Obama’s ‘New Deal’ Not Likely to Cure Economy or Unemployment Rate, Free Market Economists Say

December 8, 2008 - 9:05 PM
Some analysts are comparing President-elect Obama's economy recovery plan -- comprised of massive public works programs -- to Franklin Delano Roosevelt's New Deal response to the 1930s Depression. But government data show that FDR's programs did not substantially reduce unemployment.

President-elect Barack Obama listens to a question at a news conference in Chicago, Wednesday, Dec. 3, 2008. (AP Photo/Charles Dharapak)

(CNSNews.com) - President-elect Barack Obama has announced an economic plan comprised of massive public works programs to stimulate the economy and create 2.5 million jobs, at an estimated cost of $1.2 trillion.

Some analysts are calling it a New New Deal, comparing it to Franklin Delano Roosevelt's New Deal response to the 1930s Depression. But government data show that FDR's programs did not substantially reduce unemployment, and some economists think such programs actually prolonged the Depression and kept unemployment high. 
 
In a radio address on Saturday, available on his change.gov Web site, Obama said that he and his economic advisers had crafted an economic recovery plan “that will help save or create at least two-and-a-half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.”
 
Robert Higgs, a senior fellow at the free market Independent Institute, told CNSNews.com that “Obama’s plan for a large public works program certainly resembles some of the Roosevelt efforts, especially in 1935-1940, under the WPA, the Works Progress Administration.”
 
“I think there’s a very high probability that this kind of proposal will actually make matters worse,” said Higgs.
 
Lee E. Ohanian, professor of economics at UCLA, agreed that Obama’s plan shared similarities with Roosevelt’s “New Deal,” which expanded the federal government with the creation of 36 agencies, such as the Federal Emergency Relief Administration, the Federal Housing Administration, the National Industrial Recovery Act, the Public Works Administration, and the Social Security Administration.
 
In addition, Roosevelt presided over the creation of the Civilian Conservation Corps, the National Labor Relations Board, the National Recovery Administration, the Tennessee Valley Authority, the United States Securities and Exchange Commission and the Works Progress Administration.
 
The Roosevelt administration launched those myriad programs to stimulate the U.S. economy out of the Depression and get unemployed Americans back to work, but data from the Bureau of Labor Statistics show that the yearly rates of unemployment during the New Deal in the years before America entered World War II did not decline to the rates prior to the Depression. 
 
In fact, the unemployment rate stayed in double digits until 1941 and did not fall to a rate prior to the 1929 market crash until 1943, when America was heavily invested in a world war economy.

Former President Franklin D. Roosevelt

From 1929-1944, the rates of unemployment in the United States were as follows:
 
1929 ... 3.2%
1930 ... 8.7%
1931 ... 15.9%
1932 ... 23.6%
1933 ... 24.9%
1934 ... 21.7%
1935 ... 20.1%
1936 ... 16.9%
1937 ... 14.3%
1938 ... 19.0%
1939 ... 17.2%
1940 ... 14.6%
1941 ... 9.9%
1942 ... 4.7%
1943 ... 1.9%
1944 ... 1.2%
 
Source: Bureau of Labor Statistics
 
“As far as President-elect Obama, he wants to increase federal spending on various projects ranging from putting more computers in classrooms to making buildings more energy-efficient,” said Ohanian. “And he intends these to be sort of the foundation of a long-term recovery.”
 
“I don’t agree with that, in the following sense,” said Ohanian. “It may well be a good idea to invest in infrastructure, but what people sort of forget about federal jobs is that essentially the government’s going out and hiring people, but households are paying that bill through higher taxes.”
 
Ohanian also warned that the government’s effort to expand employment will increase debt. “On net, will it really increase employment?” he asked of Obama’s plan. “I don’t expect it will very much.”
 
“I disagree that this can be the foundation of promoting long-run economic growth,” said Ohanian.
 
Among the efforts promised that Obama referred to in his remarks to the nation about the economy are the following:
 
·         “A massive effort to make public buildings more energy-efficient.”
·         The creation of “millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”
·         “The most sweeping effort to modernize and upgrade school buildings that this country has ever seen.”
·         A renewal of “our information superhighway.”
 
“These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks,” Obama said in his radio address. “We need to act with the urgency this moment demands to save or create at least two-and-a-half million jobs so that the nearly two million Americans who’ve lost them know that they have a future.”