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Store: An Independent Institute Book
Co-publisher: New York University Press
31 Figures • 48 Tables
© 1993 |
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OUT OF WORK
Unemployment and Government in Twentieth-Century America
By
Lowell E. Gallaway, Richard K. Vedder
Foreword by
Martin Bronfenbrenner
Unemployment is used to justify every bigger government programs—from national industrial policies to high military expenditures to a return to New Deal-type “make work” projects. Now, this book relentlessly amasses devastating evidence that the major cause of high unemployment, both cyclical and secular, is government itself.
The authors boldly challenge Keynesian fiscal demand-management and show that such policies as minimum wages, labor controls, unemployment compensation, and welfare have played significant roles in generating joblessness. This book lucidly recounts the history of American unemployment, showing that the policies of both President Hoover and President Roosevelt prolonged and exacerbated unemployment during the Great Depression.
Here is a powerful rebuttal to the prevailing myths about unemployment and the government’s role in combating it. And it also points the way toward reforms that would have a meaningful, lasting impact on unemployment in the United States.
Detailed Summary |
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Table of Contents
- Chapter 1: The Unemployment Century
- Chapter 2: Unemployment in Theory
- Chapter 3: The Neoclasssical/Austrian Approach
- Chapter 4: The Gilded Age
- Chapter 5: From New Era to New Deal
- Chapter 6: The Banking Crisis and the Labor Market
- Chapter 7: The New Deal
- Chapter 8: The Impossible Dream Come True
- Chapter 9: The Gentle Time
- Chapter 10: The Camelot Years
- Chapter 11: “Pride Goeth Before A Fall”
- Chapter 12: The Winds of Change
- Chapter 13: The Natural Rate of Employment
- Chapter 14: Who Bears the Burden of Unemployment?
- Chapter 15: Unemployment and the State
- Chapter 16: Afterword
Praise for Out of Work “Out of Work is a fascinating book incorporating impressive and thorough analyses of American macro-economic and employment policies. The Independent Institute is to be congratulated on sponsoring an important book which will interest economists, policy-makers, and others concerned with employment and the economy.”
—W. ALLEN WALLIS, former Under Secretary of State for Economic Affairs
“The latest views on unemployment policies.”
—ROBERT B. REICH, former Secretary of Labor
“It is good to see this important issue dealt with in such a comprehensive fashion.”
—LAWRENCE B. LINDSEY, Chief White House Economic Policy Advisor; former Member, Board of Governors, Federal Reserve System
“Out of Work is more than a helpful handbook to understand the basic facts and problems of unemployment. It brings clear-sighted insights into the problem and it is a valuable contribution to the unemployment debate. The idea that government employment policies, especially those that are based on demand management, bring about even more unemployment, is, of course, not new, but to present it in such a convincing way, with profound theoretical background and empirical evidence, is a worthy achievement. Based on my experience with our country, unemployment is basically a phenomenon of labour market frictions and imperfections and can best be explained by microeconomic analysis of the labour market.”
—VACLAV KLAUS, former Prime Minister, Czech Republic; President, Chamber of Deputies, Parliament of the Czech Republic
“Out of Work is a great and important book.”
—MILTON FRIEDMAN, Nobel Laureate in Economic Science
“Out of Work addresses one of the fundamental problems of our times and does so in a refereshingly rigorous way, dispelling many of the myths that still surround the subject. This is even truer in Europe, where large and persistent unemployment is still seen by many as a symptom of ‘market failure.’ We definitely need a European version of this timely and important book.”
—ANTONIO MARTINO, Minister of Foreign Affairs, Republic of Italy
“Vedder and Gallaway show convincingly that we need once again to rethink our entire notion of unemployment. It took a revolution in economic thought once to convince economists that unemployment could be cyclical. Now it will take another revolution to understand how sixty years of the welfare state together with intrusive government regulations have given us unemployment problems largely unreachable by federal policies designed to cope with cyclical unemployment. In effect, you cannot turn a standard screw with a phillips (curve) screwdriver.”
—JONATHAN R. T. HUGHES, Professor of Economics, Northwestern University
“Out of Work is a very important book about a very important economic problem of our times which, unfortunately, has not received much attention. I hope it will be widely read and will have a strong influence on economic policy.”
—GOTTFRIED HABERLER, Senior Fellow, American Enterprise Institute
“Out of Work is a book of great interest that should be taken seriously.”
—KENNETH E. BOULDING, late Distinguished Professor of Economics, University of Colorado
“Out of Work is the most comprehensive book ever to appear on unemployment in the United States.”
—GEORGE GILDER, Senior Fellow, Discovery Institute
“Out of Work is a serious work useful to keep at hand.”
—CHARLES P. KINDLEBERGER, Professor Emeritus of Economics, M.I.T.
“Out of Work is a triple hit: an engaging narrative of a century of U.S. economic history that focuses on real wage rates adjusted for productivity changes to explain unemployment patterns; an attack on the mythology that high wage rates and government spending reduce unemployment; a critique of wrongheaded public policies since 1930 that have raised unemployment levels.”
—ANNA J. SCHWARTZ, Research Associate, National Bureau of Economic Research
“Out of Work is a timely and provocative study that deserves consideration in any discussion of economic policy issues.”
—CHOICE
“Vedder and Gallaway’s book addresses basic economic propositions concerning the determinants of employment and unemployment in the context of actual American experience. Particularly challenging and useful is their effort to identify the effects of government policies on how fully and effectively the labor force has been employed. Public policy-makers would do well to read Out of Work.”
—NORMAN B. TURE, former Under Secretary of Treasury
“Out of Work is sure to raise the hackles of those who think what this country needs is a sweeping national industrial policy. Vedder and Gallaway make a convincing case that government ‘good intentions’ often end up costing jobs, leaving the intended beneficiaries worse off than before government intervention. This book should be required reading for the Clinton Administration’s economic and labor advisers.”
—LINDA CHAVEZ, former Executive Director, U. S. Commission on Civil Rights
“Out of Work is essential reading for labor economists, labor historians, other social scientists, and especially policy makers who are interested in and concerned about U.S. unemployment. Vedder and Gallaway carefully blend historical insights and economic theory to develop a highly readable, comprehensive, and compelling explanation of U.S. unemployment in the twentieth century. They persuasively and exhaustively demonstrate that well-intentioned public policies are the cause of rather than the cure for joblessness and, in so doing, effectively discredit the conventional wisdom that government actions can alleviate unemployment. Thus, Out of Work makes major contributions to current public policy debates about such issues as job creation, training programs, and mandated benefits. Scholars will find a wealth of research material in this volume which will significantly influence thinking about labor markets in the future.”
—JAMES T. BENNETT, Professor of Economics, George Mason University
“Out of Work is an interesting book, and we needed to have it coming along. The authors are fundamentally on target. We have built so many government impediments into the labor market that the stubbornly high average rates of unemployment are very difficult to work down.”
—PAUL W. McCRACKEN, former Chairman, President’s Council of Economic Advisors; Edmund Ezra Day Distinguished University Professor of Economics and Public Policy, University of Michigan
“In the fantastically detailed book, Out of Work, Vedder and Gallaway know every bit of evidence about unemployment going well back into the nineteenth century. Their conclusion is that government action aimed at eliminating unemployment defeats inself. The best thing to do in dealing with unemployment is to leave it alone.”
—WILLIAM A. NISKANEN, former Chairman, President’s Council of Economic Advisors; Chairman, Cato Institute
“Its combination of history and economic theory make the analysis and results in Out of Work very powerful., bringing new light on one of this century’s most pressing problem: unemployment.”
—WALTER J. WESSELS, Professor of Economics, North Carolina State University
“Out of Work is fascinating and brilliant. It is a comprehensive and important book on perhaps the central economic and social issue of the twentieth century. Not only doVedder and Gallaway show that government policies have frequently made the situation worse, they also deal a deathblow to the economic nonsense that has passed to justify such policies.”
—LAWRENCE A. KUDLOW, Senior Editor, National Review
“Why are so many people in advanced industrialized nations persistently out of work? It is commonly believed that unemployment is a derivative of marketplace failure, and that in such cases the public sector is needed to prop up unemployment. Vedder and Gallaway turn this conventional wisdom on its head and convincingly demonstrate that unemployment is almost solely a consequence of government and its muddle-headed, if well-intentioned, interventions.”
—STEPHEN MOORE, President, Club for Growth; former Senior Economist, Joint Economic Committee, U.S. Congress
“The authors provide a fascinating account of the government policies responsible for unemployment. The evidence produced in Out of Work leaves me convinced that the labour market explanation of unemployment will eventually dominate over that found in today’s leading textbooks of macro-economics.”
—HERBERT G. GRUBEL, Professor of Economics, Simon Fraser University
“With the presentation of detailed data about unemployment in the nine decades of this century, the authors of Out of Work demonstrate that the ‘wages theory of unemployment’ is the basic explanatory variable. This book warrants careful reading.”
—POLITICAL SCIENCE QUARTERLY
“A fascinating account, Out of Work is an important book that provides convincing evidence that our chronic unemployment is not due to high interest rates, free trade or the internationalization of the economy, as current political rhetoric would have us believe. It has been entrenched by deliberate government policy—well-intentioned policy, perhaps, but exceedingly ill-conceived.”
—BRITISH COLUMBIA REPORT
“Out of Work is the most important book on macroeconomics since Friedman and Schwartz’s Monetary History of the U.S. Any honest writer of a macroeconomics text will have, henceforth, to present the Vedder-Gallaway model and the evidence on which it is sustained as a serious alternative to the Keynesian orthodoxy and an important complement to monetarism. No contemporary discussion of macroeconomics can now be complete without reference to Out of Work. I believe that the book is even a more valuable contribution to the debunking of Keynesianism than Leijonhufvud’s On Keynesian Economics and the Economics of Keynes.”
—CHARLES W. BAIRD, Professor of Economics, California State University, Hayward
“In Out of Work, Richard Vedder and Lowell Gallaway have written a refreshing and important book about uemployment in the United States by focusing on the proximate conditions in the labor market. . . . The authors are correctly sharp about much of the academic theory and government policy affecting the labor market in this century.”
—BUSINESS ECONOMICS
“Out of Work explores the historical record of unemployment in the United States and critiques public policy developments that have shaped the U.S. labor market and have had an impact on unemployment. The book develops the thesis that the state has increased the magnitude of unemployment in the U.S., that macroeconomic manipulations have ultimately proved unsuccessful, and that the invisible hand of market forces has done a reasonably good job of providing jobs and incomes for Americans. . . . Out of Work must be admired for its scope and breadth of coverage and, above all, for the tenaciousness with which the authors pursue their argument. Many of their arguments are highly controversial and will undoubtedly stimulate wide discussion and debate. To sum up, this is a book which you might like, you might hate, but you certainly cannot ignore.”
—JOURNAL OF ECONOMIC LITERATURE
“Out of Work is an impressive piece of scholarship, maybe even a great book. It traces and analyzes unemployment in the United States during this century, arguably the number one economic issue of our time. Based on a daunting amount of work, the authors conclude that market adjustments have worked reasonably well to correct imbalances in the markets for labor services, while government interventions have not. . . . The authors’ single equation model works remarkably well in catching every up and down in unemployment, including the Great Depression and World War II. The statistical model is fleshed out by careful historical analysis of each business cycle episode. The book also is filled with startling facts and deals carefully with the intellectual history behind the interventions that impeded downward adjustments of productivity-adjusted wages and hence thwarted business recoveries. . . . We are blessed to have this book today. A bonus feature is that the book is user-friendly enough so that it can be employed—very productively it seems to me — in upper division courses in labor, macroeconomics, U.S. economic history, and contemporary economic issues.”
—JOURNAL OF LABOR RESEARCH
“In the important book, Out of Work, by Richard Vedder and Lowell Gallaway, the authors show that unemployment is caused by government taxes on employment, government regulation of labor markets, and macroeconomic ‘full employment’ policies. Both noted labor economists, Vedder and Gallaway show that government always blames unemployment on factors outside the labor market—such as consumer demand, interest rates, and currency exchange rates—rather than on its own policies that make labor more expensive. Regulations and taxes drive the cost of labor above the market wage, thus leaving many without jobs. It is well known, for example, that Roosevelt’s New Deal policies failed to alleviate unemployment during the 1930s. But this doesn’t mean the policies had no effect. Vedder and Gallaway amass relentless evidence to show that the New Deal did terrible harm by almost tripling the unemployment rate. But among the most striking conclusions of Out of Work is that in 1930 whites has a higher unemployment rate than minorities. Vedder and Gallaway attribute the astonishing reversal in employment situations to the impact of welfare and public assistance on labor markets. The compassionate policies designed to do good have done harm instead.”
—PAUL CRAIG ROBERTS, former Assistant Secretary of the Treasury for Economic Affairs
“Vedder and Gallaway’s Out of Work is a blockbuster book on the economics of the vexed problem of unemployment. The authors examine and develop a sound economic theory of unemployment, and then apply it in a notable way to the history of twentieth-century America. A blend of excellent economic theory and incisive statistical analysis, Out of Work is a superbly written book that demonstrates conclusively that government, far from being the solution to the unemployment problem, has actually created that problem by a spectrum of policies that push wage rates higher than the market level. Coming from an independent perspective, Vedder and Gallaway confirm the Austrian theory of cycles and unemployment. The authors essentially conclude that the best thing the government can do for both the micro- and the macro-economy is to fade out of the picture. In short, markets work, if the government will only leave them alone. Vedder and Gallaway are to be congratulated for a rare feat: producing a work that is eminently scholarly and yet fascinating to read.”
—MURRAY N. ROTHBARD, late S. J. Hall Distinguished Professor of Economics, University of Nevada, Las Vegas
“Much of the evidence adduced by Out of Work is presented in the style so masterfully developed in Friedman and Schwartz: Logic and narrative are used to blend seemingly unrelated facts into a coherent view of the world. In the present instance, that view is that during the twentieth century, the principal cause of high cyclical and secular unemployment in the United States is the set of policies chosen by the federal government. . . . The singularly valuable contribution of Vedder and Gallaway lies in their elegant rendition of a comprehensive view of the American experience across the span of nearly a century.”
—PUBLIC CHOICE
“Economists have bickered about labor markets, unemployment, and government action for a long time. Richard Vedder and Lowell Gallaway, two distinguished economists at Ohio University, have put many of these issues to rest in a new volume, Out of Work: Unemployment and Government in Twentieth-Century America. . . . The authors make an eloquent case that labor markets can and should be permitted to function without government intrusion. Government simply makes a mess of things and creates deeper unemployment. If permitted to do so, the wage rate will clear the labor market and there will be no unemployment. . . . Given the analytial truths established by the authors, the future does not look bright. . . . Perhaps the only hope is for policy-makers to read Out of Work and see if they can implement the author’s prescription for avoiding disaster.”
—RICHARD L. ROWAN, Co-Director, Center for Human Resources, Wharton School, University of Pennsylvania
“Out of Work, by Professors Richard Vedder and Lowell Gallaway could go a long way toward fostering clearer thinking about the ‘problem’ of unemployment. . . . Unemployment not only reeflects excessively high wages, but also is exacerbated by government programs and regulations designed to increase earnings and foster ‘income security.’ . . . We can only hope that Out of Work is only the beginning of a renewed emphasis on the compensation of employees as a cost of production rather than as a source of demand.”
—RESEARCH REPORTS, American Institute for Economic Research
“I have such profound respect for Out of Work. Real wages matter, and everything else is only important as it trickles down to real wages. Congratulations!”
—LOUIS W. BARNETT, former Vice Chairman, Unemployment Insurance Appeals Board, State of California About the Authors Richard K. Vedder is Senior Fellow at The Independent Institute and both he and Lowell E. Gallaway are Distinguished Professors of Economics at Ohio University.
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