I am not talking here about the delusional ramblings of people like wingnut welfare recipient^* Amity Shlaes, who suggests that capitalists put their money in their mattresses in Atlas Shrugged style in 1937 because of the “uncertainties” that FDR produced.

After all, that one has been debunked by a legion of economist including right wing darling Milton Friedman, with the only dispute being to what degree the cause was fiscal tightening in 1937 by FDR (Keynesian) or monetary tightening by the Fed (Chicago School).

Instead, I am talking about the suggestions by the Chicago School boys that the New Deal did little or nothing to fix unemployment.

As economist James Galbraith so ably notes, the people who want to show this do so by not counting employed people.

Actually, it’s more than that, it’s by counting the employed as unemployed.

He starts out with the figures must usually used by neoliberal economists, in which Stanley Lebergott seems to show that the 1937 recession returned unemployment to nearly its prior level.

It seems to be a damning indictment of the new deal, except, as Michael R. Darby noted in 1976, 3½ million employed individuals are not being counted in this graph.

As Lebergott notes in his own footnotes, the people on “Emergency Employment,” things like the WPA and NRA (not the gun lobby) projects are simply not counted, because that is how the BLS counted employment in the 1930s.

What’s more, not only are they not counted, they are counted as unemployed, which paints a very different picture, with the dashed line showing the unemployment numbers.

The critics of FDR are figuring unemployment numbers by using employment data ex-employment data.

While there may be a case, though I would disagree, that these people should be dropped from the employment rolls for counting purpose, as active duty military were until 1982, when they were added to artificially keep the unemployment rate below 10% by Ronald Reagan’s BLS.

It turns out that if you take their argument, which is that government employment isn’t real, and that private sector is what matters, you get a picture which an even more drastic drop in unemployment during the New Deal, in part because private sector unemployment did not peak at 25%, but because it peaked at 30%. (!)

So, now that we have dealt with that shibboleth, I actually found another interesting bit of information, from a handy chart of GDP and federal spending from 1930 to 1984, which allows me to do this GDP chart in both absolute and real (inflation adjusted) terms using CPI data available online.

It shows a fairly blistering decent growth rate in 1934, with blistering double digit growth in 1935 and 1936, and in 1937, the economy, in real terms, finally passes the 1930 economy, as opposed to 1941 in absolute terms.

This gives us an insight as to why Roosevelt listened to his Treasury Secretary, and cut spending: he thought, or at least his gut was telling him, that the economy had grown beyond the level of 1930.

^*She graduated with a degree in English from Yale’s Jonathan Edwards College^†, never, as near as I can determine, has published anything on economics in a peer reviewed setting, and yet she is a senior fellow in economic history at the Council on Foreign Relations.^‡
†Ivy League Welfare too, I guess.
^‡The fact that her rise to prominence followed her 1988 marriage to right wing luminary “journalist” Seth Lipsky, former editor-in-chief and president of the faux “newspaper” the New York Sun seems to indicate that nepotism is involved, but compared to Bill Kristol, who would be flipping burgers but for who his father was, it’s a minor example.^§
§Why doesn’t the left support its ideological foot soldiers in the same way?