The uneven state-level distribution of New Deal spending has been frequently studied and a variety of economic and political models have been developed. In their article, â€œDoes the Distribution of New Deal Spending Reflect an Optimal Provision of Public Goods?,â€ (Economics Bulletin, Vol. 8, No. 3, 2007. pp 1-5) Bateman and Taylor propose that much of the disparity in state-level New Deal expenditures can be explained if the creation of public goods and the spillover effects are included in economic models. Using the available wealth of data on New Deal programs, expenditures by agencies within the New Deal are examined and correlation statistics provided to test this hypothesis against the 1930 US census population density figures.New Deal, public good, spillover effects, Public Works Administration, PWA, Civil Works Administration, CWA

David L. Black

Jim F. Couch

Philip A. Burton

English

Research Papers in Economics

     
 
 
  
  
Volume 29, Issue 4 
  
Efficiency considerations and the allocation of new deal funds: an examination 
of the public goods explanation of expenditure patterns 
  
 
 
Jim F. Couch  
University of North Alabama 
David L. Black  
University of North Alabama 
Philip A. Burton  
The University of North Alabama
Abstract 
The uneven state-level distribution of New Deal spending has been frequently studied and a variety of economic and 
political models have been developed. In their article, “Does the Distribution of New Deal Spending Reflect an 
Optimal Provision of Public Goods?,” (Economics Bulletin, Vol. 8, No. 3, 2007. pp 1-5) Bateman and Taylor propose 
that much of the disparity in state-level New Deal expenditures can be explained if the creation of public goods and the 
spillover effects are included in economic models. Using the available wealth of data on New Deal programs, 
expenditures by agencies within the New Deal are examined and correlation statistics provided to test this hypothesis 
against the 1930 US census population density figures.
 
Citation: Jim F. Couch and David L. Black and Philip A. Burton, (2009) ''Efficiency considerations and the allocation of new deal funds: an 
examination of the public goods explanation of expenditure patterns'', Economics Bulletin, Vol. 29 no.4 pp. 3126-3133. 
Submitted: Oct 01 2009.   Published: December 21, 2009. 
 
      
 
Abstract 
 
The uneven state-level distribution of New Deal spending has been frequently studied and a 
variety of economic and political models have been developed.  In their article, “Does the 
Distribution of New Deal Spending Reflect an Optimal Provision of Public Goods?,” (Economics 
Bulletin, Vol. 8, No. 3, 2007. pp 1-5) Bateman and Taylor propose that much of the disparity in 
state-level New Deal expenditures can be explained if the creation of public goods and the 
spillover effects are included in economic models.  Using the available wealth of data on New 
Deal programs, expenditures by agencies within the New Deal are examined and correlation 
statistics provided to test this hypothesis against the 1930 US census population density figures. 
    
1.  Introduction 
 
In their article, “Does the Distribution of New Deal Spending Reflect an Optimal Provision 
of Public Goods?,” (Economics Bulletin,  Vol. 8, No. 3, 2007. pp 1-5) Bateman and Taylor 
examine the highly uneven allocation of New Deal funds to the states.  Previous studies, they 
note, have determined that measures of economic need provide little to no explanatory power for 
the distribution. 
  On a per capita basis, dollars flowed disproportionately to rural western states.  Because 
the western states were rich in electoral votes per capita, tended politically to be swing states and 
had representatives on key congressional committees, models advancing a political motivation to 
the observed expenditure pattern have proven to be robust.   
  Bateman and Taylor, however, point to an alternative explanation for the highly uneven 
allocation pattern.  Namely, they explain, “we offer a spillover interpretation which could help 
explain some of the rural state per capita expenditure bias” (2007:1). Because “a large portion of 
New Deal spending went toward spillover-creating public capital” (2007:1), measuring the impact 
of New Deal expenditures on a per capita basis is “problematic” (2007:2). The nature of public 
goods–non-rival and/or non-excludable–means that “densely populated states should receive less 
per capita spending than rural states” (2007:2) in order to meet economic efficiency standards.   
  The authors illustrate their hypothesis with the following example: “Dollars spent on the 
Triborough Bridge complex benefited millions of people in the New York metropolitan area either 
directly or indirectly through lower traffic congestion, increased rates of return to investment, and 
increased leisure time.  Were those same dollars spent upon a similar project in a far smaller urban 
area such as Pocatello, Idaho, they would clearly have had a much smaller welfare impact” (2007: 
3). 
  As evidence, the authors calculate the population density of each state–total population 
divided by acres of land–and rank the states from 1 (least dense) to 48 (most dense).  They note, 
“the nine least densely populated states are also the nine states that received the most per capita 
New Deal expenditures” (2007: 4). 
  Bateman and Taylor make it clear that intent is not the focus of their argument; they are not 
speculating “as to whether or not New Dealers meticulously attempted to meet the efficiency 
condition for the allocation of public goods” (2007: 2).  Instead, whether through careful planning 
or simply serendipity, the allocation of New Deal dollars was efficient.  The authors assert, “a 
public goods analysis . . . could provide an alternative explanation to past findings” (2007: 5).   
  By disaggregating the data and examining particular New Deal programs, considerable 
doubt is cast on the public good explanation of the distribution of federals dollars during the 
Roosevelt administration.  In the next section, we examine the New Deal in greater detail and 
provide correlation statistics that undermine the argument offered by Bateman and Taylor. 
 
2.  A Closer Examination of the Public Goods Explanation 
 
  Efficiency was never a stated goal adopted by the New Dealers.  Instead, Franklin 
Roosevelt rather famously promised the three r’s: relief, recovery and reform.  The myriad 
alphabet agencies created addressed different concerns and problems in the Great Depression 
impacted economy.   
  Students of the New Deal attempting to make some sense of the measures adopted rarely advance some sort of efficiency explanation: “In 1936, two agricultural programs existed side by 
side–the AAA and the NRA–one trying to limit production within the system, the other trying to 
increase it while reforming the system” (Conkin 1975: 8).  The AAA sought to raise farmer’s 
incomes relative to farm implements; the NRA was designed to increase the price of manufactured 
goods including that of farm implements.  An undistributed profits tax placed on corporations 
was enacted to stimulate consumption by encouraging firms to distribute earnings to shareholders; 
social security taxes adopted during the Great Depression obviously worked at cross purposes by 
reducing disposable income.  The AAA paid farmers not to plant taking fertile land out of 
cultivation; the Bureau of Reclamation worked to irrigate arid sections of the country so that more 
land could be cultivated. 
  The public good explanation, however, can be attacked in a more direct fashion.  Bateman 
and Taylor assert that “a large portion of New Deal spending went toward spillover-creating public 
capital.” In fact, they utilize total New Deal expenditures to test their hypothesis.   
  This is a misrepresentation of the New Deal.  Almost 20 percent of total New Deal dollars 
was allocated to relief and social welfare programs.  Total agricultural spending accounted for an 
additional 21 percent of total expenditures.  Work programs, while admittedly the largest 
category, made up slightly more than one-third of total spending (Couch and Shughart 1998: 22).   
  Few would assert that agricultural expenditures generated spillover benefits.  In fact, a 
strong argument can be made that substantial negative externalities were created.  Assistance for 
farmers provides a clear example of the unintended consequences of government meddling in the 
marketplace.   
Farming was much different in the 1930s.  In fact, tenant farmers (individuals that worked 
on farms but did not own the land) made up almost half of the farmers in the United States during 
the period.  The 1937 Statistical Abstract of the United States indicates that in 1935, tenants 
operated close to 70 percent of the farms in Mississippi, 50 percent of the farms in South Dakota, 
Nebraska and Iowa, and 40 percent of the farms in Colorado.  In short, tenants were spread across 
the nation and tenant farming or sharecropping was common.   
  New Deal agricultural policy created perverse incentives–at least from the perspective of 
the tenant farmer–that made it profitable for the landowner to evict their tenants.  In a survey of 
southern farms, “croppers [tenants] showed a decrease of 63,000 or nearly a ten percent reduction 
between 1930 and 1935" (Holley et al. 1940: 49).  Whatley (1983: 919) did the math: On an acre 
yielding 350 lbs of cotton the return from displacing a tenant farmer increased with time from 
$2.62 per acre in 1934 to $19.16 per acre in 1939.  He explains, “A once ‘fair’ landlord, 
responding to his tenants pleas for ‘fairness’ may soon have to reply, ‘I’m sorry, but the cost has 
simply become unbearable’” (Whatley 1983: 919).  Bateman and Taylor, in their analysis, 
include agricultural expenditures and thus count this as a spillover benefit.  
To be fair, the authors concede this point, “Further empirical work should examine the 
composition of state-level New Deal projects to more precisely determine the extent that 
expenditures in various states went to spillover-creating public capital rather than simply transfer 
payments such as agricultural subsidies of ‘leaf-raking’ type projects” (Bateman and Taylor 2007: 
5).   
3.  Empirical Evidence 
 
  Because of the richness of our information regarding New Deal spending, a disaggregation 
of the data is possible.  While Bateman and Taylor cite Reading (1973) as the source of their data, 
Reading, like other scholars that have examined the distribution of New Deal spending from state-to-state utilized a data set discovered by Leonard Arrington in 1969. “Prepared late in 1939 
by the Office of Government Reports for the use of Franklin Roosevelt during the presidential 
campaign of 1940, the 50-page reports–one for each state–give precise information on the 
activities and achievements of the various New Deal economic agencies” (Arrington 1969: 311). 
The data set makes it possible to test the Bateman and Taylor public good hypothesis. 
  Bateman and Taylor compare total New Deal expenditures to a ranking of population 
density.  In order to obtain a more complete metric regarding dollars and density, we calculate the 
correlation coefficient of total New Deal spending and actual population density in year 1930 
(more information than rank) to establish a benchmark for comparison purposes.  In addition, 
because agricultural expenditures comprised one-fifth of all New Deal spending and generated no 
spillover benefits (likely negative externalities), its correlation per farmer in each state with 
population density sheds additional light on the public goods hypothesis.   
  The correlation coefficient of total New Deal spending and population density is -0.375 
while the correlation coefficient of AAA expenditures and population density -0.420.  Neither is 
strongly correlated and, perhaps surprisingly, AAA payments per farmer that generated no 
positive externalities are more highly correlated than total spending per citizen.   
  Next, the work programs are examined.  The author’s acknowledge that “so-called 
‘leaf-raking’ projects” accounted for little spillover benefits.  The program the authors are likely 
alluding to is the Civil Works Administration (CWA), a federally sponsored work relief program 
hastily put together.  The winter of 1933-34 looked as “dismal and bleak as any during President 
Hoover’s tenure in office” (Charles 1963: 46).  Thus, the CWA was set up as a stopgap agency to 
somewhat ameliorate the harmful effects wrought by the downturn.  The program’s goal was to 
provide employment for 4 million persons in projects deemed “socially and economically 
desirable, and of such character that could be undertaken quickly” (Office of Government Reports 
1939: 74).  History records that “undertaken quickly” came to dominate “socially and 
economically desirable.” Charles (1963: 63) complains, “there was no need for leaf raking and 
similar projects.” 
  While the CWA is undoubtedly the New Deal program least likely to generate positive 
externalities, the Public Works Administration (PWA) was, by design, established to undertake 
technically complex projects.  PWA projects include the 100-mile causeway connecting Florida 
and Key West and the Triborough Bridge–the project serving as an example of spillover-creating 
goods in the Bateman and Taylor analysis.  “Much of the PWA appropriation,” McElvaine notes, 
“went for materials, architects, engineers and skilled workers” (1984: 152).   
  The PWA and the CWA represent extremes within the New Deal work programs–one 
devoted to technically complex public goods of lasting value and the other hastily put together to 
provide employment opportunities during a particularly troubling time.  If the public good 
viewpoint has any validity, then PWA expenditures should be more highly correlated with 
population density than CWA expenditures (or for that matter, AAA appropriations). 
  However, when expenditures are correlated with actual population density, the results do 
not support the public good viewpoint.  For example, PWA expenditures and population density 
are found to have a very low correlation coefficient of -0.156 while CWA expenditures and 
population density have a slightly higher correlation coefficient of -0.184.  Neither demonstrates 
a significant degree of correlation.  On the other hand, AAA expenditures and population density 
are found to have a much higher correlation coefficient of -0.420.  Even the overall New Deal 
expenditures and population density have a higher correlation coefficient of -0.375.   
PWA expenditures per capita demonstrated the least, not the most, correlation with population density.  To suggest that dollars flowed disproportionately to the west to meet 
efficiency requirements is simply untenable given the results presented above.   References 
 
Arrington, Leonard J. (1969) “The New Deal in the West: A Preliminary Statistical Inquiry”,  
  Pacific Historical Review 38 (August), 311-16. 
 
Bateman, Fred and Taylor, Jason (2007), “Does the Distribution of New Deal Spending Reflect an 
 Optimal Provision of Public Goods?”, Economics Bulletin, Vol. 8, No. 3, 1-5. 
 
Charles, Searle F. (1963), Minister of Relief, Syracuse, NY: Syracuse University Press 
 
Conkin, Paul K. ((1975), The New Deal, New York: Thomas Y. Crowell Company. 
 
Couch, Jim F. and Shughart, William F. (1998) The Political Economy of the New Deal, 
 Northhampton, MA: Edward Elgar Publishing Inc. 
 
Holley, William C., Winston, Ellen, and Woofter, T.J. Jr. (1940) The Plantation South,  
  Washington, D.C. US Government Printing Office.  
 
Office of Government Reports (1939) Activities of Selected Federal Agencies, Report No. 7,  
  Washington D.C.: Office of Government Reports. 
 
Office of Government Reports (1940) Report No. 10, Vol. II, Washington D.C.: Office of  
  Government Reports. 
 
Whatley, Warren C. (1983) “Labor for the Picking: The New Deal in the South”, Journal of  
  Economic History 43 (December), 905-29. 
 
 
 
   Table I 
New Deal Per Capita Expenditures by State 
 
 
State 
1930 Pop 
Density per 
Square Mile 
Population 
Density 
Rank 
 
PWA 
Expenditures 
 
CWA 
Expenditures 
 
AAA 
Expenditures 
Overall New 
Deal 
Expenditures 
Alabama  51.6  28  17.83  5.85  68.5  309.78 
Arizona  3.8  5  64.18  10.15  97.83  791.46 
Arkansas  35.3  20  40.41  6.09  86.35  396.12 
California  36.5  21  37.01  6.32  80.14  538.1 
Colorado  10.0  11  23.14  6.95  151.37  506.30 
Connecticut  333.4  45  24.68  5.86  29.61  236.92 
Delaware  121.3  39  88.42  2.51  44.07  310.13 
Florida  26.8  17  58.77  10.04  35.59  377.21 
Georgia  49.5  26  14.92  4.42  68.5  272.69 
Idaho  5.3  6  26.74  11.49  139.28  744.15 
Illinois  136.2  40  34.29  7.38  129.01  364.88 
Indiana  89.8  38  16.78  6.9  87.75  333.22 
Iowa  44.5  24  30.33  5.77  200.53  466.70 
Kansas  23.0  14  22.22  6.57  255.47  434.30 
Kentucky  65.1  35  21.83  3.7  44.45  251.04 
Louisiana  46.3  25  42.27  6.04  90.09  369.88 
Maine  26.7  16  39.11  5.76  19.53  336.07 
Maryland  164.1  42  36.88  5.25  63.18  344.82 
Massachusetts  528.6  46  27.95  7.18  28.33  286.26 
Michigan  84.2  37  20.24  9.56  43.73  388.99 
Minnesota  31.7  18  28.89  7.07  99.13  425.50 
Mississippi  43.4  23  40.82  4.01  82.77  358.18 
Missouri  52.8  29  84.02  5.28  81.68  340.07 
Montana  3.7  4  245.69  11.47  252.83  986.30 
Nebraska  17.9  12  58.58  4.39  212.92  536.87 
Nevada  0.8  1  61.3  12.83  55.12  1499.39 
New Hampshire  51.5  27  16.18  7.25  13.09  247.76 
New Jersey  537.8  47  31.53  6.83  24.86  330.47 
New Mexico  3.5  3  64.13  5.25  73.79  689.76 
New York  264.2  44  29.43  6.27  25.55  334.81 
North Carolina  65.0  34  16.12  3.67  52.01  227.55 
North Dakota  9.7  9  12.25  7.53  271.3  707.84 
Ohio  163.1  41  24.46  8.59  57.55  383.24 
Oklahoma  34.5  19  17.41  7.64  133.89  342.66 
Oregon  10.0  10  68.18  6.48  83.99  535.66 
Pennsylvania  214.8  43  19.08  4.62  16.99  260.88 
Rhode Island  644.3  48  29.18  5.37  8.83  246.56 
South Carolina  57.0  31  25.19  5.12  71.43  306.43 
South Dakota  9.0  8  17.36  9.89  240.05  701.61 
Tennessee  62.8  33  34.69  4.77  45.1  344.48 
Texas  22.2  13  26.43  5.26  156.58  361.70 
Utah  6.2  7  24.04  8.49  77.98  569.49 
Vermont  39.4  22  16.68  4.93  16.99  390.49 
Virginia  60.2  32  42.02  4.75  21.42  254.91 
Washington  23.4  15  60.94  8.3  96.75  527.77 
West Virginia  72.0  36  38.06  7.22  8.79  265.11 
Wisconsin  53.2  30  23.92  11.68  50.82  390.26 
Wyoming  2.3  2  49.71  10.53  157.58  896.91 
 

Does the Distribution of New Deal Spending Reflect an

Labor for the Picking: The New Deal in the South”,

Minister of Relief,

Office of Government Reports

The New Deal in the West: A Preliminary Statistical Inquiry”,

The Plantation South,

Efficiency considerations and the allocation of new deal funds: an examination of the public goods explanation of expenditure patterns

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