Hi CobaltBlue; Re: "Yes. The short hand phrase for it among historians, economists, and economic historians is "beggar thy neighbor," aka competitive devaluation, causing extreme exchange rate fluctuations, which destabilized the global economy."
I agree that "beggar thy neighbor" had something to do with the spread of the Great Depression. But that has nothing to do with "isolationism", which instead is about, in this context, the US not being involved overseas militarily.
But getting on to the topic of "beggar thy neighbor", it's not obvious to me that the various countries involved had a better solution than the one that they individually executed. "Beggar thy neighbor" meant to devalue ones currency so as to make ones goods more attractive as exports, thereby keeping more people employed at home. But in the absence of such a policy, the resulting decrease in employment at home meant that these nations were in worse condition to pay for imports anyway. It's a complex situation, exactly the perfect candidate for a "sound bite" explanation like "beggar thy neighbor".
Re: "If you're good at math, try this (for the destabilization):"
While that is an interesting link, it has nothing whatsoever to say about the "beggar thy neighbor" policy and the Great Depression. What it's about is the inherent chaotic / unstable nature of the economy. I agree with this, it's obvious in the time series.
Getting back to question of "beggar thy neighbor", the fact is that exports in the United States before the Great Depression were only a tiny percentage of the US GDP. During the depths of the depression, exports dropped, but only by an even tinier percentage. Here's the numbers:
Foreign payments and Receipts as a percentage of GDP, 1929-1998:
Year Exports Imports
1929 6.8% 6.1%
1930 6.0% 5.3%
1931 4.8% 4.6%
1932 4.3% 3.9%
1933 4.3% 3.9%
1934 4.6% 3.9%
1935 4.5% 4.7%
1936 4.3% 4.4%
...
1998 14.4% 16.9%
aei.org
If the "beggar thy neighbor" theory were correct, the above time series would suggest that the US is now even more easily thrown into a great depression than it was in 1929. The opposite is correct, and the reason is that "beggar thy neighbor" is not a primary cause of the Great Depression.
The great depression was world-wide, but it did not effect all nations equally. This difference allows us to evaluate the correctness of the "beggar thy neighbor" theory as a cause of the depression. All we need to do is to make up a list of nations, their export levels in 1929, and their reduction in GDP during the Great Depression. If the "beggar thy neighbor" theory is correct, those countries whose economies were more dependent on exports should be the same as those nations that were most "beggared" by the depression. But, in fact, the statistics from the Great Depression show exactly the reverse of this predicted effect. The Great Depression was worse in the United States, but the US had less economic dependence on import / export.
That's enough for this post. In a later post, I'll give an explanation for the Great Depression that is compatible with the economic data from that time.
-- Carl |
