Deficits vs. Jobs

April 28, 1958

I pointed out here in the issue of March 17 that, after 1930, “We had cheap money, inflexible or rising wage rates, and heavy government deficits for the next ten years. As a result, we also had mass unemployment for the next ten years—until the second world war finally bailed us out.” As we are trying to adopt now precisely the remedies that failed in the ’30s, let us look at that period in more detail. Here are the deficit, number of unemployed, and percentage of unemployed to the total labor force, year by year in that decade:

In the following table the deficits are for fiscal years ending on June 30; the unemployment is an average of the full calendar year. Spenders, no doubt, will try to find a partial negative correlation between the size of the deficit and the number of unemployed; but the central and decisive fact is that heavy deficits were accompanied by mass unemployment. If we translate the foregoing figures into 1957 terms, we find: The average deficit in this ten-year period was $2.8 billion, which was 3.6 percent of the gross national product of the period. The same percentage of the gross national product of 1957 would mean a deficit of $15.6 billion. The average unemployment of the ten-year period was 9.9 millions, which was 18.6 percent of the total labor force. The same percentage of unemployment today would mean 12.6 million jobless instead of the present 5.2 million. So much for the effect of deficits as a cure for unemployment.

Another point to be noticed in this table is that in the ten years from 1948 to 1957 inclusive, average unemployment was 4.3 percent of the total labor force. Yet this period was one of unusually high employment, even of “labor shortage.” But if four persons out of every 100 are “normally” unemployed, then the present “abnormal” unemployment is only three persons out of every 100. This is serious, especially for those directly concerned. But it hardly justifies reckless deficit spending or further dilution of the dollar in an effort to cure it. We could more profitably look at the relation of key wage rates to prices and consumer demand.

In this article I have taken official unemployment estimates at their face value. Next week we shall try to find how accurate these estimates are.

THE RECORD

* 1958 figures are for the month of March.