Winning the Economic Argument: Show Opponents This Graph, and Ask Them to Explain
Anyone who had the misfortune to hear the Sunday talk shows knows that the Republicans have decided to use their claims that spending is not consumption, that that it does not create or preserve jobs, and to point -- as the Minority Leader McConnell did -- to the New Deal as being a failure.
Way back in October, when the so-called "pundits" were suggesting there may be a need for another ~$150 billion stimulus, the case was made on these pages for massive public investment as the only source of consumption in a contracting economy, and cited the New Deal. ("Wanted: A Good Keynesian. Massive Public Investment Will Fix the Economy" October 13, 2008). This became the basis for the stimulus plan, until it was partially emasculated by Republicans.
Instead of wasting words on those who will not hear, switch senses to sight, show them this graph, and ask them to explain it:
(The Y-Axis is GDP expressed as a percentage increase over the lowest GDP in 1933. Note that in 1929, the GDP is nearly 40% ABOVE the 1933 low, and this was surpassed in 1936)
As pointed out in the above-referenced article, the key observation in this graph is the downturn in 1936-37. This is as close to a "scientific experiment" as there can be in macroeconomics: from '33 to '36 Roosevelt unleashed the New Deal and what passed at the time as massive spending. The GDP grew every year by double-digits.
Then, in a reversion to his true roots as a fiscal conservative, FDR decided that it was time to slash spending to balance the budget. The economy contracted. Then in '38, realizing the error of his ways, Roosevelt started spending again, and GDP grew every year thereafter.
Note the sequence: spending, tightening, spending. Growth-contraction-growth. These conditions mirror the requirements in medicine to prove disease causation that are known as Koch's Postulates: discover the causative agent and remove it; demonstrate the disease is effectively treated; then introduce the causative agent again and show it causes the disease. Without that last step, the first correlation may be coincidence and not cause. [For those interested in a medical example of Koch's Postulates, see below ]*.
With the Great Depression, there was the '29 Crash and contracting government spending, with the "disease" of severe economic contraction; then, in 1933 the ballooning of government spending and economic growth; then in 1936 the reduction of government spending and economic contraction; and then, in 1938 increased government spending and a return to economic growth.
It is interesting to note that Republicans, who have delighted for 50 years in attributing the end of the Great Depression to World War II, conveniently omit that in World War II there were wage-price control boards, rationing, higher taxes and massive government spending. Other than massive government spending, and "employment" in the armed forces, there is nothing economically "magic" about war. One might even suggest that, from a pure economics perspective, much of the spending in war is wasteful, building machines that will be destroyed before their useful life is completed.
But, these are all words. Just show opponents the graph, and ask them to explain how it was that the GDP in 1936 exceeded that in 1929 and never, even with the 1937 contraction, fell below that level again. And why, if government spending were irrelevant or even counterproductive, GDP fell when government spending was reduced and then grew again when it was again increased?
Because of the unplanned "experiment" of 1937, there is more compelling data showing the causative link between massive government spending and economic growth in the setting of a major economic contraction than there is for taxcuts: remember, George HW Bush and Bill Clinton raised taxes, and the 1990s were a period of sustained economic growth. And, the Bush tax cuts--the weakest recovery in history.
In 3-4 years the New Deal returned GDP to pre-Depression levels. It never sank below that again.
Some failure!
* E.g., for those interested how Koch's Postulates work, to prove a person has gluten "allergy" causing malabsorption, a biopsy is taken of the duodenum demonstrating abnormalities; then gluten is withdrawn from the diet, the malabsorption improves, and a repeat biopsy shows a normal duodenum; then, gluten is added back, the symptoms return and a biopsy looks like the first one. This patient has "celiac disease" caused by gluten, and his treatment is a gluten-free diet].
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Paul, the Republicans require Americans to be ignorant and frightful in order to maintain a base and further their aims. The graph is marvelously, and dramatically demonstrative of FDR's success at pulling the United States out of the Great Depression, however, those traditional supporters of the GOP you would share this graph with would need the capacity to accurately interpret its findings. There was a time when American School Children could name the capitals of Europe, now identifying the United States on the map of the world is iffy for even some American adults.
For anyone of reasonable education your graph explains the facts of FDR's success ... but we don't live in a nation of reasonably educated people.
The problem with showing this graph to _most_ republicans is that they really are not interested in facts. They are only interested in material which suits their ideological agenda.
You hit the nail right on the head!
B I N G O !!!!!!!!!!
The GOP don't accept or share or acknowledge facts of any kind. They are the mirror image of Faux News. Image and perception is everything and knowledge based facts don't sell beer.
The GDP includes government spending -- according to Wikipedia, GDP = consumption + gross investment + government spending + (exports − imports). Seeing that FDR spent a crapload during his terms, the huge spike in GDP makes sense... government spending directly effects the GDP.
The real figure you want to look at is the unemployment rate, which didn't go back to normal until 10 years after FDR entered office. 10 years! Yeah, you could say it 'worked' -- but how much worse did it make it, and how much longer did it make it last?
I recommend people with an open mind who are interested in learning more about the Depression read Rothbard's America's Great Depression, which the publisher provides for free on the internet. An excellent, worthwhile read.
good post, consider it read.
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Thank you for making my point. Government spending is indeed part of GDP, and thus the spending did directly impact the calculations, as well as impacting the general economy as show by industrial production also surpassed 1929 in 1936, and did not fall below that level even with the contraction in 1937.
Unemployment plunged to 14% in 1936 from 25% in 1929, shot up to 19% in 1937, again showing the impact of reduced government spending. No question that the '37 contraction reversed and then slowed the reduction in unemployment rates. Again, thanks for helping me make the point.
Ok so why don't we just have the government spend huge sums all the time if it is a miraculous cure all?
Is a reduction in unemployment over 7 years from 25% to 14% a "PLUNGE"? And is it a continued plunge if it goes back up to 19% from 14% in one year, which must be considered a shuttle blast when compared to your petard.
Paul, every year government spending increased, even in 1937. Is it any wonder the GDP increased so dramatically? Is it any wonder that after the government increased it's spending by 2-4 billion every year (save for 1937, where it only increased by about 600 million) and then by exponentially larger amounts beginning in the year 1941, that the GDP increased so dramatically?
Don't forget to mention that after the New Deal, government power and control increased quite a bit. People and businesses were forced to become more dependent on government. The government stole more money from it's citizens and spent much, much more as well. Do you think a society dependent on a government that has a huge track record of failure is a good thing?
Need I mention the terrible 1921 recession, in which government took a more hands-off approach -- allowed wage rates to fall, decreased taxes, and decreased spending? The recession was over in one year.
Here's a link to data regarding government spending from 1930-1950: http://www
These ditto-heads are simply incapable of seeing logic past ideology. If someone claims FDR reduced unemployment, they some how think it wasn't good enough or fast enough thus it was a complete fail*ure. You hear this in*sanity over and over. If FDR increased GDP, they say somehow he really didn't, because its pretzel math, yet they twist the numbers.
Under FDR and spending, the nation improved. There is not a GDP or unemployment graph line CONTINUING going down down down down down after FDR took office- like it did DURING "spend no money" Hoover's.
Just ask someone who was there: out of work out of money with no food for their family: ask them if things improved. I have asked and they all say the same thing. FDR was a blessing!
I feel sorry for the ditto-heads sometimes; imagine living everyday like that.
Actually, the right-wing loons and ditto heads are making the liberal case. So many people have grandparents that they knew well that lived through the Great Depression - or should I say First Republican Great Depression.
Those grandparents adored FDR and rightly credit him with putting the country back to work. Increasingly, people know full well that the right-wing and their enablers in the media are lying because who should you trust more - them or Grandma and Grandpa.
Ditto-head? Funny, as I despise the right-wing ideology. Right-wingers scream that they want a "free market" but where's the free market? We haven't had one in God knows how long -- maybe over a century.
Also, I recommend you read the book I pointed out to you, America's Great Depression. You are under the false impression -- likely from listening to the media -- that Hoover "spent no money" and "did nothing" during the Depression. Nothing could be further from the truth, unless you think raising taxes, raising tariffs, increasing subsidies, massively increasing spending in areas such as public works, public welfare, etc., keeping wage rates artificially high, inflating the money supply, allowing banks to have holiday's so they didn't have to give people their rightful property, increasing regulations, and increasing restrictions can seriously be considered "doing nothing". If that's your definition of laissez-faire or "doing nothing" or a "free market", I can understand why you are against it.
Things improved, there's no question. It just took an amazingly long time (10 years) and gave the country massive debt and gave the government much, much too much power.
What is the Y axis? Percent of what?
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I have added an explanation in the text, and I thank you for pointing out the omission.
For the Y-axis, the GDP was zeroed out as a percentage at its lowest level (1933), and the GDP in other years is presented as a percentage increase over that low. Thus, if GDP was 100 in 1933, then in 1929 it was 140, and it was slightly higher than 140 in 1936.
Why don't you explain the graph?
In first grade students learn to label the axes of their graphs, what you have is an undefined percentage per time.
Why don't you complain to the U.S. Dept of Commerce and MBG Information Services. It's *their* graph.
I imagine if you went to the primary source, they'll explain it all. If you want to wade through it all. A summary is good enough for me.
Oh, and students to make graphs like this until sixth grade. They're supposed to label them but it takes several years to get them to do it on a regular basis and with any accuracy. Some never do get it.
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No. it was a fair comment. It is not the Commerce Dept that is responsible for how their information is used, it is the user.
I explained in a comment to another reader who had the same question. GDP at its lowest was "zeroed out", and the percentages on the Y-axis represent the percent increase above that lowest level in a particular year. So, e.g., in 1929 GDP was nearly 40% above '33 levels, and in '36 GDP was slightly above the '29 level, both calculated as a percentage increase over the '33 level.
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