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Tuesday, February 14, 2012

"Alexander Field, Greg Clark, and Optimism about the Current Unpleasantness"

Why aren't we doing more to rebuild our infrastructure at a time when our needs are high and borrowing costs, labor costs, and other costs of infrastructure are at bargain prices? Not to mention the employment benefits that would come with enhanced infrastructure investment. And why aren't we doing more to shore up our financial infrastructure through new regulations and oversight of the banking sector so that the problems we are having presently are less likely to reappear? There have been some changes in financial regulation, but not enough, and the financial sector is doing its best to block any further progress in this area:

Alexander Field, Greg Clark, and Optimism about the Current Unpleasantness, by Eric Rauchway: On the jacket of Alexander Field’s new book A Great Leap Forward, my colleague Greg Clark says this:

As we sit mired in the Great Recession, Alexander Field’s exciting reappraisal of the Great Depression offers surprising solace. By showing the Great Depression was coupled with the most rapid technological advance in U.S. history, he fundamentally recasts the history of the 1930s. But he also offers hope that our own depression likely will have no long-run costs to the U.S. economy.

By measuring total factor productivity (TFP), or the improvement in productivity not accounted for by traditional inputs, Field finds tremendous gains during the Depression. They owe in part to private investment in manufacturing efficiencies, chemical processes, and other technical improvements. Historiographically, there’s a major payoff in showing that the vast majority of such innovation came during the Depression, not during the war.

But (as the bulk of Field’s book is devoted to showing) the productivity improvement owes mostly to construction transportation infrastructure – to the construction of roads, bridges, and all that made the modern trucking industry possible. Field even goes so far as to say the end of the golden age of productivity in the American economy in 1973 “coincides with [he does not quite say owes to] a tapering off of gains from a one-time reconfiguration of the surface freight system in the United States”.

And this massive public investment in infrastructure, which made possible the postwar suburbanization and boom, went along with financial regulation. Field attributes both the current crisis and that of the 1920s to “a failure to control, or really to be interested in controlling, the growth of leverage.” If we want to come out of the Current Unpleasantness with less than a Great Depression to show for it, we’ll have to see regulation that responds accordingly, he says. “If an even more serious crisis occurs within the next decade, it will be because the regulatory response ended up being less effective than that which was summoned during the New Deal.”

Which makes Field sound a lot less optimistic than Greg. The Great Depression turned out relatively well in the long run because we had not only significant private investment in R&D and other improvements, but also the New Deal – road-building and regulation. Do we have that, or anything like it, now?

    Posted by on Tuesday, February 14, 2012 at 05:09 PM in Economics, Fiscal Policy, Productivity, Regulation | Permalink  Comments (24)


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