2012 Economic Outlook

The bad news: We’re not out of the woods yet. The good news: Thanks to Boeing, we’re in better shape than the rest of the country.
Dick Conway |   January 2012   |  FROM THE PRINT EDITION

of the economy and resurrect the financial system; and he provided jobs for workers through the Civilian Conservation Corps (CCC), the Public Works Administration (PWA) and the Works Progress Administration (WPA).

In Washington state, the federal government financed construction of three Columbia River dams—Rock Island, Bonneville and Grand Coulee. The Grand Coulee, the greatest construction project undertaken in the world up to that time, at one point employed 8,800 workers. Hundreds of other jobs sprang up in the small settlements around the construction site, where the dam builders lived and spent their wages.

In addition to providing badly needed jobs, the Columbia River dams also helped to control flooding, enable navigation on the river, supply water to the rich soils of the Columbia basin, and generate electricity for homes and factories. The abundance of cheap hydroelectric power enticed the federal government and private companies to establish seven aluminum smelters in Washington. In 1980, the Pacific Northwest aluminum industry produced 40 percent of the nation’s primary aluminum and employed 11,000 people in the state.

Scholars continue to debate the relative importance of fiscal and monetary policies in pulling the economy out of the Great Depression. But it is clear that federal intervention worked. Between 1933 and 1937, real GDP advanced at a 9 percent annual rate, well above the 5 percent rate achieved during the Roaring Twenties (1921–29). National output expanded 43 percent, creating 7 million payroll jobs, and lowered the unemployment rate by 11 percentage points to 14 percent.

The Depression and the New Deal programs were not without cost. From 1929 to 1937, the federal debt more than doubled, rising to nearly half of GDP. In an attempt to balance the federal budget, policymakers shifted direction and cut government spending by 4 percent in 1937, throwing the nation back into recession. In 1938, real GDP declined 3 percent and the unemployment rate climbed again, rising to 19 percent.

Faced with the choice of either balancing the budget or lowering unemployment, the Roosevelt administration took the latter course. After boosting federal spending by one-sixth over a two-year period, the economy resumed its recovery, expanding at an 8 percent rate between 1937 and 1940, and lowering the unemployment rate to 15 percent. The Great Depression did not end altogether until the United States entered World War II, when federal spending soared tenfold.

One oddity of the Great Depression is that income tax rates rose during the period.

    Subscribe Free     Free Insight Newsletter