RoR: Forum

“What Ended America's Great Depression?”

Saying that WW II ended the GD is misleading and imprecise, be it true or false. First it's necessary to get clear on what the GD was all about, what made it such. If it had to do with unemployment, mainly, then the claim is superficially correct--kind of like the claim that "Johnny's death ended his disease". But if one consider the GD mainly a widespread economic contraction, including but not exhausted by massive unemployment, then WW II clearly did not end it at all. WW II changed things but in ways that certainly didn't constitute an overall improvement in the country's economy or living conditions. But some of the numbers by which many economists evaluate the economy turned more favorable. [That's about all I am up to contributing to the discussion. Others will need to fill on the rest of the substance.]

Post 21

Saturday, December 27, 2008 - 2:46am

Interview of 30 October 2008 on The News Hour:

PAUL SOLMAN [of The News Hour]: Now, what lessons should we have learned from the Great Depression? And have we learned them?

AMITY SHLAES: What I discovered researching the period was that government intervention was usually problematic and made the depression worse, in Hoover's era and also in FDR's era.

So we want to be a little wary now about always asking for one more rescue package. The uncertainty of the rescue packages and their timing can do damage itself.

PAUL SOLMAN: But you're not saying -- or are you -- that government intervention in general actually was worse than if government had done nothing at all?

AMITY SHLAES: Government should have done less.

EUGENE WHITE: I would have to disagree with that interpretation. It's quite true that there were a lot of mistakes made during the Great Depression in terms of government policy, but those are primarily mistakes about intervening in specific markets, about fooling around with the pricing mechanism, affecting prices and wages.

Those were clear mistakes. But what we really learned about was how the Fed should act as a central bank, how it should act as a lender of last resort, and how to operate fiscal policy in a sensible way to counteract the effects of a stock market crash, to counteract the effects of a recession.

Those are very important lessons which are actually being used today. And it's no surprise -- and I guess, I would say, we're relatively lucky -- to have people at the Fed who have a thorough understanding of the Great Depression.

Christina D. Romer is Obama’s choice to head his Council of Economic Advisors.
In her article “Great Depression” for Encyclopeadia Britannica, she recommends:
MILTON FRIEDMAN and ANNA JACOBSON SCHWARTZ, A Monetary History of the United States, 1867–1960 (1963, reissued 1993), chapter 7, “The Great Contraction,” is the single most important study of the Great Depression in the United States, detailing ways in which banking panics and monetary contraction contributed to the economic downturn.

Tyler Cowen

“There has been recent circulation of the older view that it is World War II, as a kind of giant public works project, which ended the Great Depression. This claim is not consistent with our best knowledge of the subject. To survey the cutting edge of the literature briefly . . . .”

I can recommend:

America's Great Depression

Murray N. Rothbard

(Edited by Stephen Boydstun on 12/27, 3:07am)

Post 22

Saturday, January 17, 2009 - 10:43am

PPS: What most free market economists have been saying is now being said by others:

"....Roosevelt’s initiatives did not, in the end, lift the country out of the Great Depression. At no time in the first eight years of the New Deal did unemployment drop below 15 percent. At no time did economic activity reach levels comparable to those of a decade earlier; and, while there were periods when the economy seemed to be recovering, none of them lasted very long. And so this bold, active, and creative moment in our history proved to be a failure at its central task. Understanding what went wrong could help us avoid making the same mistakes today...."

Alan Brinkley, "No Deal," The New Republic (December 31, 2008), p. 12.

Post 23

Saturday, January 17, 2009 - 11:37am

"What most free market economists have been saying is now being said by others"

Unfortunately, I seriously doubt that any of these revelations is going to have any impact on the course the politicians in this country are going to take. There are plenty of warning signs that the fall will be hazardous to your health, but I'm afraid we are now committed to leaping off the cliff nevertheless. See you at the bottom!

Regards,
--
Jeff

Post 24

Tuesday, February 10, 2009 - 2:39pm

I don't think the folks who claim that 'WWII ended the GD' mean it in a positive sense. But it sure wasn't the New Deal that ended the GD.

In this universe, gradients drive everything, and everything certainly includes our economies. 'War' restores gradient via destruction, not creation. It is clearly a negative factor no matter how you slice it, but in terms of coldly 'restoring gradient' in the world, that it did; brutally and horribly. In the same sense that a hurricane tearing across Florida invigorates gradient via destruction.

It clearly 'helped' the US industrial based economies by their relative strength in the global economies, when compared to a world freshly in ruins.

If WWII in that sense ended the GD, then why didn't the GD come back after WWII was over?

Just as it put America to work again, when WWII was over, there was a massive spike in unemployment again in the post WWII period. So, why didn't the GD reappear? There was also objectively evidence of something else, to wit, the Boomer Bulge, a widespread cultural exuberence at having dodged the bullet, walked away from the abyss. The Post WWII nation procreated itself into an extra 30 million crumb crunching boomers, establishing a demographic gradient that continues to this day and drives our economies via gradient. That wasn't a result of WWII so much as a response to WWII being resolved in a positive outcome for the nation. The nation had walked up to an abyss, prevailed, and walked away.

The combination of that national exuberence, optimism, and energy, coupled with the short term global competitive advantage, lifted the nation into a period of relative dynamism and energetic creation and exertion and circulation of value in the economies that all but buried the GD. America was no longer 'depressed', America was 'relieved,' at least for a few decades.

Whatever you want to call it -- the evolution of the rapidly thrown up Arsenal of Democracy, our very own soft fascism, to IKE's MIC, to whatever remnant of all of that you want to call today's out of control CronyFest on the Potomac, it all never stood down after WWII. It transitioned seamlessly into waging the Cold War, and is currently waging the latest 'War on The Economy' or whatever crisis is required to maintain its size and scope and power, and most of all, the 'public funding' real estate market in suburban DC. Anybody who has taken a drive around the DC suburbs, and seen the over the top office building opulance and the sheer number of 10 million$+ 'public service' estates and can't hide it outward signs of boundless tribal access to endless amounts of OPM knows exactly what I mean; the tribal CronyFest on the Potomac is totally out of control, and that is the yet remaining consequence of the do or die need to stand up our own soft fascist beast in WII to face down then more virulent meat eating fascist totalitarian alternatives.

The sons and daughters of the Greatest Generation haven't quite figured out how to get the genie back into the bottle. So, even if WWII ended the GD, as part of the same continuum, it could well be bringing on the next GD.

The connective tissue is monopolists with guns.

regards,
Fred

Post 25

Wednesday, February 11, 2009 - 6:41am