...The Great Depression went from being a recession to a prolonged depression because of efforts to stimulate demand and prop up prices, both government actions. Thanks to FDR, hardly anyone sees it that way because the government was so actively trying to "do something" about it that they overlook this basic fact. Obviously his legacy has been long-lasting, since Bush and everyone else seems to be following this script.
WWII was a period of privation and diminished welfare. To say it ended the Depression is laughable on its face. Price controls and rationing made it a hard life indeed. What's more, the extension of many such controls after the war is largely responsible for the problems once it was over.
My dad owned a jazz club the fall of 1941. Business was so great he could afford to buy a new Cadillac every week if he wanted to. Once the Japanese bombed Pearl Harbor gas rationing went into effect and his club died, since no one would spend their valuable coupons driving out to his club, which was in the country. Later, when he moved to the Chicago area for a job, he had to commute from Wisconsin because no one would rent him an apartment in downtown Chicago. He had 3 young children, and people would rather rent a multi-bedroom apartment to a single old lady than a young family, since they were prohibited from charging what the market would bear.
The problem with the Keynesian approach is the assumption that this downturn was caused by a reduction in aggregate demand. The Paradox of Thrift and all that. Unfortunately for Keynes and his disciples (especially in Congress), Frederic Bastiat debunked this BS back in 1850 in "That Which is Seen, and That Which is Not Seen."
We probably can't avoid a painful recession, but we can avoid prolonging it with government attempts to keep interest rates artificially low and housing prices artificially high.
Posted by Christina | September 25, 2008 7:56 PM
meganmcardle.theatlantic.com
Then what did end the Depression for crying out loud? Why weren't we still in a Depression after the war?
Why aren't we still in the recessions of 1982 or 1991? You don't need somebody "to end" a recession. Over time the economy naturally grows back up to its long-term growth track on its own.
The economy was most of the way back by 1940 (in spite of all the screw-ups by the Fed, FDR and everyone else that had slowed its recovery -- making it the slowest recovery from the Depression in the world).
But the later economic numbers for the WWII years can only be looked at as a break in the series -- they don't make sense by "normal" measures, aren't comparable to either before or after.
With wage-and-price controls, rationing, effective government control over major industries, etc., it was the closest to a "command economy" the US has ever known. The data just isn't comparable to the regular market economies of before and after.
Measures of consumer welfare -- including violent deaths -- were much worse than during the late 1930s, but morale was higher. Command economies are not generally associated with consumer welfare, but maybe morale went up during the early days of the Oceania v Eurasia conflict too.
In any event, the big impact of WWII on the "normal" economy wasn't the start of the war ending the depression, it was the *end* of the war fueling a consumer boom.
For half a decade the economy hadn't produced any cars or other normal consumer goods -- then all of a sudden there were millions of people ready to spend all that pay they hadn't been able to spend during all those years that they'd put into war bonds, all at once ready and hungry to buy all that stuff...
Posted by Jim Glass | September 25, 2008 10:48 PM
meganmcardle.theatlantic.com
My basic reasoning is this: given just how badly the Great Depression sucked, I'm willing to gamble on stopping it, even if that gamble fails, even if it is not necessary
That makes sense IF you assume
1 - That a 2nd great depression is a realistic possibility absent further massive and foolish large scale government intervention
and
2 - That the intervention isn't going to make things worse.
Both of those are questionable statements. The "gamble on stopping it", may make it more likely, if not in the short run, then in the future.
And if the intervention is particularly foolish (as was a lot of the intervention that caused the great depression to be a real great depression rather than just a severe recession), you even make it more likely in the short run.
Posted by Tim Fowler | September 26, 2008 1:26 PM
meganmcardle.theatlantic.com
Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act (NIRA), passed in June 1933, which created a massive new bureaucracy called the National Recovery Administration. Under the NRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent — not something a depressed economy needed for recovery.
The economic impact of the NRA was immediate and powerful. In the five months leading up to the act’s passage, signs of recovery were evident: factory employment and payrolls had increased by 23 and 35 percent, respectively. Then came the NRA, shortening hours of work, raising wages arbitrarily, and imposing other new costs on enterprise. In the six months after the law took effect, industrial production dropped 25 percent. Benjamin M. Anderson writes, "NRA was not a revival measure. It was an antirevival measure . . . . Through the whole of the NRA period industrial production did not rise as high as it had been in July 1933, before NRA came in."
mackinac.org
Also the later 37-38 contraction also has connections to government interventions, as does the earlier period under Hoover, who falsely gets criticized for not doing anything about the depression but who actually was highly interventionist.
Posted by Tim Fowler | September 26, 2008 1:32 PM
meganmcardle.theatlantic.com |
