Out of Work: Unemployment and Government in Twentieth-Century America

By Richard Vedder; Lowell Gallaway | Go to book overview

8

The
Impossible Dream Come True

If the thirties were years of unequaled high unemployment, the forties were almost precisely the opposite. Unemployment fell to levels that compared favorably with the Gilded Age of a generation earlier. For the only time in American history, before or since, the nation had three consecutive years with an unemployment rate below 2 percent, and six consecutive years with a rate below 4 percent. This was all the more remarkable because the decade began with the Great Depression still very much present, with unemployment around 15 percent. It was not until mid-1941 that it returned to the single digits. 1Table 8.1 details the remarkable fall in unemployment, and its failure to rise in the immediate aftermath of the war.

This was the era when Keynesians won the final intellectual battles in the war for supremacy in macroeconomic theory. Helping them in the struggle was the widespread perception that the wartime experience proved beyond doubt the efficacy of the Keynesian model and the potency of deficit spending as a countercyclical fiscal-policy device. By 1947, future Nobel laureate Lawrence Klein was able to write a book entitled The Keynesian Revolution without the title causing a stir, and the following year another future Nobel Laureate, Paul Samuelson, had the first edition of his enormously successful Keynesian-style principles textbook appear. Anti‐ Keynesians despaired, but were increasingly ignored. Friedrich von Hayek, for example, simply turned his considerable intellectual talents to writing in the field of philosophy. While at least one wrote a somewhat classical

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