The Re-Writing of History

In response to President-elect Obama’s plan for a massive stimulus package, which many see as "New Deal 2.0," there have been some talking heads claiming that in reality the New Deal was a failure: that it did not cure the Great Depression; it took WWII to do that.

However, the table below shows the year-by-year growth for three of the most important statistics during the 1930’s: Real GDP Growth (R-GDP), Real Private Investment (R-PI), and Real Personal Consumption Expenditures (R-PCE). What they show is that FDR’s first term was one of the best periods of economic growth this country has ever seen. It was only when FDR pulled back on his New Deal programs in response to budget concerns in 1937 that the economy once again faltered.

The problem was that the devastation from 1930 through 1932 was so great that there were still lots of poor people even on the eve of World War II (WWII). However, those that claim that the New Deal didn’t help are simply not giving the true picture.

                                                                                                                                                                               

Year	R-GDP	R-PI	R-PCE
1930	-6.40%	-37.30%	-3.10%
1931	-13.00%	-70.00%	-8.90%
1932	-1.30%	47.80%	-2.20%
1933	10.80%	80.50%	7.10%
1934	8.90%	85.30%	6.10%
1935	13.00%	28.10%	10.10%
1936	5.10%	25.00%	3.70%
1937	-3.40%	-33.40%	-1.60%
1938	8.10%	28.60%	5.60%
1939	8.80%	39.40%	5.20%

                                           

The numbers clearly show that government spending was not crowding out private investment, and that the New Deal did cause consumers to loosen up their wallets. With the exception WWII, the economy has never since matched the sort of economic growth that it posted during FDR’s first term (1933-1936).

If history really does rhyme, then there is a very good chance that the Obama stimulus package will succeed. While 2009 will not be pretty, we could possibly have very robust economic growth in 2010. Among the firms that will benefit the most from the economic stimulus package are the Engineering and Construction firms like Fluor (FLR - Analyst Report) and Jacobs Engineering (JEC - Analyst Report).

Unfortunately, most of the economic statistics we have do not go back before WWII, and those that we do have tend to be annual, rather than quarterly or monthly. You can look at the numbers yourself at http://research.stlouisfed.org/fred2/categories/18.

Read the full analyst report on FLR

Read the full analyst report on JEC