The New Deal and the Great Depression

When Brad DeLong said:

A normal person would not argue that the New Deal prolonged the Great Depression.

It got quite a reaction. Arnold Kling says:

...In case you have not been following it, Daniel Gross and Brad DeLong have been hurling insults at people who fail to genuflect to the proposition that the New Deal helped to cure the Great Depression. A reasonable view is that some New Deal policies helped, and some hurt. ...

Knowing what I know now, if I could go back to 1933 and tell President Roosevelt what to do, I would say "yes" to deposit insurance, "yes" to going off the gold standard, and "no" to pretty much every other New Deal policy, including Social Security. I would also encourage two things that were not tried--a monetary expansion and a fiscal expansion (which in those days, with taxes relatively low, would have meant more government spending). Although I do not believe in Keynesian "fine tuning," I think that in the 1930's I would have tried Keynesian policies as a way of getting to the right channel.

Whether Roosevelt's actual policies were, on balance, helpful or harmful, is something that I think reasonable people can debate. Hurling insults at one side or the other is not appropriate.

Here's the piece by Daniel Gross he mentions. This is likely the statement Arnold took offense at:

The argument that the New Deal's efforts "perhaps had prolonged, the Depression," is likewise a canard. One would be very hard-pressed to find a serious professional historian--I mean a serious historian, not a think-tank wanker, not an economist, not a journalist--who believes that the New Deal prolonged the Depression.

Jim Hamilton is also taken aback by Brad DeLong's statement:

The New Deal and the Great Depression, by James Hamilton: Like the folks writing at Mahalanobis, Marginal Revolution and Free Exchange, I was rather surprised to see Berkeley Professor Brad DeLong claim, "A normal person would not argue that the New Deal prolonged the Great Depression." Since Brad is a smart guy, I think it might be time for me to acknowledge my freakiness.

Jim goes on to discuss three phases of the great Depression and then focuses on the third phase where:

What really distinguished this episode from a typical downturn was not the severity of the initial decline, but the fact that, unlike a typical business cycle, things began to deteriorate quite dramatically after 1930. In my opinion, one of the reasons for that is the collapse of the money supply, which led the economy into a ferocious deflation. I've argued that the gold standard contributed to that... I also believe that the bank panics played an important role in propagating that second phase, and am quite happy to grant Daniel Gross that New Deal financial innovations such as the FDIC and FSLIC were unambiguously helpful in correcting some of those problems.

After 1933 [the third phase], the economy began to grow again... However, although growth over this period was strong, the unemployment rate stayed high, and there surely remained substantial excess production capabilities. So, in my mind, the third part of the question of "What caused the Great Depression?" is to explain why did the recovery take as long as it did after the contractionary monetary forces were removed?

What is supposed to help the economy recover is that a substantial pool of unemployed workers should result in a fall in wages and prices that would restore equilibrium in the labor market... And yet, in the midst of quite significant unemployment, between 1933 and 1934, average hourly earnings increased by over 25% in sectors such as iron and steel, furniture, and cement, and over 50% at lumber mills. How could that be? ...

[A paper by] Cole and Ohanian noted that many in the Roosevelt Administration believed that the severity of the Depression was due to excessive business competition that led to wages and prices that were too low. ... The purpose of the NIRA and NLRA was to promote labor and trade practice provisions so as to limit the extent of competition between firms and competition between workers. Among the NIRA codes that Cole and Ohanian highlight include minimum prices below which firms were not allowed to sell their products, restrictions on productive capacity and the amount that could be produced, and limitations on the workweek. Cole and Ohanian concluded on the basis of model simulations that these kinds of New Deal policies might have accounted for 60% of the persistence in the output gap.

Outside of manufacturing, the Agricultural Adjustment Act of 1933 and Soil Conservation and Domestic Allotment Act of 1936 -- paying farmers not to grow wheat-- were designed with the specific goal of reducing agricultural production in order to raise agricultural prices. State regulatory commissions like the Texas Railroad Commission ordered oil producers to cut back production in an effort to increase oil prices.

The notion that if we can just create more monopoly power for every single sector of the economy, encouraging every sector to produce less so they can raise their wages and prices, that we will then somehow make everybody richer, is so spectacularly wrong-headed that I would be just as dumbfounded to find that Brad De Long believes it as he seems to be by those of us who maintain that some aspects of New Deal policy surely did make the recovery from the Great Depression slower.

I openly confess to believing that government policies that were explicitly designed to limit manufacturing, agricultural, and mining output may indeed have had the effect of limiting manufacturing, agricultural, and mining output.

This is  bit rushed, but let me come to Brad's defense. If we change his statement from:

A normal person would not argue that the New Deal prolonged the Great Depression.

To:

Most economists would not argue that, on net, the New Deal prolonged the Great Depression.

I don't think it is objectionable. Brad surely would not argue that every single policy was beneficial, only that on balance the policies were helpful, and there does seem to be agreement about that.

Update: No need to speculate about what Brad would argue, he states his view here.

Comments

[pgl]

"Most" economists? This is the term that Dean Baker mocked on a related thread. As I followed the links provided by James Hamilton, I found several economists who were agreeing with George Will's idea. OK, it's a small sample and I tend to agree with Tyler Cowen as to the causes of the 1937-38 recession, which is not what George Will was arguing. So are Tyler and I in the majority along with you and Brad? I think so but I have not done a thorough sampling.

[anne]

"A normal person would not argue that the New Deal prolonged the Great Depression."

Precisely, and precisely correct. Economics may be theoretically trouble free in telling us how Franklin Roosevelt might have fashioned policy to bring us from the terrifying Depression from 1932 on, but political economics is another matter and Roosevelt was working through a political system and working experimentally and working in a way that inspired enough trust and understanding to allow for New Deal failures and wonderful successes as we gradually recovered.

"A normal person would not argue that the New Deal prolonged the Great Depression."

Precisely!

[anne]

When Arnold Kling takes offense, I know that all is well with the world. May scary Arnold continue to be offended and the more often the better these coming years. This is a person who would smash and trash all the New Deal legacy in some nutty libertarian mash. Take offense Arnold, lots of offense.

[ken melvin]

They do so want to believe in their capitalism that I doubt anything could change their thinking. Obviously, its collapse didn't alter their thinking.

[anne]

Agreeing with George Will? Say what? Say, on the color socks to wear with a navy suit, and even that would be too much for in-curious color blind George.

[anne]

Ken Melvin

"They do so want to believe in their capitalism that I doubt anything could change their thinking. Obviously, its collapse didn't alter their thinking."

Clever, apt comment. Remind me to watch "The Grapes of Wrath" soon.

[Peter Schaeffer]

Mr. Thoma,

Your statement “Most economists would not argue…” may well be correct. Clearly you know far more professional economists than most of the posters here, including me. However, the controversy arises from DeLong’s assertion that anyone who believes otherwise is abnormal. That a fairly serious statement. Note that he is not asserting that anyone who believes otherwise has an unorthodox or iconoclastic view of the subject. He is directly stating that the person is abnormal.

To me it looks like DeLong has backed himself into a corner by making an extreme claim and is refusing to admit his error. Sadly, this is a trait that he frequently accuses others of with respect to issues of much greater contemporary importance…

As you mention much of the debate has taken place outside of DeLong’s blog. I agree, the debate climate is less constrained elsewhere. The thread over at Marginal Revolution has many references to contrary views on the subject.

[Bruce Webb]

"What is supposed to help the economy recover is that a substantial pool of unemployed workers should result in a fall in wages and prices that would restore equilibrium in the labor market... And yet, in the midst of quite significant unemployment, between 1933 and 1934, average hourly earnings increased by over 25% in sectors such as iron and steel, furniture, and cement, and over 50% at lumber mills. How could that be? ..."

I don't have time to unpack all this but there seems to be a privileging of "the economy" and "market equilibrium" to "average hourly earnings" and "overall worker compensation" that seems characteristic of certain strands of economics. You see it all the time in discussions of minimum wage and free trade

The notion that workers would, could and should accept a slightly smaller pie in exchange for a bigger pie slice just doesn't enter into these guys world view. Instead we should judge the New Deal totally from the perspective of holders of capital for whom a "fall in wages and prices that would restore equilibrium in the labor market" is an unalloyed good even without examining the comparative levels of wage and price drops.

What are you to say about someone who could blithely state this:
"Knowing what I know now, if I could go back to 1933 and tell President Roosevelt what to do, I would say "yes" to deposit insurance, "yes" to going off the gold standard, and "no" to pretty much every other New Deal policy, including Social Security." which basically adds up to "screw the elderly poor, they aren't factors of production anyway".

A little hint to these guys: "Pie!!" is only an argument if you have access to the pie shop. Arguments which originate from within the pie shop and always privilege those who have gained entry privileges are not going to persuade the vast majority locked outside pressing their noses to the glass. Whether or not the New Deal lengthened or shortened the Depression is not the sole basis for judgement of its success. What was its effect on the average standard of living of workers compared to its absence? Clearly for people who would have just jettisoned Social Security this question is not even on the pie shop priceboard.

"But, But!! It is Pie!!!"

[ken melvin]

Re Hamiltom: Lower wages led to consumption of over production?

[anne]

Actually Brad DeLong is completely right, completely fair in being right, and the issue is of contemporary importance for even this morning the sweet Glenn Hubbard was telling us on public radio how to do away with Social Security for the sake of Glenn, and Brad DeLong is a gem who will not be bullied by the sorts of louts that are all about these days carrying clubs in louting ways.

[James Killus]

Actually, this discussion is really about who may be called "normal" and who may be considered "an ideologue with an agenda whose reaction to evidence and argument is always in service to that agenda."

For the record, I agree with DeLong.

[anne]

"To me it looks like DeLong has backed himself into a corner by making an extreme claim and is refusing to admit his error."

To me it looks like DeLong has backed those who are forever trying to bash and smash the New Deal into a corner by making a considered tempered claim and is refusing to be bullied by clud carrying louts.

To me,
To me,
To me....

says...

Anne - stick to Vanguard funds as you tend to limit debate.

Peter Scahefer is correct and you are off base.

[pgl]

Having gone back to the George Will oped, his argument relates to the current debate about increasing the minimum wage. I left over at Dean's place something heard on NPR this morning - that being some CAL GOP Congressman saying that this bill if enacted with cost us all those 7 million new jobs created by that 2003 tax cut. That's a double canard. Incidentally - if you go back a few years to certain rightwing hysteria, you will see lots of claims that FDR's policies caused the Great Depression. To his credit - Arnold Kling presents the discussion in a very balanced way, which is a far cry from what George Will did. So if we are to criticize Brad, let's first check to see what he was critiquing. Else - we'll get into another one of those Alan Reynolds style pissing matches.

[anne]

My oh my, and there is the intimidator intimidating but me not even liking baseball and not knowing whether it is better to be on base than off base. I am so intimidated, but my oh my did we have a splendid year last year so intimidate on for the winning pleases me.

"A normal person would not argue that the New Deal prolonged the Great Depression."

Grandma will be pleased....

[anne]

Arnold Kling is balanced as David Brooks is balanced, Nastier than a snail, but the shells distract from the nastiness. What was it I was told they were arguing over at the Kling haven?

http://maxspeak.org/mt/archives/002769.html

" . . . the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica."

Say what?

[anne]

Notice how Sweet Klingy chooses spots to be offended by ever so carefully.

"A normal person would not argue that the New Deal prolonged the Great Depression."

Thank you, Dear Brad.

[anne]

From the Kling haven, in the spirit of the anti-New Dealers dealing anti-New Deals:

http://maxspeak.org/mt/archives/002769.html

" . . . the homeless like their lifestyle. Even if you gave them a nice apartment, three cafeteria meals a day, and beer money, they'd keep bugging the tourists in Santa Monica."

Say what? Remind me to watch "The Grapes of Wrath." Am I on base or off and which is better? Tra la.

[callahan]

Why not argue over something that matters such as Dick Cheney's comments from a year ago "the insurgents are in their last throes". Here is the question for argument, was he talking Iraq or fellow hunters?

[save_the_rustbelt]

DeLong is very clever, both by his use of "normal person" and his overall phrasing - he creates a narrow discussion point hard to debate

Try this:

"There is no evidence the New Deal hastened the end of the Great Depression."

An entirely different discussion.

DeLong is very skilled with language indeed.

[Peter Schaeffer]

PGL,

I think you are incorrect about this. During the 1930s plenty of people claimed that the New Deal prolonged the Depression and/or made it worse. However, I don’t know of anyone who blamed the Depression on the New Deal. How could they? FDR didn’t take office until 1933. There is an ongoing debate about the role played by Smoot Hawley, the stock market crash, bank panics, deflation, and monetary contraction, etc. in triggering the Depression and deepening it. However, I have never seen any mention of the New Deal before 1933. Please provide contrary references and citations.

Note that DeLong wasn’t referring to contemporary debates in the 1930s about the Depression. He was asserting that anyone who argues today that the New Deal prolonged the Great Depression is abnormal.

My own view (albeit not that well informed) is that financial reforms of the New Deal were positive and the NRA negative. The deeper point is that the New Deal failed to end the Depression because it was too limited. The fiscal/monetary orthodoxy of the period (essentially conservative), simply precluded implementing fiscal and monetary policies strong enough to end the Depression. This is Arnold Kling’s view along with many other economists.

The grip of the fiscal/monetary orthodoxy wasn’t broken by the Great Depression. It was however eliminated by WWII. Since WWII the government has been willing to take large steps to maintain macroeconomic stability. As a consequence the business cycle has been much weaker than in the pre-WWII period. Indeed an important debate of our times is whether the “Fed put” has driven risk-taking in financial circles to excessive levels.

[anne]

"There is no evidence the New Deal hastened the end of the Great Depression."

This is a sensible assertion but wrong, of course. The 4 years of Franklin Roosevelt's presidency were years of profound growth, possibly the fastest such period till now, though the country had been in such severe shape there was still ever so much left to do. There was a reason for the astounding popularity of Rooseevelt, and the reason was compassion for and identity with those most in need and success of the New Deal. Those who deny the success of the New Deal, are essentially sneering at what democracy can be.

[anne]

"During the 1930s plenty of people claimed that the New Deal prolonged the Depression and/or made it worse."

Duh, and Franklin Roosevelt was resoundingly defeated after term 1 and after term 2 and after term 3.... Almost as unpopular a president as, say, but why go there.

Funny, a certain wildly popular Terminator wishes to be a Franklin Roosevelt. Say what?

"Hasta la vista, baby."

[anne]

"A normal person would not argue that the New Deal prolonged the Great Depression."

Not then, not now. So, the most popular Republican in America, our own Terminator goes about wishing to be, and I could not be happier with the wish, Franklin Roosevelt. Remind me, please, to watch "The Grapes of Wrath."

[AN]

Anne,

Where are your much admired bird droppings... We await your Vanguard reports with bated breath...

However, "The Grapes of Wrath" is a high point for you... Last time I checked you were defending Pelosi's exploitation of illegal aliens rather vigorously.

[anne]

My father would always point out how often Ronald Reagan would compare himself to Franklin Roosevelt, but the point then was to limit the New Deal legacy while pretending to honor and preserve the New Deal legacy. With the Republican Congress however the point was to bash and smash the New Deal legacy and change the way in which Franklin Roosevelt would be remembered. Guess what? Ain't no Republican Congress anymore. Guess what? While the Terminator is going about talking like Franklin Roosevelt, just listen to Democrats like Charles Rangel who remember so clearly.

[anne]

Yes; intimidators do intimidate, lie and intimidate, and now the lies are about Nancy Pelosi, which makes sense of course since Nancy Pelosi is, say, Speaker of the House of Representatives." Say what? So, Brad DeLong vanished lots of lies about Nancy Pelosi.

The Nancy Pelosi lies are interesting, the lunatics lie about her courageous and consistant stance against the war in and occupation of Iraq, and the lunatics lie about her support of American workers.

[anne]

http://movies2.nytimes.com/mem/movies/review.html?title1=Grapes%20of%20Wrath%2C%20The&title2=&reviewer=FRANK%20S.%20NUGENT

January 25, 1940

Flawless Film Edition of John Steinbeck's 'The Grapes of Wrath,' With Henry Fonda and Jane Darwell
By FRANK S. NUGENT

In the vast library where the celluloid literature of the screen is stored there is one small, uncrowded shelf devoted to the cinema's masterworks, to those films which by dignity of theme and excellence of treatment seem to be of enduring artistry, seem destined to be recalled not merely at the end of their particular year but whenever great motion pictures are mentioned. To that shelf of screen classics Twentieth Century-Fox yesterday added its version of John Steinbeck's "The Grapes of Wrath," adapted by Nunnally Johnson, directed by John Ford and performed at the Rivoli by a cast of such uniform excellence and suitability that we should be doing its other members an injustice by saying it was "headed" by Henry Fonda, Jane Darwell, John Carradine and Russell Simpson.

We know the question you are asking, have been asking since the book was acquired for filming: Does the picture follow the novel, how closely and how well? The answer is that it has followed the book; has followed it closely, but not with blind, undiscriminating literalness; has followed it so well that no one who has read and admired it should complain of the manner of its screen telling. Steinbeck's language, which some found too shocking for tender eyes, has been cleaned up, but has not been toned so high as to make its people sound other than as they are. Some phases of his saga have been skimped and some omitted; the book's ending has been dropped; the sequence of events and of speeches has been subtly altered.

The changes sound more serious than they are, seem more radical than they are. For none of them has blurred the clarity of Steinbeck's word-picture of the people of the Dust Bowl. None of them has rephrased, in softer terms, his matchless description of the Joad family's trek from Oklahoma to California to find the promised land where work was plenty, wages were high and folk could live in little white houses beside an orange grove. None of them has blunted the fine indignation or diluted the bitterness of his indictment of the cruel deception by which an empty stew-pot was substituted for the pot of gold at the rainbow's end. And none of them has—as most of us feared it might—sent the film off on a witch hunt, let it pretend there had just been a misunderstanding, made it end on the sunrise of a new and brighter day.

Steinbeck's story might have been exaggeration; at least some will take comfort in thinking so. But if only half of it were true, that half still should constitute a tragedy of modern America, a bitter chapter of national history that has not yet been closed, that has, as yet, no happy ending, that has thus far produced but two good things: a great American novel (if it is truly a novel) and a great American motion picture.

Its greatness as a picture lies in many things, not all of them readily reducible to words. It is difficult, for example, to discuss John Ford's direction, except in pictorial terms. His employment of camera is reportage and editorial and dramatization by turns or all in one. Steinbeck described the Dust Bowl and its farmers, used page on page to do it. Ford's cameras turn off a white-striped highway, follow Tom Joad scuffling through the dust to the empty farmhouse, see through Muley's eyes the pain of surrendering the land and the hopelessness of trying to resist the tractors. A swift sequence or two, and all that Steinbeck said has been said and burned indelibly into memory by a director, a camera and a cast.

Or follow the Joads in their piled-up, rattling, wheezing truck along Highway 66, and let the Russian realists match if they can that Ford shot through the windshield, with three tired faces reflected in it and the desert through it....

[js paine]

i haven't yet read all comments here nor the links

but first off lets be clear there were several overlapping new deals

the hamilton critique of the nra
is stage one new deal
a reheat of mussolini's has of the 20's

and the monetarist bugaloo
about the great contraction
that's on hoover's plate
so

where can we see de facto gross keynersianism

well it starts to blend into the gyro gear loose earlier stuff
with the recession of 37-38

and really catch fire
with the arsenal of democracy
economy of 1940

btw
is hamilton playing trog himself here ????

"What is supposed to help
the economy recover
is that a substantial pool
of unemployed workers
should result
in a fall in wages and prices
that would restore equilibrium
in the labor market..."

what ????

this is pure high octane
classical gas

is he trying to say
"market price rigidity
is the problem
and the nra only made
the problem that much greater
by adding state props
to those price rigidities ???

brad is a party hound
and fdr a party icon of titanic proportions

we are seeing this in his bark

ignore the lack of science in his bite
besides he's wearing very dull false teeth
anyway

[Bruce Wilder]

I see Bruce Webb has ably made the point I would have made.

There is some truth in the old Stalinist proverb, that he who controls the past, controls the future. And, the Right have been busily building a revisionist history of business cycles for many years, in the hope of bolstering not just their point of view, but their reprehensible political agenda. As they see it, the rise in wages, the Roosevelt Administration fostered, was a bad thing; these are the same people, who lecture against even the most minimal minimum wage.

In the small mind of Arnold Kling deflation is "supposed to" to transfer massive wealth and income to the very rich, and Roosevelt interfering with that "natural" process is much to be regretted. Personally, I regret Arnold Kling.

[AN]

The "Anne" worldview

1930s Grapes of Wrath - Evil
2000s Grapes of Wrath - Good

The Pelosi's of the world are profiteering from our latter day "Harvest of Shame". You are defending them.

[anne]

http://www.nytimes.com/2005/04/18/opinion/18herbert.html?ex=1271476800&en=9f23787f95925a8f&ei=5090&partner=rssuserland&emc=rss

April 18, 2005

A Radical in the White House
By BOB HERBERT

Last week - April 12, to be exact - was the 60th anniversary of the death of Franklin Delano Roosevelt. "I have a terrific headache," he said, before collapsing at the Little White House in Warm Springs, Ga. He died of a massive cerebral hemorrhage on the 83rd day of his fourth term as president. His hold on the nation was such that most Americans, stunned by the announcement of his death that spring afternoon, reacted as though they had lost a close relative.

That more wasn't made of this anniversary is not just a matter of time; it's a measure of the distance the U.S. has traveled from the egalitarian ideals championed by F.D.R. His goal was "to make a country in which no one is left out." That kind of thinking has long since been consigned to the political dumpster. We're now in the age of Bush, Cheney and DeLay, small men committed to the concentration of big bucks in the hands of the fortunate few.

To get a sense of just how radical Roosevelt was (compared with the politics of today), consider the State of the Union address he delivered from the White House on Jan. 11, 1944. He was already in declining health and, suffering from a cold, he gave the speech over the radio in the form of a fireside chat.

After talking about the war, which was still being fought on two fronts, the president offered what should have been recognized immediately for what it was, nothing less than a blueprint for the future of the United States. It was the clearest statement I've ever seen of the kind of nation the U.S. could have become in the years between the end of World War II and now. Roosevelt referred to his proposals in that speech as "a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race or creed."

Among these rights, he said, are:

"The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.

"The right to earn enough to provide adequate food and clothing and recreation.

"The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.

"The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.

"The right of every family to a decent home.

"The right to adequate medical care and the opportunity to achieve and enjoy good health.

"The right to adequate protection from the economic fears of old age, sickness, accident and unemployment.

"The right to a good education."

I mentioned this a few days ago to an acquaintance who is 30 years old. She said, "Wow, I can't believe a president would say that."

Roosevelt's vision gave conservatives in both parties apoplexy in 1944 and it would still drive them crazy today....

[anne]

Yes; I adore Nancy Pelosi as does San Francisco and much the rest of America. So, now the crazed intimidators must attack Nancy Pelosi as Franklin Roosevelt was attacked. But, funny thing, Nancy Pelosi won and, oh, did she ever win.

[anne]

Interestingly, Nancy Pelosi won election in San Francisco as easily as Franklin Roosevelt won in New York and in America. Initially the apoplectic conservatives attacked Pelosi as too liberal, but now the even more apoplectic idea is to attack her as too conservative. What a hoot.

Imagine what these same conservatives must be thinking about the Terminator. Tra la.

"Hasta la Vista, baby."

[Bernard Yomtov]

Where are your much admired bird droppings... We await your Vanguard reports with bated breath...

Charming. A valuable contribution to the discussion.

[evagrius]

I only know about the Great Depression from history books as probably most readers here. After all, the ones with memories of the Depression, memories that are useful, ( that is, of adult content, not adolescent or child), are long gone.
What I do remember from the textbooks etc; is that Roosevelt was able to inspire trust again, not just for the federal government but in society itself. That is, people could start trusting each other again and initiate economic activity based on that trust. What I also remember is that many of the programs initiated by the New Deal, ( such as te Tennesse Valley Authority, the WPA, etc;), put a lot of people to work and created infrastructure that has lasted to this day, ( I think the Post Offices and libraries buit by the WPA to be the most interesting around- the murals in some of them rival the best found anywhere).
The attempt by the "conservative" right-wing to re-write history is fascinating. I've already read about attempts to picture slavery as a boon to black people. Next, ( I wouldn't be surprised), will be the attempt to portray the genocide of Native Americans as a blessing to them.
Can someone, with the requisite acumen, provide, in a short, succinct fashion, the real data surrounding the event? How many people were umemployed, how many on the verge of starvation, how many homeless, how many migrating, etc;?
The "Grapes of Wrath" is a nice iconic story and movie, with more "truth" in it than most professional histories, but it's still only a fiction even though based on reality. It certainly won't be enough to convince the "realists" who'll insist on "hard data".

[Tom Geraghty]

js paine's point should be emphasized -- Hamilton's argument is pure classical macro - the economy as a self-correcting mechanism. Of course, if it really had been, things wouldn't have been so bad by 1933.

It's not entirely clear that falling prices will spur a recovery. According to Mundell (via Temin), a big problem to 1933 was that falling prices caused people to delay consumption, taking even more steam out of the economy. To the extent that NRA and AAA helped reverse the deflationary process, they probably helped re-ignite economic growth more than they are given credit for.

[Tom Geraghty]

Inflation Rate

1929 -- 0.0%
1930 -- -2.5%
1931 -- -8.8%
1932 -- -10.3%
1933 -- -5.1%
1934 -- 3.4%
1935 --
1936 -- 1.0%
1937 -- 3.6%
1938 -- -1.9%
1939 -- -1.4%
1940 -- 1.0%
1941 -- 5.0%

Unemployment Rate

1929 -- 3.2%
1930 -- 8.7%
1931 -- 15.9%
1932 -- 23.6%
1933 -- 24.9% (20.9%)
1934 -- 21.7% (16.2%)
1935 -- 20.1% (14.4%)
1936 -- 16.9% (10.0%)
1937 -- 14.3% ( 9.2%)
1938 -- 19.0% (12.5%)
1939 -- 17.2% (11.3%)
1940 -- 14.6%
1941 -- 9.9%

Numbers in parentheses correct for participation in New Deal jobs programs.

[Tom Geraghty]

Real GDP Growth Rate

1930 -- -8.6%
1931 -- -6.4%
1932 -- -13.0%
1933 -- -1.4%
1934 -- +10.8%
1935 -- +9.0%
1936 -- +12.9%
1937 -- +5.3%
1938 -- - 3.5%
1939 -- +8.1%
1940 -- +8.5%
1941 -- +17.1%

[calmo]

Thanks for all that number pushing Tom.

[anne]

We were an economy with 25% unemployment in 1932, and the 25% were generally husbands and fathers and when they were not working there was almost no family support. Herbert Hoover may have gone fishing, waiting for prices, for wages, to drop enough for families with no money to buy and for businesses with no business to hire, but fishing was no answer. Franklin Roosevelt had no real idea of what to do, other than that fishing what not going to work, so he spoke to people making them feel understood and listened to ideas and proposed experiments when Hoover would only experiment with worms (I have fished). Roosevelt was fought, but this was a time of crisis and he inspired confidence and the New Deal began to be born and there was a burst of growth from 1933 through the presidential term.

Simply think what the Tennessee Valley Authority meant to the South, and, yes, the TVA was fought and fought. Think of the TVA and you have the New Deal and you have Roosevelt and you know why no "normal" person regretted Hoover as he continued to fish.

[anne]

Thank you, Tom. There are those who will argue the numbers on unemployment placed in brackets do not count since they represent those who worked on government projects. Heck, they worked and ask and look around and learn what they did and notice what they built. My grandfather would say Roosevelt saved capitalism.

[Tom Geraghty]

Mmmmm . . . . numbers:

Average hourly earnings in manufacturing
(dollars per hour, growth rate in brackets)

1929 -- 0.56
1930 -- 0.55 ( -1.8%)
1931 -- 0.51 ( -7.3%)
1932 -- 0.44 (-13.7%)
1933 -- 0.44 ( 0.0%)
1934 -- 0.53 (+20.5%)
1935 -- 0.54 (+ 1.9%)
1936 -- 0.55 (+ 1.9%)
1937 -- 0.62 (+12.7%)
1938 -- 0.62 ( 0.0%)
1939 -- 0.63 (+ 1.6%)
1940 -- 0.66 (+ 4.8%)
1941 -- 0.73 (+10.6%)

[Peter Schaeffer]

This topic started with George Will asserting that the New Deal prolonged the Great Depression. Apparently a majority of Americans held related views at one time. According to New Deal

“Lawrence Reed notes that "when a nationally representative poll by the American Institute of Public Opinion in the spring of 1939 asked, “Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?” the American people responded “yes” by a margin of more than two-to-one. The business community felt even more strongly so.”

This doesn’t make George Will right. Nor does it substantiate views of most Americans in 1939. However, it does show that such opinions have some historical basis.

[js paine]

tom g:

a sober eye and a bag of numbers

nice additions to the dialogue here

------------------------
the notion of price floors
rigged up by gubmint intervention
to prevent cut throat comp
as you suggest
were
precisely motivated by
fear of further turns of the deflation spiral

btw
here's my favorite depression fact

the farm sector responded
to declining market prices
with more out put

trying to run faster to stay even

not having a wage based work force
made this possible
but
of course mortgages
were in nominal terms"steady "
not re adjusting
so in real terms croaking
the yeomanry

by 32 add in the bank rural defaults
both as cause and effect ....

much of fdr's personal paradigm
was set thru this lense

his sense of industrial sector dynamics
were
not intrinsic to the wage based mass production
collusive nature onof industrial oligopoly
but really
just a blown up version of his farm model
where the collision
of part whole intentions
could be so horrid

the fact industrialists'
factories shut down
rather then try to troop on
turning out product
by a cut prices and wages strategy
of course
had complex causes
still not well reflected in micro get modeling

but easily
shown

keynes nicely assumed his micro conclusions based on observation
and proceeded

if prices are locked on the down side then ....

just how different
the two basic sectors
crisis dynamics really were
was the hard gaping fact in everyones face
and yet both were in wild dis function

[evagrius]

Tom Geraghty;

Thank you for pulling up the stats.

I'd like anyone, anyone, to dispute the conclusion- that FDR and his New Deal put the economy back on track, and more than that,gave people some hope that society does exist, that it isn't an abstraction, that people depend on each other and need to take care of each other.

Is another Great Depression necessary for people to learn that lesson once again?

[Peter Schaeffer]

Anne,

A quick check of Gross Domestic Product Percent change from preceeding period shows that the average (simple, not geometric) growth rate from 1940 to 1943 was 15.2%. By contrast, the growth rate from 1933 to 1936 was 7.9%. Note that Roosevelt’s second term had an average 4.7% growth rate, quite low for a still very depressed economy.

An overall observation by Henry Morgenthau about the New Deal comes from New Deal

“Roosevelt's Treasury Secretary, Henry Morgenthau, said in May 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.”

As I stated earlier, and statistically substantiated, WWII ended the Great Depression. A useful point is that, at the time, this was the standard view of just about everyone. Nobody in 1941 would have argued that the New Deal had suddenly ended the Depression after 10 years. It was obvious that war spending had relaunched the economy. Note that defense spending jumped from 1.7% of GDP in 1940 to 5.6% of GDP in 1941. Total Federal spending reached 12% of GDP in 1941, higher than any Depression year.

People may have been very grateful for the relief efforts of the 1930s. However, they didn’t confuse such programs with an end to the Depression. Only later, as actual memories faded did such thinking arise.

[Peter Schaeffer]

All,

Above I stated "Nobody in 1941 would have argued that the New Deal had suddenly ended the Depression after 10 years". That a BDL style error.

"Relatively few poeple in 1941 would have argued that the New Deal had suddenly ended the Depression after 10 years.

Is correct.

[anne]

Yes; I forgot about the growth surge about the World War, which is far larger than any other comparable period since and higher than the 4 years from 1933-1934 on. Thank you, but the point is that Franklin roosevelt's policies were generally wonderfully successful, and remember they were fought continually by conservatives as they still as fought. Glenn Hubbard was this day, as I mentioned, ranting about Social Security.

[js paine]

"that society does exist"
more to the edge of it

the state is not just
a self perpetuating
"legal" parasitic institution

in a crisis it mobilizes solutions
not possible any other way

[anne]

The point the rightists have been trying to make since 1933, and are raving about now is that Franklin Roosevelt's economic plans and evolving economic understanding to the statement of an economic bill of rights in 1944 were faulty and destructive. Rubbish. Roosevelt was not working from a text written by Paul Krugman, rather Roosevelt was experimenting and inventing what Krugman would come to understand. Voters forgave mistakes because they understood the intent, and the intent was turned to wonderful policies that rightists resented then and resent now.

The object of rightists is to detroy the reputation of Franklin Roosevelt and end the New Deal legacy. The Depression began to end as Roosevelt began to propose policy and Congress began to legislate the policy and in turn implementation began.

The rest is rightist rubbish.

[evagrius]

Examine the argument further regarding WWII and the end of the Great Depression.
What was the result?
A huge outlay by the government on massive defense spending, mainly on ships, military equipment etc; etc; with a huge influx of workers to the factories producing such goods, ( iconic of this is the migration of blacks from the South to the North - add to this the entry of a huge number of women into the work force).
A huge draft of eligible young men out of the work force into the armed forces creating a labor shortage.
The "dropping" of racial, ethnic and sexual barriers to employment.
Now....if this is what actually happened, and if this is what was necessary for the Depression to end, why did conservatives oppose any attempt to do the same before the war?
( It would have been nice if no WWII had been necessary. If, supposing Hitler had not existed, nor fascist Germany etc; would the above still have been necessary for the Depression to end?).

Those attacking FDR need to think a little further.

[save_the_rustbelt]

FDR's 1944 speech only proved he could be quite cavalier with the Constitution and using the "rights."

My father was a Dustbowl Okie and FDR's terms as savior didn't to reach quite that far.

[anne]

JS Paine is correct about James Hamilton who is finding the aspect of price controls a recovery limit, when the New Deal was a mixture of experiments in an invention of economics. This was not Paul Krugman running the country, but Franklin Roosevelt and advisers and legislators who were trying to understand how to save capitalism and who did just that.

Brad DeLong is a master at language:

"A normal person would not argue that the New Deal prolonged the Great Depression."

Absolutely, because DeLong as Krugman understands the point now is to distort history. The New Deal built the American middle class. Voters understood then and understood in this election, and the right is furious and terrified. When the Terminator is a Roosevelt New Dealer, we know what the New Deal was about.

"Hasta la vista, baby."

[yan]

A slightly offtopic observation but a comparison I looked into out of curiosity after perusing some of the posted numbers.

Average American worker circa 1932, $.44 per hour, 40 hours, 4 weeks per month = $70.40 per month.

Chinese worker circa 2004, for probably more than a 40 hour week, minimum monthly wages = $58-74.

It just boggles the mind to think that contemporary Chinese workers are earning a lower hourly wage than the average American workers at the nadir of the Great Depression. Really puts the development gap into historical perspective (I apologize in advance for the lack of a PPP adjustment).

[evagrius]

save_the_rustbelt;

Could you restate your statement?

I take it that FDR did not impress your father. Why?

[yan]

"A normal person would not argue that the New Deal prolonged the Great Depression."

Obviously true, since proving either the positive assertion that the New Deal did prolong the Great Depression or the negative assertion that the absence of the New Deal would have shoretened the Great Depression, would require the construction of a contrafactual history. While professional historians and others engaged in equally esoteric occupations might at times engage in such activities with varying degree of credibility, the validity of the final product can never be proved or disproved, nor would such people be categorized as normal.

With regard to the economic discussion of the actual event, how do we define the end of the Great Depression? There seems to be no actual economic definition being used but simply the "era" distincion between Depression Era and World War II. In which case "World War II ends the Great Depression" is simply a tautology. How would we economically define the end of a recession/depression without reference to a specific historical context? Does GDP have to return to the pre-Depression level? Does output growth have to be positive for some specific number of quarters\years? Does unemployment rate have to be below some specific threshold? Does the size of the labor pool have to return to the pre-Depression level? Is there some condition based on prices and wages?

[Peter Schaeffer]

Evagrius,

See my earlier post. FDR failed to use sufficient fiscal/monetary stimulus to end the Great Depression because both parties were still in the grip of the essentially conservative orthodoxy of the time. Monetary expansion was opposed because of the historic link to gold and silver (even though the U.S. was now off the gold standard) and because of fears of inflation. These fears may have had zero basis in reality (the CPI fell dramatically after 1929). However, they were still paralyzing.

Note that many people felt that monetary expansion simply wouldn’t work. The phrase “pushing on a string” was used back then. See Money, Gold, and the Great Depression by Ben Bernanke.

Fiscal stimulus was opposed for several reasons. Opposition to deficits was quite strong, among Republicans and Democrats. See the Wikipedia New Deal web page for a discussion of this topic.

As I mentioned before, the war finally broke the orthodoxy that had ruled American economic policy even with FDR in the White House. One useful note is that defense spending as percent of GDP was higher in 1941, than it is now (including the GWOT).

[evagrius]

Peter Schaeffer;

So, are you arguing that Roosevelt should have used "big government" fiscal stimulus in order to end the Depression, even without the war as an excuse?

[kthomas]

save_the_rustbelt: "FDR's 1944 speech only proved he could be quite cavalier with the Constitution and using the "rights."...."

I think that's the first time I've ever read/heard someone use "cavalier" when describing anything FDR did. Could the same adjective be used to describe the Bush administrations economic policies, to say nothing of the Bush admin;s foreign and domestic policies? All these new reports of spying on Americans comes to mind.

In my view, FDR was simply trying to protect his people from predatory capitalism. He's a hero to all middle class Americans. That may be as bold as DeLong saying ""A normal person would not argue that the New Deal prolonged the Great Depression.""....but facts are facts.

[gordon]

To me, the more interesting question is the extent to which military expenditure after 1945 contributed to US economic well-being. This was ("was"?) the era of the Cold War and the so-called National Security State, in which military expenditure continued to rise. Without this expenditure, would depression-era levels of unemployment and economic stagnation have returned? Was that the real motivation behind continued high levels of military expenditure when the US was no longer at war?

To my knowledge, the best argument that continuing high levels of military expenditure was in fact deleterious to the long-term health of the US economy was made by the late Seymour Melman, particularly in his 1974 book “The Permanent War Economy”, which analysed both civilian expenditure foregone in favour of military expenditure and the effects of what he saw as the dead hand of the Pentagon in distorting and retarding US industrial production (he was an engineer).

Melman certainly believed that war expenditure ended the depression, but was concerned to argue, for his own time, that Govt. expenditure on civilian projects could be just as effective - indeed more effective - in promoting economic growth and national well-being as military expenditure. I wonder if anybody has since picked up from where he left off?

says...

I thought it was generally admitted that the New Deal did not bring the USA out of the depression. That was done by the WWII and the expansion of employment it created. It may be that the New Deal was too timid in stimulating the economy, for political reasons, but that is debatable, I suppose. The New Deal was a palliative, not a cure.

[ilsm]

I agree with DeLong: no sense arguing about the impact good or bad on the duration of the depression.

I believe in, and it would also not make much sense spending a lot of time debating, the effect of the New Deal in preventing the disintegration of the republic into a fascist or a bolshevist tyranny.

I am not sure the New Deal was meant to stimulate economic activity, if it was it may not have had that effect.

I think the New Deal has made a more humane America, if that is an unintended consequence fine, I won't spend much time on that either.

De Long is a wizard of the English language!!

[Brad DeLong]

I would ask everyone to closely parse what's being said here. Neither Arnold Kling nor Jim Hamilton is saying, "Well I'm normal, and I think the New Deal made things worse." Jim is saying that "some aspects of New Deal policy surely did make the recovery from the Great Depression slower." And I agree with that 100%. By not recognizing that most of the New Deal was a shift of fiscal policy from contractionary to neutral on a cyclically adjusted basis, Arnold is underestimating the positive effects of the New Deal--and even so he does not say that it made things worse. He doesn't take a view.

To get to somebody willing to argue that the entire New Deal taken as a whole made things worse, you have to go to somebody like Arnold's intelligent and energetic co-blogger Bryan Caplan, who writes:

>[Robert] Mugabe has made people afraid to invest in Zimbabwe. Why should [Brad] doubt that - on a smaller scale, of course - Roosevelt made people afraid to invest in the U.S.?

And I think that I am safe in classifying somebody who sees Robert Mugabe as Franklin Roosevelt writ large as not entirely normal.

[Peter Schaeffer]

Evagrius,

Yes, of course. I would change the words to "should have used fiscal/monetary" stimulus, rather than just fiscal. Unlike the folks in the 1930s, I view monetary policy as "pushing with a stick", not "pushing with a string".

There is nothing unconventional or unique about my opinion on this point (the desirability of much greater fiscal/monetary stimulus in the 1930s). To the best of my knowledge Kling, Krugman, Friedman, DeLong, etc. would all concur. Probably our host as well.

If the U.S. recovered fast enough, the world economy might have followed suit and WWII been avoided.

Note that I am not blaming FDR or the New Deal for not doing so. The fiscal/monetary orthodoxy of the time was not of his devise. However, he and most Democrats were strongly influenced by it (Republicans much more so).

[evagrius]

Peter Schaeffer;

Interesting argument. I thought the "free market" was supposed to take care of all of this.

I'm not disagreeing with you but I find it interesting. Imagine Friedman advocating what you argue. Where's the "free to choose"?
And Ayn Rand? Hayek?

Etc;Etc;

There's seems to be a very peculiar disconnect here.

And I find the remarks on Seymour Melman interesting. Imagine what the U.S., ( and the world), would be like if the intellectual and fiscal energy spent on war could have been harnessed to more productive means.

We might not have had to face what we're facing now.

[James Killus]

Hmm, I just noticed. We're now in a war, and the same people who claim that the only thing that ended the Depression was a war also claim that our current economic growth is entirely due to tax cuts.

Or maybe it's just those wonderful deficits, because the surplus from Clinton was clearly a drag on the economy.

[evagrius]

There's a big difference between that war and the present one beginning with who gets what money.

[Winslow R.]

"Name Your Poison

There's no right answer as to how society ought to look. That's a matter of personal philosophy. Indeed, I still find a thought experiment proposed by philosopher John Rawls as relevant as anything that economics can offer.

Rawls argued that decisions about economic justice should be made behind a "veil of ignorance." How would you want the world to look if you were going to be born tomorrow but didn't know the economic station into which you would be born?

If you were going to be born somewhere in America tomorrow -- in the projects of Chicago or perhaps into one of those families that brought home $50 million this bonus season -- what would you want the economic landscape to look like today?

Would you want a distribution of income that looked more like Sweden's, or Brazil's? It's worth thinking about."

http://finance.yahoo.com/columnist/article/economist/19750

[Lafayette]

KM: "They do so want to believe in their capitalism that I doubt anything could change their thinking. Obviously, its collapse didn't alter their thinking."

There is nothing fundamentally wrong in believing in capitalism. Or socialism, for that matter.

What is wrong is to believe that, as a political belief, any "-ism" holds ALL the solutions to modern living (employment, fairness, assistance, opportunity).

A political belief is a standard bearer, like armies of yore, for people to rally around. But, a standard as such, has become a highly variable object in political terms. Marx believed inflexibly that his analysis of social conditions in the latter half of the 19th century was correct and those who rallied around (Lenin, Trotsky, etc.) believed that only by replacing the Tsar with a totalitarian Communist state could correct matters. Hitler manipulated the Germans in the same manner. Bush manipulated the American public (after 9/11) in also the same manner.

It is fairly easy, employing modern media, to wave a standard around and try to rally people. The hard part is translating the political standard into policy decisions. Political standards are meant to take immensely complex problems and reduce them to simple solvability - thereby convincing voters.

Anyone versed in commerce/trade AND economics knows well that policy making is a hit or miss proposition. Economies are amazingly complex monsters and their complexity expands exponentially on a global scale.

There is more an onus today on a political leadership that understands these complexities (because they have the abilities with which to deal with them) than ever before. But, in country after country, in regional pole after pole, we have politicians who cannot take their blinders off and see a picture larger than their own particular constituency.

That is a failure of whom? The politicians or the people who elect them?

I suggest the latter. If people want mature political leadership, they themselves must be mature enough to elect such leaders. Democracy almost always assures that elected politicians are a reflection of their constituencies. Which is why politicians do their damndest to appear just like "the person next door" at electioneering time.

If we elect the jerk next door, then we have the inalienable right to expect that person to behave like a ... jerk.

[Lafayette]

JK: "Or maybe it's just those wonderful deficits, because the surplus from Clinton was clearly a drag on the economy."

Pray tell, what brilliant piece of Clintnite management (aside from constraining Defense expenditures) was the generator of the budget surplus. Frankly, given a heady econmic boom combined with no war and no natural calamity ... it just happened.

Mickey Mouse could have been president and the surplus would have happened anyway.

We can blame Johnson for Vietnam and Bush for Iraq, because these were deliberate presidential decisions (sanctioned by Congres).

Success has many fathers, but failure always seems to be an orphan.

[js paine]

gordon about melman :
"I wonder if anybody has since picked up from where he left off?"

his points were all well made
his motive
end the 'retarding "
grip of the weapons industry on technical progress in civilian industry
and its lion share of the discretionary part
of our fed budgets

all one needs to do is re apply his points
today
but honestly the hi flying trade gap is far more of a means toward industrial doom today
thenuseless weapons procurement and r and d

[Peter Schaefer]

Evagrius,

If you go back and read Ben Bernanke’ speech, Money, Gold, and the Great Depression, he reviews the Friedman and Schwartz critique of U.S. money and banking policy from the late 1920s onward in considerable detail. Friedman and Schwartz are, of course, the authors of “A Monetary History of the United States, 1867-1960. The Monetary History”. Obviously they (Friedman and Schwartz) think that quite different policies should have been employed in that period.

Friedman never believed that the economy was a completely self-balancing system that required no government intervention. For example, he advocated a monetary policy that would produce a uniform, stable expansion of the money supply. This is a simplification. His actual views were considerably more complex.

In his speech, Bernanke covers some of the post-Friedman work on the Great Depression. Newer work has emphasized the role of the gold standard in transmitting the Depression worldwide. A useful quote

“Perhaps the most fascinating discovery arising from researchers' broader international focus is that the extent to which a country adhered to the gold standard and the severity of its depression were closely linked.”

Note his references to the “ideology of the gold standard was dominant”, “the gold standard orthodoxy”, and “the adherence of some Federal Reserve policymakers to the liquidationist thesis”. These quotes should hopefully start to provide some sense of how strong the conservative fiscal and monetary orthodoxy was at the time, with respect to both parties.

To put this in perspective, the NRA, TVA, Social Security, etc. divided the parties in the 1930s. However, both parties, including FDR were bound by the fiscal and monetary orthodoxy. The orthodoxy constituted a more dominant ideology than beliefs about government ownership of utilities, the welfare state, government regulation of private business, etc.

I wouldn’t suggest you take the time to read the Friedman and Schwartz book. Many years ago, I read it and still remember bits of it. However, Bernanke’s speech will only take a few minutes and is well worth the effort.

A different question is “what is the orthodoxy of our time”. Clearly its not the traditional gold standard. I would argue that neoliberalism, the “Washington consensus”, fixed exchange rates, “free trade”, etc. are the new orthodoxy. Note that fixed exchange rates are closely related to the gold standard. Mundell, for example, advocates both and moreover favors adjustment mechanisms (inflation, deflation) within a fixed exchange rate system directly comparable to the adjustment mechanisms of the gold standard. So does Mankiw for that matter.

[Bruce Webb]

I thought this anonymous comment was oddly revealing:

"The New Deal was a palliative, not a cure."

That was a feature not a bug. There is an implication built in here that easing suffering should have taken a back seat to creating a growing economy. Which when you parse it out means privileging returns on capital to returns to workers.

I don't know that anyone beyond some Keynsian economist justified the WPA or the CCC as cures to the economic downturn. What they did is give young men (overwhelmingly) jobs and all that goes into being a productive member of society and not a guy hanging on the street on the dole.

You would think that people who push "welfare to work" and EITC would see the irony of attacking the New Deal.

As for me I'll take the Golden Gate Bridge and Hoover Dam.

[anne]

Bruce Webb:

"You would think that people who push "welfare to work" and Earned Income Tax Credit would see the irony of attacking the New Deal.

"As for me I'll take the Golden Gate Bridge and Hoover Dam" and Tennessee Valley Authority and on and on and on....

[spencer]

Peter Schaefer-- I really like most of what you are saying and agree with the bulk of it -- especially the reference to Bernanke and the emphasis on monetary policy. There is a very interesting paper at the NY fed that relates much of this to Roosevelt raiing the price of gold that you would like. Sorry I seem to have lost my link to it.

However, I do have some reservations about how much of the end of the depression you credit to the war and how much of the depression was over before the war began.

If you do a 3.5% trned growth rate for the US economy from 1900 to 2000 what you find is that real gdp was right on that trend in 1929 and returned to the trend in 1941-- just as the time the war started to have a big economic impact. For the war years 1942-45 real gdp was well above the long term trend and it did not actually return to trend until 1947.

I believe the real difference in the depression was the 1929-33 plunge, not the recovery after 1933. For example, if you look at post war economic cycles one of the most amazing things is how symetrical the employment drop and recovery are . Typically, after nonfarm employment falls in a recession the time it takes for employment to return to the prior peak is almost always the same as the time it fell, ie, if the drop covers 4 quarters the rebound takes four quarters.
But in the depression nonfarm payrolls fell 4 years from 1929 to 1933. But it only took three years for it to return to the 1929 peak in 1936. So by this standard or norm the early 1934-36 employment recovery was stronger then the recovery in every post WW II recovery.

I show this over at James Hamiltons blog.

[Peter Schaefer]

Spencer,

Great call on long-term GDP growth. A log normal plot of real US GDP is remarkably straight. As you point out, the deviations are the Great Depression (below) and WWII (above).

The 1933 - 1936 recovery was stronger than any equivalent upturn. However, as per your comments GDP didn't reach the long-term trend until 1941 when defense spending reached 5.6% of GDP.

As an aside, per-worker GDP changes trend in the 1970s. It has never returned to the pre-1970s trajectory.

[Ken]

Ok call me stupid but explain this to me as if I were 5.
The monetarist view of the Cause of the Depression was the contraction in Money Supply. Inflation is too much money chasing too few goods TF Deflation is too little money chasing too many goods.
So in the case of the depression what vehicle does the FED use to expand MS. Open Market ops. I hardly see how that would help and cutting the FF rate would do little. I can see bailing out the banks preventing the contraction but was that the real core cause.
FDR did that.
There is no incentive for capital investment as the expected ROI is negative and how would cutting the FF rate reach the massive unemployed working class.
It seems to me that if wealth and income concentrate to the levels that they were prior to the 29 collapse and monetary stimulus would be inefficient at best.
So does it follow that the contraction was merely a symptom of a larger problem?
FDR's policies of empowering labor formation rebalanced the market distribution of income.
The post war returning vets created a supply shock that would have contracted wages without this rebalancing.

Doesnt that prove that FDR's actions were appropriate? Of course not all were. Targeting Price alone seems a silly action adn destroying supply probably did little.

[Peter Schaefer]

Brad,

You wrote “A normal person would not argue that the New Deal prolonged the Great Depression”

Since you authored this statement, plenty of people over at Marginal Revolution, Econobrowser, mahalanobis, and Free Exchange have appeared who either believe that the New Deal did prolong the Great Depression or cite plausible sources with the same view.

Now all of those people are either “abnormal” or perhaps your statement is wrong. It’s worth noting that 2/3rds of the American people expressed a somewhat related view in the late 1930s. According to New Deal

“Lawrence Reed notes that "when a nationally representative poll by the American Institute of Public Opinion in the spring of 1939 asked, “Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?” the American people responded “yes” by a margin of more than two-to-one. The business community felt even more strongly so.”

To me it looks like you took an unsustainable position without first doing your homework. Rather than admitting your error, you have compounded it by denying the increasing contrary evidence.

Now isn’t this the approach what you accuse others of, with respect to matters of considerably greater contemporary importance?

[Lafayette]

BW: "As for me I'll take the Golden Gate Bridge and Hoover Dam."

Then you might be short-changed. The New Deal spawned some very talented economists. John Galbraith was one. Samuelson was another.

The former's seminal book, "The Affluent Society" explained to many of that generation what Samuelson had ommitted. (Not that I'm denigrating Samuelson. His contribution was very different to the science of Economics than Galbraith's.)

But, they both spent the War in Washington working for the New Deal president. I doubt that either could have done that without having been influenced.

[ken melvin]

The symptoms caused the malady, but the symptoms are caused by the maladies. Is this clear?

[Barry]

Which suggests that the sum of the policy changes under FRD did the job. Unless something else magically came around in 1993, by sheer coincidence.

says...

“A normal person would not argue that the New Deal prolonged the Great Depression.”

Precisely; there are a bunch of distinctly not-normal ideologues who are crazy mad about losing the election and they must reach out to besmirch the reputations of all who are and will continue to be American models who are not a madly conservative as they are.

[anne]

That was happily me, though my computer thinks otherwise.

Here then is comedy beyond Monty Python:

"To me it looks like you took an unsustainable position without first doing your homework. Rather than admitting your error, you have compounded it by denying the increasing contrary evidence."

Imagine addressing this to Brad Delong???

[anne]

“A normal person would not argue that the New Deal prolonged the Great Depression.”

Truer than I might have imagined. Thank you, Dear Brad.

[anne]

http://globetrotter.berkeley.edu/conversations/Galbraith/galbraith1.html

March 27, 1986

Challenging the Conventional Wisdom: Conversation with John Kenneth Galbraith
By Harry Kreisler - University of California at Berkeley

Of your generation, who do you think was the greatest political leader that liberalism had?

Oh Roosevelt, no question about it.

And what distinguishes him? What stands out in your mind?

What stands out in my mind is that those of us who were young in the Roosevelt administration, and most everybody in that administration was young, had a sense of fealty, a sense of loyalty which was beyond sense, and maybe too great. I, in those days, along with everybody else, had ideas until Roosevelt had spoken. And then I automatically accepted his. Through the whole structure of New Deal Washington, including the war years, the greatest mark of pride was to be a Roosevelt man. But this was, in turn, related to the fact that the president had great flexibility of accommodation to the disaster and despair of the Depression years.

This was a terrible time, a perilous time in the history of the republic, and a singular feature of Franklin D. Roosevelt was his pragmatic accommodation to whatever needed to be done. If you ever hear a politician say, "I'm going to adhere strictly to principle," then you should take shelter because you know that you are going to suffer. In contrast, Roosevelt was, in his time, the supreme pragmatist....

[Yes; Lafayette....]

[Peter Schaeffer]

Anne,

I did address my comments to Brad DeLong. If you check SDJ, you will find that he has already changed his postion. Now he says.

“The furthest I will go is to agree that reasonable people can argue over whether reasonable people could argue that the New Deal prolonged the Great Depression.”

Lot's of people have commented on this. I rather doubt that my input played any role.

[anne]

The only wish of the conservative lunatics who are ranting about Franklin Roosevelt is to deceive and distory history enough to try to regain hope against hope what they have just lost in this election, the chance to destroy the legacy of the New Deal. But, when a certain governor of California is happily going about being Franklin Roosevelt, and being the most popular Republican in America, the game is won. Rant on.

[Lafayette]

JKG: "This was a terrible time, a perilous time in the history of the republic, and a singular feature of Franklin D. Roosevelt was his pragmatic accommodation to whatever needed to be done."

What is amazing is to see this written of a man who had, after all, no real reason to be so concerned about the despair of the poor.

I wonder if his affliction (polio?) did not change the man. Or maybe his wife changed him? Or both?

[Lafayette]

"the New Deal prolonged the Great Depression."

Another item for the "Much ado about nothing" category.

[anne]

Lafayette wonders why Franklin Roosevelt should have cared so for a stricken people, and I do not know. Eleanor was the same, but why? More reading for me. I do know that Eleanor was out-spoken and influential, even to the extent of writing a book on foreign policy to criticize Franklin in about 1938. Time to read of the couple, as such.

[Winslow R.]

Peter: "I would change the words to "should have used fiscal/monetary" stimulus, rather than just fiscal. Unlike the folks in the 1930s, I view monetary policy as "pushing with a stick", not "pushing with a string"...To the best of my knowledge Kling, Krugman, Friedman, DeLong, etc. would all concur. Probably our host as well."

Krugman, at least, would not concur.

"What if, even at a zero rate, businesses do not want to invest as much as consumers want to save? This is the dreaded "liquidity trap," in which monetary policy finds itself "pushing on a string." "

http://www.pkarchive.org/crises/depression.html

anne says...

http://delong.typepad.com/sdj/2007/01/and_apropos_of_.html

January 11, 2007

And Apropos of Keynes, ch. 19...
By Paul Krugman

The New Deal and the Depression: Interesting stuff. I agree that the NIRA might have raised the structural rate of unemployment - but the economy got nowhere near the structural level of unemployment during the NIRA period, so what difference could that have made?

What really