I showed these video clips to my classes this summer and Mulligan's
claims about gov't spending and unemployment during WW II just did not
ring true so I went and looked up a couple of facts.
During the depression the unemployment rate peeked around 25% in 1933.
It went down to 15% in 1937. From 1933 to 1936 real federal spending
increased increased 100%. (I am looking at index numbers for the
quantity of real GDP). Presumable the increase was associated with the
New Deal spending and it seems to have worked. In 1937 federal spending
went down 9.9 percent and the unemployment rate jumped back up to 19.1.
By 1938 federal spending was back to the 1936 level and between 1938 and
1939 federal spending increased increased 7.2% and the unemployment
rate started back down reaching 17.2 percent in 1939. During the time
period from 1933 through 1939 defense spending increased 49% compared to
an overall increase in federal spending of 120% so it would appear that
most of the stimulus before the War was in non-military spending. From
1939 to 1940 defense spending increased by 75% and from 1940 to 1941
defense spending increased 440% and then from 1941 to 1942 defense
spending increased 265%. Defense spending peeked in 1944 but in
percentage terms the biggest increases in defense spending was between
1940 and 1941 followed by the increase in 1942. In 1940 the unemployment
rate was 14.6% and in 1941 it had dropped to 9.9 percent and by 1942
4.7%. I am not familiar with the Barro paper and I am not saying that my
analysis proves anything but it sure looks like the big increases in
defense spending were strongly correlated with the sharp decline in the
unemployment rate. It also appears that defense spending was on the way
up well before Pearl Harbor which may be a surprise to some economists
like Barro and Mulligan but would not be a surprise to historians.
I was also taken a back by Mulligan's claim that the stimulus was just
too expensive. He claimed that it was about $250,000 per job. So I did a
little digging here as well. I found the estimates of the job creation
in the report at the CEA. The stimulus was to be spent over two years
and was estimated to raise real GDP from $11.77 trillion to $12.203
trillion an increase $443 billion or an increase of 3.7%. Half the
stimulus money is $387.5 billion which created 443 billion. This
increase in GDP would suggest a multiplier of about 1.11 and according
to the CEA would lead to the creation of 3.674 million "new jobs." Maybe
I am thinking about this the wrong way but it seems to me that the cost
per job is the $387.5 billion (which is assumed to be a permanent
increase in spending) divided by the 3.674 million jobs which is about
$105,470 per job. Am I thinking about this correctly?
Rudy
Michael Perelman wrote:
In the last century, he did some interesting stuff on intergenerational
determinants of income.
--
Rudy Fichtenbaum
Professor of Economics
Chief Negotiator AAUP-WSU
Wright State University
Dayton, OH 45435-0001
937-775-3085
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