Posted on 07/29/2009 2:11:00 PM PDT by mainestategop
I am no fan of New Deal socialism. However, FDR didn’t take office until March 4, 1933. After that, the highest tax rate went up, but those other measures of economic health improved, even before 12/7/41. I’m not trying to give the Brain Trust credit (evidently neither did Morgenthau). But at least the economic cycle during the first two FDR administrations was on a more favorable path than between October 1929 and FDR’s inauguration.
If your work force is 56 million men and you draft 12 million of them into the Army, then shoot half a million of those, yes your unemployment numbers are going to look swell. WWII only ended unemployment though. It did nothing to improve private production, which is the measure of a healthy economy.
The war contracts didn't cure the Depression either. "War production" is only a euphemism for what is actually massive capital consumption. Think about it. You grab vast amounts of raw materials and labor and use them to produce machines which you take to some muddy field in Europe and blow up. Does that sound like production or consumption?
You want to know what really ended the Depression? It was the death of FDR and the demise of his administration.
Oh and BTW beware of GDP numbers from the period. GDP is measured by summing up quantities and prices. When the government is engaged in price fixing on a vast scale, which they were during the war, stats like GDP are simply pure fiction.
Those numbers are fiction. Government was engaged in massive price fixing during the entire New Deal and WWII period. GDP is compiled by aggregating quantities sold and prices, but the prices weren't real market prices. They were bureaucrat dictated prices.
Also, incredibly, the GDP calculation counts government spending as production when it is obviously consumption. Back the public sector portion of GDP out twice (once because it shouldn't have been added and once more because it should have been subtracted) to get a better picture of what the economy was doing. (Though even this won't make the GDP numbers from the FDR period reliable.)
bump for later reference
“New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America” by Burton Folsom, Jr., New York: Threshold Editions/Simon & Shuster, 2008
And, the book that you ABSOLUTELY, POSITIVELY MUST READ to discover how FDR’s policies made a mild depression into a Great Depression:
“The Forgotten Man: A New History of the Great Depression” by Amity Shlaes, New York: HarperCollins, 2007.
Cheers
Which numbers? Can it be doubted that there was a substantial contraction between October 1929 and March 1933?
My point is that just about anyone could have presided over a "recovery" following such a massive contraction, not that the post-1933 numbers are 100% accurate.
All of the GDP numbers from the FDR era.
My point is that just about anyone could have presided over a "recovery" following such a massive contraction, not that the post-1933 numbers are 100% accurate.
The point I was trying to make was that it is debatable as to whether there even was a recovery after 1933.
Your point is a good one. There was indeed (eventually) a recovery, and the open question seems to be whether it happened at all before the War.
I meant during FDR's tenure.
Now we’re down to brass tacks. If I could conscript millions of otherwise unemployed prospective workers and print money to pay factory workers making munitions and bombers, I might even stumble my way into a “recovery.” What do you think?
We do not need to make these things up...
Actually, there were 16 million men (and 350K women) who were either drafted or joined the military during WWII. However, all 16 million didn't enter military service in one year. But the military employment factor was central to a rapid economic recovery.
In addition. The war effort on the home front saw record levels of Americans going back to work, with millions of women leading the way and getting a job for the first time in their lives. The US work force reached 98.8% employment during the war by manufacturing hundreds of thousands of vehicles -— tanks, jeeps, half tracks, etc. -— along with building ships, subs and planes of all shapes and sizes. Not to mention millions of firearms, billions of rounds of ammunition and other miscellaneous products to support the armed forces.
WWII provided the stimulus that pulled America out of the economic downturns of the 1930`s and eventually ended the Great Depression.
It was only natural after WWII the size of the federal government shrunk as a percentage of GDP. Sadly, never again would the federal bureaucracy in WashDC ever be confused with the smaller government that existed prior to WWII, with spending per GDP in the range of 10% level, or less. Following WWII the federal government remained a huge part of the overall American economy and remains so until this day.
Understand, Britain had devalued the pound by 35% went it went off gold. The entire empire followed - a quarter of the world's economy at the time. Central europe had gone down even farther even earlier and reneged on all its debts. The US stayed on gold through 1933 and continued to operate the gold standard, mechanically, long after practically everyone else had ceased to operate according to its informal rules. (Only the French and Belgians, and a few of the Scandanavian states, remained as a "gold bloc", and that caused rigorous deflation there, too).
This means the currency was extremely overvalued. And gold therefore left the country because it could buy more abroad than within the US. Under the mechanical rules of the gold standard system, the Fed deliberately reduced the US money supply in direct proportion as gold left the country. This is why the money supply collapsed by a third between 1930 and 1933. (It had scarcely fallen in the first year after the crash BTW).
Driving down the money supply by a third and maintaining a hugely overvalued currency in the middle of the biggest economic slump ever recorded, was incredibly stupid. It was at the time, however, regarded as the tough minded virtuous classical economics thing to do.
The first thing FDR did in office, practically, was devalue the dollar from $20.67 to $35 to the ounce. This exceeded even the pound's fall since the start of the depression, and it halted the gold outflow. It also halted the collapse in trade, and led to a recovery in the stock market (which rose in dollars even just to stay even in world currency terms). The halt of the gold outflow stopped the collapse of the money supply, and that stopped the endlessly cascading bank failures.
It also effectively meant that wages were finally cut. Hoover has browbeaten industry to maintain wages, thinking it helped keep up final demand, and unions had enthusiastically seconded the motion. The price level had fallen by a third. The result was those who still had jobs were being paid a much higher real wage in 1933 than they had been in 1929 - all of it completely unaffordable to business, and dumped on the unemployed. Well, finally devaluing cut wages in world price terms, to something like a feasible level.
Those were the effective immediate actions. The relief stuff probably helped at the margin, but modestly, because it was pretty small scale. Much of the rest of the public works spending didn't help or hurt appreciably.
None of that caused any strong recovery, not one strong enough to reduce the high unemployment appreciably, but it sufficed to halt the continuing plunge into the abyss, which had been a monetary-driven positive feedback process driving the economy toward zero. Basically, the gold standard flat broke, internationally not just domestically, and only leaving it stopped the immediate slide.
The real recovery to full employment was caused by WW II, and began even before full belligerency status, on the back of war orders being filled for British and French war efforts, along with FDRs naval rearmament program, around 1940. This involved foreign governments and the US government spending money they did not first take in taxation, running up their debts or down their existing portfolio holings in the US, and spurred serious investment in new industrial plant and equipment in the US.
When actual belligerency hit, US government spending exploded and took up every bit of slack the economy had and then some. Very large deficit spending is stimulative in the short run, there is no question about it whatever. Some classical economics and Austrian types don't like to hear but, but tough toenails it is the fact. It can result in price rises later, and by 1953 (post Korea) the US price level was roughly twice what it was at the depression lows. But that was deferred by price controls and rationing and material-allocation schemes until 1946-7, and still took a while to happen.
(Incidentally, exactly the same thing happened in WW I, significantly faster - and in the US civil war - and in the Napoleonic wars for the British, etc - it is an utterly normal side effect of war finance).
None of which means the New Deal was smart economic policy. FDR wasn't an economic thinker at all; he was confused when Keynes tried to explain anything to him; he deferred to Morgenthau who was an idiot on the subject and persuaded him to emphasize budget balancing in 1937, crashing the economy again, etc. FDR hit on the right monetary fix, or a close enough version, empirically. He simply tried things and dropped them when the stopped working or if they didn't seem to. (He got the ideas from Fischer among others, who was a crude inflationist - but sensibly dropped that side of it as too risky).
Which was better than Hoover managed because Hoover thought he understood it all and was behaving perfectly. Not a hard standard to beat, incidentally.
You don't hear this told straight by Austrians and other economic libertarian-conservative thinkers because they hate the attack on gold involved. But modern monetarists know that the gold standard as operated by the early 1930s Fed was criminally stupid monetary policy. This is inconvenient, to say the least, for those who think the great problem with the Fed is that it isn't a gold standard...
Whatever might be said for the ability of a commodity money standard to maintain price stability in the long run if all leading states in the world are operating according to its rules, and in normal economic circumstances - being the last one on earth still playing by it after everyone else has dropped it for "beggar thy neighbor" - leaves one, unsurprisingly, reduced to being a beggar.
FDR stopped that, to his lasting credit. He certainly messed up much that followed, but devaluation and stopping the collapse of the money supply, was the right thing to do in 1933.
“Pay people to go relocate to affordable small towns in real places”
Sounds familiar, I gotnot only lectures on politics but the everyday fapenings from the local to the international at breakfastand dinner from the time I could sit up in a high chair.
My parents were Republican and hated FDR with a passion,
They were smart and worked hard and saved enough durring the depression to start a business without borrowing and build a 2,400 sq.ft home in a high class neighborhood in Los Angeles in 1936.
Yhanks for the thorough and sensible reply.
Now it is often argued that making munitions (or digging ditches) puts money in the pockets of workers, who then spend the money back into the economy creating demand for the goods and services they consume. This is called the Broken Window Fallacy. Its true the workers will get paid and spend the money. But it ignores what the money would have been spend on and what effect that would have had if the government hadn't taxed it away from those who earned it. Others workers will not get the benefit of the lost spending power of the taxpayer.
As for conscripting workers... There's no denying slaves have capital value just like machines. That's not what you had in mind though.
Printing money is never helpful. It just transfers wealth through inflation from savers to the government. It's more beneficial to the economy to let savings remain in the economy. An efficient economy is one that maximizes consumers ability to have what they want to have and do what they want to do, given a scarce pool of resources. If the things government spends money on were economically efficient consumers would have chosen them in the first place so taxation and inflation (money printing) always reduce the efficiency of the economy.
good facts
My posts above do not say that a recession requires unemployment, and I am not disagreeing with your definitions as such. Let's stay focused on what we are in fact disputing here: either the economy grew during FDR's tenure, or it did not. From what I read, it did, regardless of his presidency, and I figure that at least some growth in the economy was as a practical matter virtually inevitable given how profound the contraction had been from late 1929 through early 1933. If you have facts to the contrary to show that it did not, feel free to offer correction.
But the military employment factor was central to a rapid economic recovery ... The war effort on the home front saw record levels of Americans going back to work ... millions of firearms, billions of rounds of ammunition and other miscellaneous products
You are arguing the Broken Window Fallacy (break all the windows and put people to work). By this logic the best thing for the economy would have been to stay at war forever. But what happened to those workers who made the goods consumers would have bought but couldn't because of war taxes, rationing, and restrictions? How can it have been a real economic recovery if the only things being produced were things no consumer would ever buy? The end of the Depression consisted of a return to investment and production of consumer goods, something no sane capitalist would have attempted while FDR was still in office. If Roosevelt had survived the war the Depression would have survived the war also. It was the end of his administration that finally gave investors the confidence to begin producing again, ending the Depression.
First off, those are your words, not mine and frankly, their high flatulent and off topic. I'm not arguing anything. Also, I'm no Keynesian. Just pointing out historic fact. You chose to go off on some tangent that ignores historic fact relevant to the depression of the 1930`s and the war of the 1940`s.
The question remains. Whether the Great Depression finally ended in America because of our involvement in WWII? In the opinion of both experts and laymen, the facts are indisputable. America's involvement in WWII brought an end to the Great Depression in the USA. This not to say that going to war is a preferred method to end an economic downturn. Its not. In addition, we don't know what would have transpired had FDR lived beyond the wars end.
One thing is certain. WWII enlarged the federal bureaucracy and expanded the scope and powers of the federal government that has all but stifled the notion of limited government. Leaving America with a system of government perpetuating liberal policy agenda and today under Obama, strong moves towards national socialism.
There are some limited actions the federal government can do to lessen the negative impact of an economic downturn. Reducing regulations and lowering taxes on small businesses are two actions that can promote economic recovery. However, increasing taxes on high earners, small business owners and the wealthy, thereby cutting investment and stifling expansion, is not an action that helps to advance economic growth in the long term.
>>>>>... unemployment isn't recession. See my post #36 on the subject.
I read your post at RE:36. You made some good points, again. You also posted the following:
>>>>>>(Unemployment has nothing to do with the definition of a recession).
Outright bunkum! Pick up any book on basic economics and you'll find that a major factor, if not the #1 factor, that defines an economic downturn, as in a depression or a recession, is high unemployment rates. Sorry, there is no getting around that fact. In most cases, unemployment is also a lagging indicator to overall recovery, but that's a different aspect of economic trends.
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