Wednesday, December 10, 2008

Comparing 1929 to 2008

One of the rebuttals to those who compare the depression of 1928 to 2008 is that unemployment is far lower today than it was then. Of course there are problems with that comparison.

One problem is that every government statistic is a poor reflection of reality. It is well known that inflation calculations exclude certain high inflation items in order to bring the actual rate down. The same is true for unemployment statistics that do not count those who are underemployed, have multiple jobs, and have given up on looking for work or are looking for their first job.

But there is another entirely different factor in the unemployment rates that is overlooked even by most who know how government statistics are inaccurate. A greater portion of the population today work for the government than did in 1929.

This is an important statistical variance. Government jobs are not productive jobs, but instead are a drain on the wealth of those who have actual productive jobs. It is hard to accurately measure the number that work for the government, because in addition to three levels of government to count (federal, state, and local) there are many contractors and subcontractors who directly or indirectly work for the government.

According to government statistics direct government employees include 2.7 million people employed by the federal government, 5 million employed by the state governments, and 14 million people employed by local governments. With a total workforce of 136 million people that’s 16% who are government employees.

The official unemployment rate is 6.7 percent. According to Shadow Stats Alternate Data the actual unemployment rate is about 7 percent higher. That would make an alternate unemployment rate of about 14 percent.

Add to that the number who are government employed, and that puts the non-productive employment rate at 30 percent.

That makes an interesting comparison to the unemployment rate during the Great Depression. In 1930 the unemployment rate was comparable to the current rate, and in 1931 the rate was comparable to the alternate unemployment rate. In 1932 the rate was below the current non-productive employment rate.

Year Unemployment Rate
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

The problem with those numbers is that government employment greatly increased due to public works projects due to the Hoover/Roosevelt New Deal.

Given all the factors that go into calculating employment, the rate of those who are productively employed is indeed comparable already to the Great Depression. The usual proposed Keynesian solution, even more public works programs, will be extremely difficult to implement given the large percentage of people who already work for the government.

Please give to the Salvation Army. They are a charity with a good record on how much of each donation goes to the intended recipient, and this year due to the depression their donations have fallen significantly. That’s unfortunate because in depressions is when charities like this are needed most. Yes, they are a religious based charity, and while I don’t agree with their religious beliefs they do good work. If you’re going to give to a non-political charity, please consider the Salvation Army.

1 comment:

Paolo said...

Excellent article. Another factor is that, in the Great Depression, the dollar still had consider purchasing power. I recall that my father, during the Great Depression, was very proud to take home an excellent salary of about $3,600 per year. At the time, you could buy a complete lunch--soup, sandwich, and a drink--for a dime. Dime novels really did cost a dime.

Today, if you buy a complete lunch at Subway--the same soup, sandwich, and a drink--you'll probably pay about seven dollars. In other words, you have to pay seventy times more today than you did in the 1930's for the same lunch.

My father, on $3,600 per year, was doing a lot better than many of us today making ten, twenty, or even thirty times as much.

Thanks, Federal Reserve!