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The View from the Depression, an Illustration


UnemploymentAndDow.png
A bit off our usual polling focus, but Joe Nocera has a nice article in the New York Times Friday. It reviews the recently published depression diary of Benjamin Roth, giving  a contemporary account of what it was like. Nocera does a great job of using the diary as a vehicle to talk about the policy issues of that era and ties them to our current issues.

This post is an illustration for his text. The fall, then rise, of unemployment, and the rebound then second drop of the stock market in the 1937-38 period are an implicit warning for our current condition as Nocera discusses. 

And here is our current unemployment condition, in states and nationally. Click the chart for a full size version.

unempall.png

ADDENDUM 10/18/09: Mark Sadowski posted a great comment below on the controversy over which measures of unemployment should be used to examine the Depression and New Deal era.  This is a debate that has had a flourish of renewed interest as some have argued that the New Deal had little effect on unemployment. Mark's comment below provides a great overview of these issues with pointers to the relevant literature. 

For comparison, here is another version of the chart, with the original and revised data plotted. While the difference may matter for some purposes, as an illustration of Nocera's article it is the timing of shifts that matters, and those shifts are closely parallel.

UnemploymentAndDowRev.png

 

Comments
Mark:

I found Joe Nocera's article about the diary of Benajamin Roth to be very interesting. Roth's seemingly strange and persistent concern about impending inflation due to the government's actions to ameliorate the "depression" amidst deflation are strikingly similar to the attitudes by many on the right today. It's for that reason we need to be vigilant about the economic history of the period. The Roths of today are busy trying to twist what we now know about the period using outdated data.

Monthly unemployment figures weren't computed by the federal government until the early 1940s. The unemployment figures most often cited concerning the Great Depression are the ones found here, and are old estimates by Stanley Lebergott dating back to 1948. They are not consistent with the way we calculate unemployment today. However, they can easily be found in the free online version of the 3rd edition of "Historical Statistics of the United States," 1976, available at the Census Bureau website.

Lebergott did not consider Federal Emergency Relief Workers (FERWs) to be employed. Today the BLS considers anyone who receives wages in exchange for work to be employed. Also his unemployment figures from before 1930 are considered to be full of statistical errors. Lebergott’s Depression era unemployment rates were corrected by Michael Darby, and his figures from before 1930 have been corrected by Christina Romer. Here are the updated unemployment rates. These are the very figures which you will find in “Historical Statistics of the United States, Earliest Times to the Present: Millennial Edition,” the 4th edition, edited by Susan B. Carter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright. New York: Cambridge University Press, 2006. Alas, since it is not free, few people consult it:

1928 ………….. 5.0
1929 ………….. 4.6
1930 ………….. 8.7
1931 ………….. 15.3
1932 ………….. 22.5
1933 ………….. 20.6
1934 ………….. 16.0
1935 ………….. 14.2
1936 ………….. 9.9
1937 ………….. 9.1
1938 ………….. 12.5
1939 ………….. 11.3
1940 ………….. 9.5
1941 ………….. 6.0
1942 ………….. 3.1
1943 ………….. 1.8

These figures were first released in the following two papers:

Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of
Unemployment, 1934-1941
Author: Michael R. Darby
Source: The Journal of Political Economy, Vol. 84, No. 1 (Feb., 1976), pp. 1-16

Spurious Volatility in Historical Unemployment Data
Author: Christina Romer
Source: The Journal of Political Economy, Vol. 94, No. 1 (Feb., 1986), pp. 1-37

How do the two unemployment series match up with Roth's perceptions at the time? Roth's diary begins in early 1931 and it's fairly clear from subsequent passages that he considered that to be the start of a depression (as opposed to something much less severe). The unemployment rate in early 1931 was probably about 12 percent. By early 1937 Roth was so encouraged by existing economic conditions he declared the depression over. Counting FERWs as employed the unemployment rate was probably just over 9% at that time. Not counting them as employed it was over 15%. My sense is based on the social history of the period, such as Roth's diary, the newer unemployment series more closely resembles people's perceptions of economic well being at the time.

Nevertheless, I agree, a major lesson from 1937-1938 recession is not to let the economic public policy foot off of the fiscal/monetary gas pedal prematurely. Economic conditions may not have seemed very depression-like by early 1937 anymore, but the economic recovery was still far too fragile to take it off of the extraordinary government life support it was still receiving.

P.S. A good layman’s introduction to the recent contoversy over whether the FERWs should be considered employed can be found here:

http://edgeofthewest.wordpress.com/2008/10/10/very-short-reading-list-unemployment-in-the-1930s/

Mark A. Sadowski

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