The crash of 1929 and the ensuing Great Depression imprinted an enduring image on the American imagination: millions of jobless workers on breadlines. By 1933, more than 25 percent of the US workforce was unemployed. This fact, more than anything else, locked the national economy in a state of depression, and the country in a state of hopelessness.
Despite the lessons of history—and despite the grim unemployment numbers released October 3—Congress included no meaningful job creation initiatives in the legislation it passed in response to the financial crisis. Instead, in the days preceding and following the $700 billion Wall Street bailout, Senate Republicans and George W. Bush repelled the modest measures approved by the House to help the unemployed and the poor. In doing so, they once again showed where their true loyalties lie.
While unemployment has increased every month this year, the September figures were the worst yet, exceeding all forecasts. According to the Department of Labor, employers cut 159,000 jobs—more than double the number for August or July, and the largest monthly decline since 2003. And the survey on which these numbers is based was conducted during the week of September 8—before the worst developments in the credit crisis, and long before the stock market entered its current freefall.
The current unemployment rate of 6.1 percent measures only a fraction of the truly unemployed, because it only counts those who are out of work and actively looking for a new job. It also does not reflect the people working part time because they cannot find full-time work, which has increased to more than 1.5 million in September, compared with 400,000 a year ago. And even those with jobs are suffering losses. In the last year, the increase in weekly pay for workers has risen only 2.8 percent, while inflation has been about 5 percent. The New York Times' David Leonhardt points out that "unlike some other indicators, like gross domestic product, the jobs statistics describe the tangible effect that the economy is having on households."
More ominous is the broad-based nature of the job losses. They began in the hard-hit industries like construction and real estate, but they have extended to manufacturing, retail, and hotels and restaurants, and are likely to deepen and widen in the coming months.
Writing in the New York Times, Princeton economist Alan Kreuger predicted that "this financial crisis is likely to threaten middle- and upper-income jobs to a greater extent than has been the case in past recessions." First to go, Kreuger projected, will be jobs producing durable goods that are purchased on credit—and already, auto sales are crashing. Next will be high-skilled jobs that depend upon investments in "new plant and equipment, especially high-tech information and computing equipment."
Aggressive job creation is likely to be vital to any effective recovery effort, just as it was in the 1930s. In a concise report issued last Friday, the Center for Economic and Policy Research recommended a "coordinated fiscal stimulus...on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP)," which is "essential for counteracting the sharp falloff in consumption." This money would be spent on "aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses." CEPR directors Dean Baker and Mark Weisbrot noted:
It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.
This, of course, is basic Keynesian economics—the idea that when hard times make people stop spending and money stops flowing, the government should expand the money supply and start spending money itself, "priming the pump." After the 1929 crash, Republican Treasury Secretary Andrew Mellon advised the government to cut spending to balance the budget, and left desperate banks, businesses, and families to fend for themselves because it would "purge the rottenness out of the system." But Keynes said he did "not understand how universal bankruptcy can do any good or bring us nearer to prosperity," and he insisted that there was "no hope of a recovery except in a revival of the high level of investment." The most fundamental way to do this is by creating decent jobs that give people money to spend and restore confidence in the economy—something that was done to a degree through New Deal programs, and then more completely through wartime spending.