| Avinash_Tyagi said: You;re speculating that te recovery would have been faster, even those economists you cite didn't use data from 19356-36, because they knew that it would disporve their argument they cherry pciked for 39 after the recession No the negative effects in 37 and 38 were caused by a reduction in government spending and an increase in taxes on the lower tax brackets, before then it was only higher income eraners that were paying higher taxes, payroll taxes are regressive taxes Jackson, meaning they effect lower earners more than higher earners. Payroll taxes aren't an increase to wages Jackson, they garnish wages, to pay for social security. You argue that they were no longer mitigated by government spending, the fact is the opposite, they weren;t the culprits in 37 and 38, it was the contractionary fiscal policies of 37 and 38 that led to the downturn, not wage inflation and price fixing. A reduction in government spending meant less employed and an increase in taxes meant less disposable income. |
It is not speculation. That was one paper. Other materials they have produced supports their premise by using data from every year of the Depression. For example, using wages and prices from 1929 as a benchmark, they used annual increases in productivity to determine what wages and prices should have been every year during the Depression. In the first three years after the implementation of Roosevelt's wage/price policies, wages were 25% higher than they should have been. Conversely, unemployment was 25% higher than it should have been.
No, payroll taxes did not increase wages, but they did increase the cost of labor which is tantamount to an artifical wage increase. Unemployment was mostly affected by more artificial increases in wages (which increased markedlt in 37/38) and other measures (payroll tax) that markedly increased labor costs-labor costs increased by 11% in 1937. This time, however, the government spending did not mitigate these negative effects on growth and unemployment rose.
