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Big Fight



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You know something’s awry when people get nasty. That seems to be what’s happening on the unemployment data and The Forgotten Man. Eric Rauchway of UC Davis used the adjectival “lying” to describe my book and also called TFM, and or me, a “Liberty League Retread.” Wow!

Eric’s own book is pretty good so I don’t know why he’s on the warpath. But here’s the fight that he’s picking: Are official unemployment data too high for the period? Maybe. That’s what Eric says. I don’t think so because I don’t count “make work” jobs of short duration. Stanley Lebergott actually said he didn’t like to count those as jobs because that’s what the bureaucrats at Kraft durch Freude over in Germany did and that point is valid. I wonder if Jonah Goldberg has seen that very cool book, Three New Deals, by Wolfgang Schivelbusch. To be clear: Roosevelt was not a Nazi or a Stalinist. But many of his policies resembled at least to some extent those of Mussolini, Hitler and Stalin. And where New Deal policies bore a resemblance to those of Hitler or Stalin or Mussolini or even Labor in the UK the outcome was mixed in the United States. Social Security (after UK) — likeable. Cartels (Italy) — counterproductive.

But even if you do count the make-work jobs as jobs, the data still make for a sad picture. And if you get tired of counting up unemployed men then there’s another way of looking at it, hours worked. Lee Ohanian of UCLA put it this way in a note to me:

The view that the New Deal promoted employment growth is wrong, and a declining rate of unemployment simply masks the fact that hours worked during the New Deal changed relatively little, certainly much less than they should have. In 1939, total hours worked per working age person – including the hours of those on government payrolls – were 21 percent below 1929 level. This is little recovery compared to hours at the trough of the Depression in 1933, when total hours per adult were 27 percent below its 1929 level. My recent work with Harold Cole indicates that hours worked should have been above normal during the mid-1930s, not 20 percent or more below normal.

Why was there so little recovery in employment? Because wages in many sectors of the economy were far too high. For example, manufacturing wages relative to trend were about 16 percent above trend in 1939. Wages above normal during a Depression is pathological; the normal forces of supply and demand should have reduced wages, increased employment, and generated a much faster recovery.

So what kept wages so far above normal during a period of Depression? The National Industrial Recovery Act and the National Labor Relations Act, both of which were specifically designed to increase wages, and they did. Following the adoption of the Codes of Fair Competition under the NIRA, wages rose substantially in industries covered by the NIRA, and wages rose even further after the NLRA. There was no meaningful employment recovery until the 1940s, when New Deal Labor policies were gradually eroded, as the National War Labor Board restricted wage increases to cost of living, and the Taft Hartley Act significantly weakened the NLRA.

New Deal labor policies illustrate the most basic of economic principles – setting the wage too high means that there will be less employment, and with less employment, the recovery was much slower than it should have been.

And more on this on CFR



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