The Recovery from the Great Depression

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The Recovery from the Great Depression

Postby telriche » Wed Feb 22, 2012 9:13 pm

Dan, I love ya, you're a great source of information.
This time, however, I think you're missing some important aspects of the ecomnomy of the Great Depression and the lead up to WW2.
Its not revisionist history to say that the New Deal brought the US out of the Great Depression. In fact by 1936 (see http://www.ourfuture.org/files/images/D ... tput-1.gif , also see http://en.wikipedia.org/wiki/File:Gdp29-41.jpg , also http://ingrimayne.com/econ/EconomicCata ... ssion.html ) the GDP had reached the peak from which the Roaring 20s had fallen and in fact exceeded it. Inflation and some dept ratio was also salved during this time as well (see http://da.wikipedia.org/wiki/Fil:Gdp20-40.jpg , also http://3.bp.blogspot.com/_QxBGECHecpA/S ... from+1920s ).
Now that said, these graphs also show that the economy continued to rise up to the point of the war. In fact, during the war the economy continued to improve. Much of the industry during this time period owed a great deal of its quick construction to the massive infrastructure building done during the New Deal. (see http://www.bbc.co.uk/history/worldwars/ ... n_01.shtml )
The economy continued to improve until the end of the war. At the end of the war unemployment was at an all time low (due to our returning heroes, whom we mostly did not treat with the honor they deserved for more than 5 minutes, more on that another time) after the war in 1948 (see http://www.ritholtz.com/blog/wp-content ... twarii.jpg ). As you can see, the recovery was also rather rapid. Much of this was due to the quick conversion of our wartime industries to domestic industries. There was a huge market for the US products in the now ruined Europe economy, and thus after the war the GDP grew more rapidly than ever before.

So, the idea that the New Deal was a failure would appear to be incorrect. That said its possible that the economy improved in spite of the New Deal, but that ignores several factors. First the New Deal VASTLY improved unemployment compared to even the end of the Roaring 20s and added the infrastructure needed to produce the industrial might you see later during WW2.
However, WW2 most certainly improved the economy far beyond the high state of the Roaring 20s, and while it did not improve living standards a great deal for most of the war (this was due more to severe rationing restrictions than to a reduction in income), those living standards saw a massive boost in '48 when the domestic industry started up again.
The reality, I conclude, is that the New Deal brought us out of the Great Depression and laid the ground work for great industry, and that WW2, in fact, made us into an Industrial and Economic Giant, further enhanced by the ruined markets of Europe and the heavy demand there. These three factors together, not one separately, led to the beginnings of the US growth into the Top World power we know today.
Whether that was for good or ill. Well, you covered that musing in the show, Dan.
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Last edited by telriche on Thu Feb 23, 2012 6:44 am, edited 1 time in total.
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Re: The Recovery from the Great Depression

Postby nmoore63 » Wed Feb 22, 2012 9:27 pm

So the New Deal was a success because it successfully limited the Great Depression to being longest and worst depression in our history?

By what standard could it be called a failure then?
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Re: The Recovery from the Great Depression

Postby telriche » Wed Feb 22, 2012 9:32 pm

If you will notice the charts, the New Deal rapidly improved the GDP after its introduction. The majority of the Great Depression occurred BEFORE the introduction of the New Deal.
So yes, the New Deal was, in fact, a success based not only on its end effect, but also on its timely effect.
What standard is success if not the achievement of that goal they set out to accomplish, sir?
If you will note, I also give credence to WW2 being not just a credit to the economy, but of greater effect than the New Deal. I also lay down how the New Deal aided the success of the WW2 economic boost.
The goal to this breakdown is to show the ENTIRE reality, not just the fanciful one.
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Re: The Recovery from the Great Depression

Postby nmoore63 » Wed Feb 22, 2012 9:45 pm

The great depression did not end in 1932 or 36 or 40.

People were on butter ration stamps STILL in 1944.

The problem is your charts are self fulfilling. Government spending is part of the GDP calculation. If the government spent a trillion dollars digging holes, the economy would magically be in recovery... Even though that was false.

Same with the war economy. People did NOT suddenly do better because all of our resources were spent making things a sinking them into the bottom of the Pacific Ocean. That's not a real measure of prosperity.

People were doing worse in 32/34/36/38/40/42/44 than they ever were in 28.

Your charts just don't show that cause they are loaded metrics.
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Re: The Recovery from the Great Depression

Postby telriche » Wed Feb 22, 2012 10:03 pm

Actually, this article will break down the GDP to government spending during those time periods. ( http://eh.net/encyclopedia/article/tassava.WWII , also http://www.usgovernmentspending.com/past_spending ) Spending was at an all time high just before the depression and during WW2.

The food rationing began in 1942. Observe here ( http://www.ehow.com/info_8214594_rations-1940s.html ) and here ( http://en.wikipedia.org/wiki/Rationing ) and here ( http://www.alumnibhs.com/old%20geezer%2 ... stamps.htm ). Please cite sources if food ration began before that. I had trouble finding any information on food rationing from 1920 to 1940.

In fact I do break down that the standard of living was not made better during the war. GDP was affected during that time, which is the general argument made when speaking of recovery. Also, ignoring government spending as part of an economic recovery seems counter productive. Standard of living did appear to improve from the great depression from 1934 onward, (see http://en.wikipedia.org/wiki/File:GDP_depression.svg ), though it appeared to not make much headway a little before and during rationing, again due to the rationing than income. From where do you get your information otherwise, please cite. Similarly I also point out that the greatest benefit occurred after the war had ended and the domestic industry took over, producing the greatest increase in living standard. This seems to be due to both the build up of industry from both previous events as well as the aftermath of the devastated economy of Europe.
So my charts are self-fulfilling? Please Explain. And does casting aside evidence and saying it was all rigged really help? Do you have counter evidence to back your claim that the New Deal did not have its intended effect? I am open to new information.
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Re: The Recovery from the Great Depression

Postby nmoore63 » Thu Feb 23, 2012 10:56 am

On your charts by 1936 the GDP had equaled or surpassed 1929.

You understand the the standard of living between those two times were still far apart?

The reason I say self fulling is because your charts point out budget cuts and then act surprised when the GDP drop, as if that justifies further deficit spending. That is an erroneous conclusion because that was built in to your metric.

Ex:

Pretend we are playing monopoly and all of the properties have been bought. Now give everyone in the game a million dollars.

What will that do to the price I will sell you Boardwalk for?

Deficit spending of fiat currency does not add to the economy, it just redistributes the resources from those currently holding dollars to the new people getting dollars.

Again, you are terming his programs a success by showing a chart that by your own metrics shows the depression recovery taking longer than any other depression.

What would the chart look like if the program had been a failure? If had taken 30 years to rise back up, even though it had a rising trend line, would that still be a success?
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Re: The Recovery from the Great Depression

Postby e_room_matt » Thu Feb 23, 2012 12:25 pm

Military buildups, price controls and government spending do not make their peoples rich (quite the opposite). If they did, every nation on the planet would have become a haven of plenty 2000 years ago.
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Re: The Recovery from the Great Depression

Postby telriche » Thu Feb 23, 2012 7:55 pm

By 1936, GDP had increased and had been affected by the inflation caused by the Great Depression. If you look at the fancy chart ( http://en.wikipedia.org/wiki/File:Gdp29-41.jpg ) you will see that the chart itself is real gdp shown in terms of the value of the dollar as of the year 2000 (and as such accounts for inflation and the rarer deflation). And that on that chart it shows us a nice picture of how the recovery came along in terms of the macro. In terms of the micro, this chart ( http://en.wikipedia.org/wiki/File:GDP_depression.svg ) is also done in terms of the value of the 2000 dollar. In this chart you see that as of the year 1937, income in terms of year 2000 dollars had once again stablized.
This did not of course equate to a perfect recovery of lifestyle, however, the most significant benefit of the New Deal was more the infrastructure building than the boost to the economy. The boost would, by its nature be temporary, while the infrastructure building still benefit us to this day. That said the boost did help prop up and support people who would have otherwise died or become permanently destitute until the economy could recover naturally.

The longest depression was the Long Depression, which lasted longer than the Great Depression and was far more severe. ( http://en.wikipedia.org/wiki/Long_Depression ) "The Long Depression is sometimes held to be the entire period from 1873–96."

GDP is measured by the amount of money moving within an economy. If existing money does not move within it, its main benefit is that it helps boost the value of the remaining money within it. If, however, as a depression by its definition indicates, there is more of an issue with not enough money moving through it than the value of the currency and economy, then creating a demand for labor and thus paying for the labor with the bartering token we use helps create a bandage for the hemorrhaging cash pool (as more cash drops out from the pool it tends to cause other smaller pools to hemorrhage and drain away as well) to help restore the health of these pools while the natural flow of the markets heals the damage. By focusing on an area that was largely already a government (though normally at a local rather than a federal level) area of burden (infrastructure), this plan allowed a temporary boost to an economy dangerously close to stagflation.
Note that though the GDP dropped as a result of those cuts, the drop is actually out of proportion to the cuts themselves, IE the spending provided a more than 1:1 benefit to the economy and the GDP. Which would appear to counter your argument of it being a magical pool of nothing to the economy, the GDP, and the recovery. A benefit was shown through this spending, you could make the argument that it could have been spent better, but not that no benefit was shown and still be an honest actor. In addition, the benefit of the infrastructure provided by this spending helped create potential opportunities which aided the benefits provided by the industries supported by this infrastructure later.
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Re: The Recovery from the Great Depression

Postby telriche » Thu Feb 23, 2012 8:03 pm

e_room_matt wrote:Military buildups, price controls and government spending do not make their peoples rich (quite the opposite). If they did, every nation on the planet would have become a haven of plenty 2000 years ago.


Very true. These can all be very detrimental to an economy, as shown by the now failed economy of the USSR. The main benefit for this time period was more the employment of people who would have otherwise not had a way of supporting themselves or their families and the infrastructure that we built an industrial power house upon. In essence, it was an imperfect solution at the right place and time. In most other scenarios, these policies, build-ups and controls would have been devastating to an economy.
Just because something worked well at one point in history does not make them universally successful, or even mostly successful. Merely successful for that point and time.
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Re: The Recovery from the Great Depression

Postby StCapps » Fri Feb 24, 2012 10:22 am

telriche wrote:
e_room_matt wrote:Military buildups, price controls and government spending do not make their peoples rich (quite the opposite). If they did, every nation on the planet would have become a haven of plenty 2000 years ago.


Very true. These can all be very detrimental to an economy, as shown by the now failed economy of the USSR. The main benefit for this time period was more the employment of people who would have otherwise not had a way of supporting themselves or their families and the infrastructure that we built an industrial power house upon. In essence, it was an imperfect solution at the right place and time. In most other scenarios, these policies, build-ups and controls would have been devastating to an economy.
Just because something worked well at one point in history does not make them universally successful, or even mostly successful. Merely successful for that point and time.
The New Deal was not successful just because some of it's infrastructure projects like the Hoover Dam ended up being useful. The government spending crowded out private investment and stalled the recovery. Recovery from the Great Depression only occurred after many New Deal regulations were removed post-WWII and government spending was slashed sharply. Paying people to dig ditches and fill them back in is bad for the economy because you are wasting resources by paying people to do unproductive work instead of giving resources to people actually doing productive things.

Some of FDR's New Deal programs were successful but on the whole there is simply no accurate way of portraying the New Deal as an economically successful policy that shortened the Great Depression.
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Re: The Recovery from the Great Depression

Postby nmoore63 » Fri Feb 24, 2012 1:04 pm

telriche wrote:By 1936, GDP had increased and had been affected by the inflation caused by the Great Depression. If you look at the fancy chart ( http://en.wikipedia.org/wiki/File:Gdp29-41.jpg ) you will see that the chart itself is real gdp shown in terms of the value of the dollar as of the year 2000 (and as such accounts for inflation and the rarer deflation). And that on that chart it shows us a nice picture of how the recovery came along in terms of the macro. In terms of the micro, this chart ( http://en.wikipedia.org/wiki/File:GDP_depression.svg ) is also done in terms of the value of the 2000 dollar. In this chart you see that as of the year 1937, income in terms of year 2000 dollars had once again stablized.
This did not of course equate to a perfect recovery of lifestyle, however, the most significant benefit of the New Deal was more the infrastructure building than the boost to the economy. The boost would, by its nature be temporary, while the infrastructure building still benefit us to this day. That said the boost did help prop up and support people who would have otherwise died or become permanently destitute until the economy could recover naturally.
That seems like a lot of text to say:

I think people were better off in 1936 than in 1929.

I disagree.

I didn't look for a fancy chart but:

GDP: (first is real, second is in 2005 dollars comparison)
2006 13,377.2 12,958.5
2007 14,028.7 13,206.4
2008 14,291.5 13,161.9
2009 13,939.0 12,703.1
2010 14,526.5 13,088.0
2011 15,087.7 13,313.4

Oh good. 2011 is passed 2008 levels. Depression is over, everyone is better off.

Come on people. My metrics say that you are better off.... what's your problem! Best time ever to live in America, just look at our GDP.
.
.
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ah the metrics god. Good thing he's there to tell us our economy has recovered and that we are now better off than before the depression, cause i mean looking around, one could get a different impression...



The longest depression was the Long Depression, which lasted longer than the Great Depression and was far more severe. ( http://en.wikipedia.org/wiki/Long_Depression ) "The Long Depression is sometimes held to be the entire period from 1873–96."

Ah yes... The Long Depression. I do love it when technocrats have to make up historical events because their metrics tell them they existed.

The Long Depression never happened.

Yes, there was the Panic of 1873. And yes, there were some economic growing pains, what with abolishing slavery and all of that.

From your link
Furthermore, real per-capita income either stayed approximately constant (1873–1880; 1883–1885) or rose (1881–1882; 1886–1896), so that the average consumer appears to have been considerably better off at the end of the 'depression' than before.


The real problem is an inability of Keynesian economics to grapple with their failed understanding that Deflation is always evil. It breaks their formulas and metrics and therefor must be bad.

The reality is that massive increases in our productivity allowed dollars to go further, so that while GDP didn't show it, the consumer could actually buy more for less than he ever could. This being a product of the decreasing price of production attained by our Industrial Revolution.

Ok, let's bring that home with a modern example.

The price of computers from 1980 to the present has fallen. According to Keynesian GDP theory, this is a disaster. The fact that a computer can be created for less results would have caused a net decrease in total computer output when measured in dollars. GDP shrinkage. DEPRESSION. The Horror. Except, we all can cognitively grasp, that no, cheaper computers did not wreck the world. We all were able to get more for our computer dollar than ever before, and as such it has been a boon to consumers.

(In terms of raw statistics, this decrease in the price per computer has been offset by the massive increase in consumption of computers so that luckily we have been spared them telling us how worse we off by cheap computers... and how stupid it sounds when its actually a scenario we have knowledge of. The 1870's is much harder to grasp, so when they say it with fancy words it sounds legit... its not... its the same)

There was no Long Depression in America. It was made up after the fact because charts said it was there.
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Re: The Recovery from the Great Depression

Postby telriche » Fri Feb 24, 2012 10:59 pm

The primary issue with the lowest point in the Great Depression was not that businesses, banks, and other large economic actors besides the government was that the folks who had the money, weren't spending it, not that they didn't have it to spend. In that instance it was a factor of confidence which sadly needed a show of improvement to break through. Secondly, infrastructure during that time period was considered primarily the role of the government, though it was generally done through companies. Even the First Transcontinental Railroad was funded and requested by the government ( http://en.wikipedia.org/wiki/First_Tran ... America%29 ).
Third, many of the programs included a loan program for business ( http://en.wikipedia.org/wiki/Reconstruc ... orporation ), hiring private companies rather than the direct unskilled labor programs ( http://en.wikipedia.org/wiki/Public_Wor ... nistration ), and education programs ( http://en.wikipedia.org/wiki/Farm_Secur ... nistration ). These didn't "crowd out" the existing businesses
Similarly, a vast majority of the "New Deal regulations" stayed in place until the turn of our current century. Some, like the work week, were actually extended (shortened rather to 40 rather than 44 hours). ( http://en.wikipedia.org/wiki/Federal_De ... orporation and http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act and http://en.wikipedia.org/wiki/Securities_Act_of_1933 etc). Most of the market restrictions that crowded out business as you say was done during WWII, with the rationing laws in place, not during the New Deal.
Indeed, there is no way to perfectly prove that the New Deal shortened the Great Depression. A direct cause and effect does not exist. However, like all economic debates, evidence can be drawn based on the history, the statistics, and the correlations of the events. In this case, the strongest case is more the timing than the actual effect. The first chart ( http://www.ourfuture.org/files/images/D ... tput-1.gif ), draws an effective picture to how the New Deal affected the economy based on timing. It could be coincidence, then again, based on the evidence, it most likely wasn't.
That said, this is not an endorsement of these types of programs. Again, such a program done the same way today would be disastrous. This is a look at Historical events rather than Historical application. Don't take it personally. :wink:

Later, when I get a decent amount of sleep, (likely Sunday or Monday) I will take on nmoore63's comments. You ready Moore? :hugs:
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Re: The Recovery from the Great Depression

Postby telriche » Sun Feb 26, 2012 12:11 am

So then by what standard do you measure an improvement or recovery in lifestyle? I would point out that here ( http://en.wikipedia.org/wiki/File:GDP_depression.svg ) income per person also recovered to the peak days of 1929 during 1936 as well. Also your table there shows only part of the economic picture. While GDP appeared to recover slightly, the GDP per capita did not do near as well ( http://www.google.com/publicdata/explor ... l=en&dl=en ), which would paint a different picture.
Do you have a better indicator of prosperity for that time period? Please do share. You have spent much time attacking the presented evidence rather than providing any counter evidence.

My question is; by standard would you measure success of the program? Is it in actual lifestyle? Per capita income? GDP real value or scaled value? GDP growth?
The stated goal of the New Deal was to ease the suffering and prevent further declination. It was also to salve the economy while it healed naturally. If it accomplished these stated goals or even most of them it would be successful or of limited success.
How do you state that it would meet its stated goal? By what standard, measurement, or event?

As for the Long Depression, there are more than just mathematical predictions to support the existence of the long depression. There are the rather constant string of banking failures ( http://eh.net/encyclopedia/article/wick ... .panics.us ), the rate of unemployment ( http://www.mybudget360.com/finance-inve ... l-history/ ), and the fact that 10 states defaulted ( http://www.google.com/url?sa=t&rct=j&q= ... O7MGz7Ap0w ), as well as measured economic cycles ( http://www.nber.org/cycles/cyclesmain.html ) based on existing evidence rather than assumed evidence. The economic cycles also identify the peak and trough of cycles within the Great Depression as well and reinforce the data we have gone over so far about the Great Depression.

Next I did not make any argument for or against deflation during this debate. Nor do I adhere to a single narrow economic philosophy. Please don't make assumptions.
(As a side note, you might notice on this ( http://ingrimayne.com/econ/EconomicCata ... ure5.5.gif , source http://ingrimayne.com/econ/EconomicCata ... ssion.html ) that price index hits its lowest point at 1933 and began to rise again from that point. As so with so much of the data so far, the recovery seems to begin with 1933.)
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Re: The Recovery from the Great Depression

Postby GrittyTacoman » Sun Feb 26, 2012 9:21 pm

For what it's worth, I personally think there's lots of Monday morning quarterbacking that goes on from modern day conservatives who hate everything FDR did. Could the president have done more to shorten the Depression? Most certainly. But let's take a look at the grand scheme of things. The Depression was so bad in many countries that the people saw electing some of the most deranged madmen in history as their leaders. I've read about the famines in Russia during the time, where parents would cook up their youngest to feed the rest of the family. And then there's the recent controversial study by a Russian academic showing that several million Americans probably died of starvation, exposure, or related ailments during the Depression. (I recognize this isn't historical canon yet, but it is food for thought)

http://www.cherada.com/articulos/10-mil ... ssion-time

In other words, it would be very,very easy for America to have become a fascist state, had a violent communist revolt, or slipped into full famine die-off mode during the Depression. The fact that FDR held the country together is something we should give him credit for.
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Re: The Recovery from the Great Depression

Postby Penner » Sun Feb 26, 2012 10:07 pm

GrittyTacoman wrote:For what it's worth, I personally think there's lots of Monday morning quarterbacking that goes on from modern day conservatives who hate everything FDR did. Could the president have done more to shorten the Depression? Most certainly. But let's take a look at the grand scheme of things. The Depression was so bad in many countries that the people saw electing some of the most deranged madmen in history as their leaders. I've read about the famines in Russia during the time, where parents would cook up their youngest to feed the rest of the family. And then there's the recent controversial study by a Russian academic showing that several million Americans probably died of starvation, exposure, or related ailments during the Depression. (I recognize this isn't historical canon yet, but it is food for thought)

http://www.cherada.com/articulos/10-mil ... ssion-time

In other words, it would be very,very easy for America to have become a fascist state, had a violent communist revolt, or slipped into full famine die-off mode during the Depression. The fact that FDR held the country together is something we should give him credit for.


I agree with what you said about this hatred towards FDR and the New Deal.
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