I’ve had several emails regarding unemployment rates during the Roosevelt administration. These readers were confused by some Keynesian sites asserting that the unemployment figures were inflated. One reader wrote that “the unemployment figures must have been greatly exaggerated because they excluded people on relief. If these people had been included then unemployment in 1938 would have been 12.5 percent and not be 19 percent.” I immediately recognised the figures as coming from Michael R. Darby’s 1975 paper1.
There is a sound reason why it is Keynesian votaries that tend to use Darby’s figures while the vast majority of economists and historians stick with the conventional figures. Putting the unemployed on relief and giving them a pay check is called working for the dole. It is an attempt to hide unemployment, not eliminate it. The old statisticians and economists understood that and were scrupulously honest in their estimates. It was called relief because it was understood that this ‘employment’ was a government-funded substitute for real employment. Better to be paid for doing something rather than be paid for doing nothing. Therefore, if these had been real jobs they would not, by definition, have been called relief. Taken to its logical conclusion all a government would have to do to eliminate unemployment is assign the jobless to various activities, no matter how pointless, and classify their dole payments as wages. Continue reading Australia’s recovery from the Great Depression compared with Roosevelt’s sorry unemployment record
This is another response to a Keynesian critic.
My Keynesian critic says I “cannot compare the USA in 1938 and Australia in 1938 apart from both having stimulatory policy”. Well, I can and I did and justifiably so. It’s ludicrous to argue that comparisons are not justified. You also stated that in 1937 America “had the greatest change in fiscal policy under Roosevelt”. Complete baloney – and I have spent considerable time examining the data from official sources. I made my case in my post on the 1937-1938 crash. Prove me wrong and I will cheerfully (well, perhaps not cheerfully) publish it and graciously admit my error.
After that you returned to your GDP mantra even though GDP does not measure growth. In heavens name, how can an economy enjoy economic growth while at the same time consuming its capital? This is akin to a community getting rich by eating its seed corn. I pointed out in my post that it was estimated that net capital consumption dropped by minus 15.2 per cent1. Your response was to completely ignore that fact and keep on stressing Roosevelt’s grossly misleading super-duper GDP record. Continue reading The Great Depression: Australia’s record humiliates Roosevelt and refutes Keynesianism
This post is a response to a Keynesian reader.
If the 1931 spending cuts deepened Australia’s depression, as is alleged, then the rate at which unemployment had been rising would have accelerated. In fact, the reverse happened as shown by the chart below. In the year 1928-29 unemployment leapt by 74 per cent and 42 per cent in the following year. For the year ending 30 June 1931 Commonwealth spending peaked at £68,585,546, after which it fell and the Commonwealth began to accumulate surpluses until war broke out. According to Keynesianism this policy should have been an economic disaster. However, as we can clearly see from the chart, not only did the rate at which unemployment had been increasing slow down significantly, rising by only 5.8 per cent, it then began to quickly drop even though the Commonwealth increased its surplus by 277 per cent and cut spending even further. Continue reading Keynesian fallacies and the Great Depression: or how Australia left Roosevelt eating her dust
What is the real connection between inflation and unemployment? Then again, maybe that should be inflation and employment. That this has been raised several time on this site which got me thinking about a 1993 study called The Costs of Unemployment in Australia1 by Raja Junankar and Cezary Kapuscinski. The authors, both of whom are Keynesians, argued that a “fight inflation first” policy generally incurs more costs than benefits, a view that is held by most of the economics profession.
As I recall, this study elicited a favourable response from our media. The striking thing — in my view — is that though 22 years has passed it seems that not a single free market commentator made an effort to establish a link between inflation, booms and the consequent unemployment. What we do get is the likes of P. D Jonson, Peter Smith, Des Moore, Sinclair Davidson and Steve Kates2, etc., falsely asserting that the so-called boom-bust cycle is a natural part of the free market order and that we will just have to grin and bear it. (This attitude is music to the ears of the left and Keynesians because to them it justifies their own so-called solutions to the problem of recurring recessions). Continue reading Unemployment and reduced output is the cost of having inflation, not the cost of fighting it
It looks like Steve Kates will never get it right on the Great Depression. Harold L. Cole and Lee E. Ohanian wrote a paper blaming Roosevelt’s economic policies for keeping America in depression. Any genuinely informed and honest person would have to agree with them, at least in principle. Now Kates quoted from an article on the work of these two economists that ended with the following quote from Cole:
The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes… Ironically, our work shows that the recovery would have been very rapid had the government not intervened.
Steve Kates took immediate umbrage with this view, asserting that “what it doesn’t do is put the blame on public spending which is where the blame truly belongs.” Now there is a fundamental error in Ohanian and Cole’s work but it has nothing to do with public spending, an issue about which Steve Kates is utterly wrong. We get the same nonsense from Sinclair Davidson and Julie Novak who argue that Australia’s recovery from the Great Depression was due to cuts in public spending plus interest rate reductions and devaluation. Continue reading Steve Kates gets it badly wrong on Roosevelt, the Great Depression and government spending
Nottrampis posted a comment criticising my attack on Keynesianism. The following is my response. It is not meant to be a rebuttal but more of an outline of my views. In the very near future I shall expand in far greater detail on each of my points.
Now where to begin:
1. Demand springs from production, not the other way round, a fact that is patently clear in a barter economy. Of course, if it were a simple case of demand bringing fourth production then poverty would never be a problem. Keep on increasing ‘demand’ and eventually you will make everyone as rich as Warren Buffett. Continue reading More Keynesian fallacies and the Great Depression
I have been asked a number of times what the hell is wrong with Tony Abbott. The answer is simple: The same thing that is wrong with the Liberal Party. The Liberals are still largely governed by statist thinking and Keynesian economics. It is a party without a grasp of sound economic theory, any knowledge of the history of economic thought and thoroughly ignorant of economic history. James Guest, former Liberal MP, is a perfect and depressing example of this dangerous mixture of sanctimonious witlessness.
Five years ago James Guest did the public a service by openly displaying his staggering ignorance of these subjects in an article he wrote for Quadrant in which he attacked Steve Kates for rightly taking issue with the Labor Government’s reckless spending policy to counter the recession. (One can read Kates’ tepid response here). Continue reading Tony Abbott’s lousy economics and the menace of Keynesianism
This is a general response to a comment posted by Nottrampis. Once I began to write I realised my reply would be better as a post rather than a comment.
No matter what Keynesians argue, investment is not driven by consumer spending. This fallacy is based on a total misunderstanding of the nature of derived demand. (I shall deal with this fact in later posts). Investment is driven by the prospect of profit. In a free market the rate of interest determines the length of investment projects. Consumer spending has nothing to do with it. Continue reading Consumer spending, investment and the trade cycle
The 1937-38 crash was literally a depression within a depression1. The seasonally adjusted production index peaked 118 in May 19372. A year later it stood at 76, a drop of 36 per cent. From April 1937 to May 1938 manufacturing output fell by 38 per cent. The situation for the iron and steel industry was catastrophic with output collapsing by 67 percent. Factory employment dived by 25 per cent, factory payrolls by 36 per cent while aggregate unemployment peaked at 20 per cent. Such a rapid contraction in production was and is unprecedented in US History. The statistics for manufacturing, and the iron and steel industry in particular, are both striking and instructive if the monthly production figures are examined instead of annual aggregates, a fact that will become increasingly clear. Continue reading The Great Depression and the real facts behind Roosevelt’s 1937-38 Depression
I think this article about Australia and the Great Depression might open up another chapter on that economic tragedy. It reveals that contrary to the standard view Australia in fact suffered a near monetary collapse and it was this massive deflation that sent the Australian economy into depression. It is a known fact that manufacturing led the recovery. What is revealed here is that though real wages (nominal wages divided by the price level) remained stable during the depression the real factory wage in terms of output fell by 43 per cent! It comes to the remarkable conclusion that Australia recovered not because of the Premiers’ Plan but because the Plan did so little while allowing prices to do their work.
Continue reading Australia and the Great Depression: What you don’t know but should