Are We Talking Great Depression? (Part 2)
Kurt Brouwer March 17th, 2009
In this post — the second in this series about the Great Depression — I thought it would be useful to look at employment. Before we go ahead, it is important to note that the mere fact we are even discussing the Depression right now should indicate how serious this recession is.
By the way, I believe the Great Depression itself should have been just a recession, but that government actions including higher income taxes (Presidents Hoover & Roosevelt), trade restrictions (Smoot Hawley Tariff Act of 1930) and a significant contraction in the money supply (Federal Reserve) all combined to drag the economy down much more than otherwise would have happened (see How to Squelch an Economic Recovery for much more detail on this issue).
Today, there are many levels of support that did not exist back then (unemployment insurance, bank depositor protection, brokerage firm protections, Social Security) that act to mitigate the downturn. Also, the Federal Reserve is acting aggressively to increase the money supply so these factors are good.
On the other hand, there are serious concerns such as Federal plans to raise income taxes and corporate taxes and, at the state level, sales taxes and vehicle taxes. In my opinion, raising taxes during an economic contraction is a serious policy mistake (see Stimulus: Is it timely, targeted and temporary?).
We also have an incipient movement towards trade protectionism, which is an enormous policy mistake. There is a ‘buy American’ provision in the American Reinvestment & Recovery Act of 2009 and that has already stirred complaints from our trading partners. Also, Mexico announced that it is putting up tariffs on American goods over another dispute. Though these are relatively minor events, protectionism is hard to stop once it gets going.
Is This a Recession or Great Depression II?
In my opinion, we are in a deep recession that will probably be akin to that of the 1980-82 time period. That is, I believe we will muddle through this mess and that it will not turn out to be Great Depression II.
In order to effectively discuss the Great Depression, we need to assess what it was like. In the post, we will look at changes in employment during the Depression versus the current downturn.
There is no question that unemployment is up — currently 8.1% — and there is little doubt it will keep going up for a while because unemployment is a lagging indicator that generally does not peak until after a recession ends.
Every day, we see headlines about the millions of jobs that have been lost and that sounds scary. Though we all need to be concerned about job losses, we also need to put losses in perspective.
At 154,214,000, our civilian labor force is much bigger today than it was in 1931. In fact, the labor force today is bigger today than the entire population of the country was in the Great Depression. If you include Alaska and Hawaii, the 1930 Census Report put the entire population at 123,202,660.
So, when we see headlines about the number of job losses or unemployment claims, the numbers should be adjusted to reflect the enormous increase in the size of work force.
This chart indicates just how much our labor force has grown over the past 60 years. The data at the St. Louis Fed only go back to 1948, but you get the point — there has been a steady increase in the number of people working.
Source: St. Louis Federal Reserve Bank
Looking at Employment in the Great Depression
At his Curious Capitalist blog, Justin Fox posted several very nice charts that display reductions in nonfarm employment in the Great Depression versus this recession. These charts utilize statistical information on those that are employed now versus those that were employed in the Depression.
One important point is that more people worked on farms back then, so that is one difference that could impact these results as they were not included in the employment rolls in either case.
One school of thought thinks that the larger farm workforce made things a bit better as people could at least grow their own food. On the other hand, many farms were foreclosed back then so people lost not only their job, but also their home. The loss of the family farm and the effect of the drought in the 1930s led to a significant migration — the Okies — that was very serious, as any older California or Oklahoma resident can attest.
One other more minor point is that the Depression-era numbers are not seasonally-adjusted to take into account Christmas season employment or teachers going on summer break and so on. This primarily means the line is not as smooth as current seasonally-adjusted employment statistics.
This charts the decline in employment for the Depression versus six recessions since World War II. The number of working Americans always goes down in a recession, but in the 1930s the numbers went down for a very long time — 42 months — before starting to turn up. On this chart, the pink line shows the decline in the 1930s and the light blue line is the current recession.
Source: Curious Capitalist Blog
As you can see, the six post-World War II recessions, including this one, do not bear an obvious connection to the enormous decline in employment during the 1930s.
In terms of trajectory, I believe the red line (July 1981 employment peak) fits the current recession best. That is, the contraction in employment will be similar to that recession.
This next chart just compares the current downturn in employment for the 14 months of this recession versus the first 14 months of the Great Depression.
Source: Curious Capitalist Blog
Again, the trajectory of declines in employment during this recession bear no visual comparison to losses in the Great Depression. By writing this, I am not trying to diminish the severity of this downturn, but rather to point out that how different our experience is this time.
As I wrote above, I do not believe we are entering a Depression II. For that to happen, our government and other governments around the world would have to make dreadful policy blunders and, while that is possible, I consider it unlikely.
See also Part I, Are We Talking Great Depression?
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Based on what my mother and her brother told me, here is what the Great Depression was like:
My grandma was left widowed with 5 little kids at home. She was turned down for all forms of public assistance, either on the grounds that her kids were old enough to let her work outside of home, or she was turned down, because her kids were too young for her to work outside of home.
My uncle told me they stretched money by saving the tissue paper that fruit came wrapped in–and used it as TP.
Harsh.
Grandma did get a job cooking in hospital kitchen. (real food was made onsite in those days)
That meant her battle axe mother in law had to come stay with them to help with the household when Grandma was at work.
As my uncle put it, Great Grandma, in addition to being a b**tch, could not cook worth shit.
So…that friends, was the Great Depression–from one family’s perpspective.
I had a great-grandfather who was shot and killed for the money in his pocket during the Great Depression. He was an engineer, but selling candy on the street was the only job he could find, and led to him being targeted.
I was born in 1955. My parents were both from share cropping families in deep southeast Alabama. That’s LA - Lower Alabama.
I have uncles and aunts who die as young children. I’ve seen the grave of one. It reads “Little Brother Brewer.” He died unnamed. You didn’t waste a name on a kid who didn’t look they he was going to make it in those days.
When my father was drafted the U.S. Army boot camp showed him the luxaries of indoor toilets and hot showers.
Thank you all for the poignant stories about your families. Life was a lot tougher then. No doubt there are plenty of trials ahead, but we often forget how difficult it was for our parents, grandparents and other ancestors.
If we think things are bad now it is still nothing to compare to the 1920s and 30s. Things were bad, real bad, during the great depression. There was an individual that fought for the cause of the Laboring man in Louisiana and the country. His name was Harvey G. Fields and he fought the Bankhead act and called for the replacement of Hugh Johnson as the head of the NRA. Both of these actions happened. He also fought tirelessly for the individual in the courts while at the same time taking down the Governor Leche political system in Louisiana. He was a member of the Huey Long Law Firm, Chairman of the La Public Service Commission, Chairman of the Louisiana Democratic Central Committee and was the Federal Prosecutor of the Western Region of Louisiana. His floor fights at the Democratic National Conventions led to the seating of several controversial delegations. To read more about life during the great depression and several failed federal attempts go to Google Books and search for “I Called Him Grand Dad”. Eventually Fields was not reappointed as Federal Prosecutor following his work to dismember the totally Roosevelt dedicated Richard Leche organization in Louisiana. He was known best for his integrity, honesty and dedication to his causes. Fields was identified three times on Who’s Who in American Politics and his home town of Farmerville presented him with the award for 50 years of practicing law in Union Parish.