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Austerity a job killer

The past can inform the debate on budgets and debt.

Under President Herbert Hoover’s austerity policies implemented in response to the Great Depression, unemployment spiked from 8.7 percent in 1930 to 24.9 percent in 1933. Unemployment then plummeted to 14.3 percent by 1937 under Franklin Roosevelt’s government spending on job programs (e.g., 1933 Civilian Conservation Corps, 1935 Works Progress Administration), partly funded by income tax rate increases on the richest Americans (to 63 percent in 1932, 90 percent under Harry Truman and Dwight Eisenhower). Gross domestic product rose 7.7 percent, 8.1 percent and a record 14.1 percent in 1934, 1935 and 1936, respectively.

But worried about the increasing deficit after re-election in 1936, Roosevelt cut spending, whereby unemployment jumped to 19 percent in 1938. Government spent very heavily during World War II, after which, despite 1945 debt being 123 percent of GDP (versus 75 percent now), the economy boomed like never before. This spurred the private sector, completing recovery from the Depression with full employment and greatly reduced deficits.

Recent experience of European countries with high unemployment corroborates the same Democratic Party position: Government austerity programs increase unemployment; government-funded job creation short-term is needed to lower unemployment.

Norm Luther



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