre-World War II unemployment below 17 percent in any year except 1937 (estimate: 14.3 percent).

This “new series” of estimates (developed by economist Stanley Lebergott) show joblessness peaking at 24.9 percent in 1933, dropping over the next four years and — under New Deal, Part 2 — shooting back up to 19 percent in 1938. Unemployment then decreased to 14.6 percent in 1940 at the advent of a wartime economy and to 9.9 percent with America’s entry into World War II the following year.

The point is, as the chart above shows, all these trends track the Census Bureau estimates. It was still the worst unemployment our nation has seen. It didn’t get better until the war was on.

We shouldn’t dumb down reality by suggesting suffering and hardship during the Great Depression weren’t so great. Those photographs of long lines outside soup kitchens and desperate men huddled around fires don’t lie. There is no “alternative series” of photos.

So stop bellyaching about the numbers. The New Deal was a failed government policy that emphasized “creating jobs” by spending unjustifiable amounts of taxpayer dollars on infrastructure projects.

Don’t listen to Heritage if you don’t want to. Listen to Henry Morgenthau.

“We are spending more than we have ever spent before and it does not work.”

Ken McIntyre co-wrote this post with Bill Beach.