...The controversy centers around the status of workers who had "make-work" jobs (through the WPA, etc.) under the New Deal. The "official" government numbers do not count those people as truly being employed, whereas if you did
count them, then obviously the unemployment rate would drop a lot more
due to the New Deal. For example, the unemployment rate would get back
into the high single digits by 1937 (before shooting up again) if you
remove WPA workers from the ranks of the "unemployed."
So which unemployment series is correct? This is a somewhat
philosophical question; Bob Higgs says that there is no objectively
"right" answer, it rather depends what you are using the series for. If
the issue is to assess the plight of Americans and gauge how bad the
human suffering was during the 1930s, then it would be misleading to
say that 19 percent of the workforce had no job during 1938. After all,
these people weren't starving because they were getting government
On the other hand, if you are trying to assess the ability of the New Deal to restore soundness to the American economy,
then surely it is relevant that the private sector was incapable of
finding useful employment for 19 percent of the workforce in 1938, five
full years into the New Deal...
Let's use an analogy to make the point: Imagine that in the last
days of his presidency, George W. Bush declared a new policy. His
spokespeople explained, "It is rather misleading to say that the
unemployment rate in October 2008 was 6.6 percent, because that implies
millions of Americans are destitute. But in fact they are all receiving
generous assistance from the government in various forms. If we say
that their 'job' is filling out the paperwork for unemployment claims,
then the true unemployment rate is more like 0.4 percent. Those are the people who truly have no source of income, and need to be helped."
Would any left-liberal sign on to that rationale?
By the way, if you find employment-data-related humor hilarious, Greg Mankiw's got some equally effective ridicule of Obama's job creation/salvation promises.