Rethinking the Great Depression

1
Rethinking theGreat Depression
The New Deal The Depression of 1937-1938 Anemic
Recovery of 1938-1940 The Effects of WWII on the
Economy

• ECO 473 Money Banking
• Dr. D. Foster

2
1933 Economic Rebound
March to July
Non-durables Production 35
Durables 83
Unemployment -5

• Gold inflows banks rebound.

3
FDR Economic Policy

• No particular economics expertise.
• Change f(academic advisors)
• The problem of underconsumption/overproduction
  (?)
• Industrial planning
• Reform vs. Recovery

4
FDR Economic Policy

• Banking
• Relief
• Jobs
• TVA
• AAA
• NRA

5
1933 Economic Slide
July to November
Non-durables Production -19
Durables -32
Unemployment no change

• AAA NRA kick in.

6
Back to July 1933
Date
Durables Production July 1935
Manufacturing Production August 1935
Unemployment October 1934

• Industrial codes price fixing.

7
The Depression of 1937-1938

• Ur decreased to 12 by 1937 . . . then, back to
  20
• Production rising . . . now falling by 67 (dur.)
• Stock prices rising . . . now down 50
• Downturn worse than 1920-21 1929-30 !!!

• Why?
• FDR continues attacks on business.
• Fed raises reserve requirements.
• Labor laws raise labor costs.

8
Anemic Recovery 1938-1940

• By 1940, back to where we were in 1937.
• Ur decreased but still around 15.
• Durable mfg. at 96 of July 1929 level.
• Housing construction reached 1929 levels . . . in
  1951 !!

• Why? Regime Uncertainty
• Net Investment -18 billion 1931-1935.
• From 1930-1940, Net Investment -3 bill.
• Contractionary monetary policy.

9
Effects of WWII on the Economy

• Ur decreased to lt2 by 1943.
• Govt. spending rises by almost 900.
• Rise in Consumption spending.
• Economic recovery as prescribed by Keynes.

• Were we better off?
• Unemployed ? military.
• Rationing and price controls.
• Increased taxes.
• Increased money supply.

10
AnotherGreat Depression Story
11
The Great Depression of 1946

• Contraction from 1945 (II) to 1946 (I)
• ?Federal spending 67
• 1945 deficit (3.3 tr.) to 1947 surplus (760 b.)
• ?Defense employment by 11 million.
• Armed forces/Federal jobs/Defense
• ?RGDP about 15

Forecast A return to Great Depression levels of
unemployment.
12
The Great Depression of 1946
1946
1945
1947
13
The Great Depression of 1946

• What Happened from 1945-1947?
• 5.6 mill. women exited labor force.
• 4 mill. non-mfg. jobs created.
• Real wages ?7.
• Investment Exports growing.
• ?Federal deficits keep interest rates low.

Despite fears, increased reliance on markets and
decreased reliance on government proved effective.
14
Consequences of theGreat Depression

• An end to the gold standard.--Increased monetary
  destabilization.--Culminated with inflationary
  1970s.
• Increased Federalism.--Size of federal govt.
  still growing.--SL getting 25 from feds.
• Growth in the Regulatory State.--What isnt
  interstate commerce?--Cap Trade next?
• Rise of the Welfare State.--Can SS continue?

15
Rethinking theGreat Depression
The New Deal The Depression of 1937-1938 Anemic
Recovery of 1938-1940 The Effects of WWII on the
Economy

• ECO 473 Money Banking
• Dr. D. Foster