Rethinking the Great Depression

1
RethinkingtheGreat Depression

• Part II The New Deal
• The Depression of 1937-1938
• Anemic Recovery of 1938-1940
• The Effects of WWII on the Economy

2
FDR Economic Policy

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

3
FDR Economic Policy

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

4
1933 Economic Rebound
March to July
Non-durables Production 35
Durables 83
Unemployment -5

• Gold inflows banks rebound.

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
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?

11
RethinkingtheGreat Depression

• Part II The New Deal
• The Depression of 1937-1938
• Anemic Recovery of 1938-1940
• The Effects of WWII on the Economy