Black Unemployment: the effect of 80 years of government intervention

I’ve started The Forgotten Man, an economic history of the Great Depression.  Much in the book was news to me.  I’ll kick off my weblog coverage of this work with one quote:  “Data from the 1930 census would show black unemployment nationally standing slightly below white unemployment.”  (i.e., in 1930 a greater percentage of black Americans held jobs than white Americans)

After FDR’s New Deal and Lyndon Johnson’s Great Society and all of the other Big Government efforts over the past 80 years to fight inner city poverty and discrimination against blacks…  the black unemployment rate is roughly double the white unemployment rate.  During the same period, the Federal Government share of the economy, as a percentage of GDP, has grown from roughly 2 percent to roughly 20 percent.

[http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm offers some historical unemployment data.  In 1930, the year under discussion, the rate was 8.9 percent.  During the Calvin Coolidge years (1920s), the rate was 3.3 percent.  Note that these numbers would be much lower given modern measurement techniques that exclude large numbers of potential workers from the labor force.  The ballooning of the unemployed during the Great Depression was an anomaly that will be discussed in a future post about the rest of the Forgotten Man.]

7 Comments

  1. Ryan

    July 11, 2008 @ 2:31 am

    1

    In 1932 the unemployment rate overall was 24% (http://en.wikipedia.org/wiki/Economic_history_of_the_United_States).

    Not hard to get the rate of any one ethnic group below that overall rate.

    Today it is 5.5 percent.

    So another way of phrasing your post is that, after 80 years and the expansion of Big Government, the black unemployment rate has been cut in half (22->11), while the overall unemployment rate has been reduced to one-quarter its prior levels and is near historic lows.

    Sounds like a win for big government.

  2. Russil Wvong

    July 11, 2008 @ 3:24 am

    2

    Benjamin Friedman reviewed The Forgotten Man last November in the New York Review of Books. Although he has positive comments (“splendid detail, rich with events and personalities”), he describes the basic arguments of the book as ideologically driven and questionable.

    How to assess Roosevelt’s actions beginning in March 1933—and, in parallel, Hoover’s policies during the nearly four years of the downturn—has long posed a challenge to economists and historians hostile to government action. From that viewpoint, Hoover’s reluctance to undertake government initiatives should be seen as admirable. But didn’t it allow the downturn to become the depression? The economy recovered under Roosevelt; but the legacy of large-scale government remains anathema, both for the interference in the workings of private business and for the assumption of public responsibility for citizens’ personal welfare, whether in housing or old-age pensions.

    [Amity] Shlaes … follows what has become standard conservative thinking in denying that Roosevelt’s programs had anything to do with the recovery…. Indeed, focusing on unemployment and the stock market rather than production and incomes, she mostly writes as if no recovery occurred at all….

    Several problems prevent Shlaes’s argument from being fully credible. Most obvious is the continual refusal to acknowledge the scale and scope of the recovery that took place beginning in 1933 or, by some measures, as early as 1932. For example, compared to the low point in July 1932, US industrial production was 32 percent higher by December 1933, and it continued to rise by another 10 percent in 1934, 24 percent more in 1935, and yet a further 21 percent in 1936. …

    A second problem surrounds Shlaes’s argument that New Deal policies depressed the incentive and ability of US businesses to innovate. In fact, there were large gains in American productivity during this period….

    The chief difficulty with this line of argument is already implicit in the contrast between the rapid rate of recovery in the volume of production and the much slower recovery in the amount of labor used to produce it. Making more output with less labor input means increased productivity—precisely what efficient management and creative innovation are supposed to achieve….

    Shlaes also undercuts her substantive argument with her relentless personal denigration of Roosevelt….

    … most prominently missing in Shlaes’s account is an examination of how international events and institutions help explain why what began as yet another business downturn became the depression, and why it was so difficult for many countries to recover.

  3. M. Johanson

    July 11, 2008 @ 9:54 am

    3

    Phil, your last sentence caught my eye. According to data at the website, http://www.usgovernmentspending.com, which I have not verified, total DIRECT government spending (i.e. fed, state, local) as a percentage of GDP in 2008 ($14.3T) is 37%. Interestingly, “defense, protection, general government and transportation” amounts to approximately 10% of GDP. education (6%), pensions (6%), healthcare (6%), welfare (3%) and other (3%) total approximately 24% of GDP. The rest is interest, I think. It is likely that the magnitude of the indirect support structure required to hold this weight is underrepresented in these numbers and the total price tag as a percentage of GDP is probably higher. But let’s use 37%, or $5T.

    Data for 1902: GDP ($24.2B), total gov’t spending (7% of GDP), “defense, protection, general gov’t, transportation (4% of GDP),” “education (1%), pensions (0%), healthcare (0%), welfare (0%), total (1%),” plus 2% for other, keeping track of a convention of significant figures.

    7% to >37% in 100 years. Note that state & local spending turned into federal spending (as Phil mentions, fed went from 2% to 20% of GDP). Also please note carefully where the bloat comes from by spending category.

    Today, nearly 2 out of 5 of us get paid with recycled money. We have made a lot of progress in just 100 years. The beast will continue to grow, unless there is a tipping point, in which case life will get more interesting. There is strong belief by some that there is no tipping point. History suggests otherwise, I think. Thanks for the nudge to look up some information.

  4. Woody

    July 11, 2008 @ 11:28 am

    4

    FDR taught the Democrats how to buy votes with taxpayer money. Results don’t matter as long as feigned intentions look good.

  5. philg

    July 11, 2008 @ 2:53 pm

    5

    Ryan: The U.S. unemployment rate in 1930, the year cited in the Forgotten Man, was approximately 8.7 percent. Because of the way that statistics have been cooked and people of working age excluded from the workforce, this might well be lower than a modern figure of 5 percent. Unemployment among black Americans is now, in any case, over 10 percent.

    [see http://blogs.law.harvard.edu/philg/2008/04/23/cooking-gdp-unemployment-and-inflation-numbers/ for more on the way that he officially reported statistics have been altered]

  6. Russil Wvong

    July 11, 2008 @ 6:44 pm

    6

    M. Johanson: Daniel Schmelzer has put together a good graph showing US government spending and revenue as a percentage of GDP, from 1929 to 2004. For comparison with other countries, see the OECD numbers.

    If the “median voter” theory is correct, government spending and taxes stop rising once the median voter thinks they’re too high. John Richards:

    Imagine that, once a year over the past century, a representative sample of citizens in the major industrial democracies had been asked, do you think social programs, and taxes required to pay for them, should absorb a higher share of gross domestic product (GDP)? Some time after 1975, the proportion willing to respond yes undoubtedly fell below 50 percent in most of these countries.

  7. M. Johanson

    July 13, 2008 @ 10:49 am

    7

    Russil Wvong: Thank you very much for the references, which are new to me. I glanced at the 2009 column of the table of OECD Gov’t spending and the take away is exciting, to say the least. I would have guessed (and hoped) that the distribution across the countries was strongly bimodal with a wide valley, but it is not. People in all “developed” countries apparently want big governments, regardless of specifics. And the data, along with Richards, illustrates that there is a tipping point in “developed” democracies, and the location of the tipping point is reasonably well understood. I need to think more about this.

    From my perspective, there is trouble residing inherently in the feedback loop. There are more and more voters and seemingly fewer and fewer producers among them. Is the welfare state really self-regulating? Or must these things always devolve?

    Thank you very much again for the data.

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