More Perspective On Great Depression / FDR

by: Paul Rosenberg

Tue Dec 30, 2008 at 15:30

One thing is clear: the GOP is not about to fold up shop and go along with Barack Obama, just because he's President and the Democrats won a substantial legislative victory as well last November.  They're already starting to marshall their forces to oppose,  or at least slow down, and render as ineffective as possible, whatever stimulus package Obama comes up with.  And, of course, recycling lies about the New Deal, FDR and the Great Depression are essential parts of the package.  On Sunday I wrote a diary, "A Brief Peek At UCLA's Anti-FDR Propaganda", which looked only at the gross parameters surrounding claims made in a paper that David had referred to in passing in a previous diary.

While kanzeon weighed in late to make the point: "The measure of when the Depression ended, to conservative critics, isn't usually GDP or real output, but unemployment," negative GDP growth is the standard by which economists routiney identify recesssions--and by extension depressions--as well as being the single most comprehensive measure of economic activity (for good or ill), so I still think it's useful to look a little more closely at GDP as a pre-emptive antidote against conservative/GOP bullshit that's bound to be coming at us in the days ahead.

The UCLA report claimed that the Depression should have ended in 1936--7 years after it began, and roughly 3 3/4 years after FDR took office.  Without ignoring Kanzeon's caveat, that still seems rather hard to accept given just how badly the GDP was doing.  Thing is, I don't think I've ever seen a clear graphical representation of just how bad that was.  So I decided to make one myself.  Given the UCLA author's belief in a magic 7-year time-frame, I decided to chart the 7-year GDP growth figures from around the beginning of the US economy to date.  You can clearly see just how drastically the Great Depression departs from anything else in our history, as well as just how powerful our recovery was, particularly once WWII spending kicked in:

This chart just goes to show how incredibly unusual the Great Depression was.  No wonder a large number of people, all across the political spectrum, thought that it well might be the end of capitalism.  There was nothing remotely like it in all our history.  And the idea that everything could readily be solved by simply letting normal economic forces work--as the UCLA researchers propose--seems utterly unbelievable, simply by looking at the relatively limited scope of any of the other previous sharp rises, none of which is remotely large enough to get us back into the 20-40% 7-year GDP growth range that is normal for the economy in the specified 7-year time frame--much less the 3 3/4 years that FDR actually had in office before the end of 1936 rolled around.

Paul Rosenberg :: More Perspective On Great Depression / FDR
Another way of looking at that same data is look at the distribution of 7-year GDP growth-rates.  Here we see that the vast majority fall between 10% and 55%.  That's a pretty broad range by any measure--a factor of 5+.  Outside it we only have 9 growth rates that are higher, and 10 that are lower:

As it turns out, the four negative 7-year growth rates are all associated with the depths of the Great Depression, 1932-1935, before FDR's recovery had gained enough steam to cancel out the disastrous performance during Hoover's term after the Great Crash.  The next 3-slowest growth rates, all 1% or less--covered the two years either side of the 4 years with a negative total, plus 1914.

On the other hand, the top 9 years, with 7-year growth over 55%, include 1883 with 59.4%, 1882 with 61.7%, and 7 straight years of the WWII/Great Depression recovery period, 1940 to 1946.  Those two bookending years clocked in with a paltery 62.7% for 1940, and 67.2% for 1946. Beyond that it was 72.0% for 1941, 87.2% for 1942, 92.8% for 1943, 98.3% for 1944, and 103.1% for 1945.

With spectacular growth rates like that, it's hardly surprising that things would have to taper off, eventually, and thus it's not really so surprising that 2 of the last 3 years on the extreme low end of 7-year GDP growth are 1950 and 1951, with 6.4% and 6.0% growth respectively.  The only other year not directly or indirectly connected to the Great Depressio and its recovery period is 1897, with a 9.1% 7-year GDP growth, the lowest ebb recorded that was associated with the Panic of 1893, and its aftershocks.


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I wonder what Conservatives/Republicans would say ... (0.00 / 0)
While kanzeon weighed in late to make the point: "The measure of when the Depression ended, to conservative critics, isn't usually GDP or real output, but unemployment,"

about employment figures during the GWB years .. they have generally sucked ... even before this years awful figures .. the jobs figures were no where near keeping up with what is needed to keep up with population growth

"La! La! La! I Can't Here You!" (4.00 / 1)
That's what they would say.

In fact, that's what they did say.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Ironic (4.00 / 4)
Reagan redefined unemployment to deliberately understate figures by excluding those "not actively searching for jobs."  That's why for most of Bush's terms the official unemplyment figures barely budged.  The last time I looked, the number of employed had increased during the Bush Presidency measuring from start to nearly finished by just under 5% while the number of unemployed had increased by 90%.  And the system deliberately undercounts the unemployed.

When unemployment reached 3.6% under LBJ using a full count method, economists and Republicans deluged the media with stories that Johnson had irresponsibly gotten unemployment far too low (below full employment) and was introducing inflation into the economy by forcing wages up.  That guns and butter crap.  Republican deficits under Reagan, Bush I, and Bush II were never attacked as inflationary.  LBJ, of course, was the first President since Truman to produce a budget surplus (FY 1969) a feat that would not be matched until Bill Clinton was President.  Republican economists "lie like a rug" (a natural condition of the species).

What stands out on your chart isn't the low under Hoover but the incredible, long lasting spike under FDR. It went from minus 20% to plus 103% in a straight line.  The high is the high as you point out by a huge margin about 67% higher than the second highest spike in 200 years.  How is performance going to do better than that?

I might also add that the mid 1930s was, percentage wise one of the best streaks in stock market performance coming off the bottoms of the Hoover/Republican Depression.  The longer spree under Bill Clinton was far and away the best stock market period in the country's history.

[ Parent ]
Uniqueness of the Great Depression? (4.00 / 2)
The Panic of 1837 was so obviously the outcome of insane expansion of the supply of money that conservative economists have been parading it around as a bogey-man ever since; for example, Friedman, Milton (1960). A Program for Monetary Stability, p.10...

The banking panic of 1837 was followed by exceedingly disturbed economic conditions and a long contraction to 1843 that was interrupted only by a brief recovery from 1838 to 1839. This Great Depression is particularly interesting for our purposes. It is the only depression on record comparable in severity and scope to the Great Depression of the 1930s, and its monetary concomitants largely duplicate those of its later mate. In both, a substantial fraction of the banks in the United States went out of existence through suspension or merger --around one quarter in the earlier and over one-third in the later contraction--and the stock of money fell by about one-third. There is no other contraction that even closely approaches this dismal record. In both cases, erratic or unwise governmental policy with respect to money played an important part.

This disaster followed Andrew Jackson's withdrawal of federal funds from the National Bank in 1836, when state banks rushed to fill the vacuum with exotic financial instruments of their own invention:

A series of wild speculations attended this expansion: foreign goods were heavily imported, and enormous operations took place in government lands, in payment for which paper money poured profusely into the treasury. Such was the state of affairs at midsummer of 1836. To check these operations a "specie circular" was issued by the Secretary of the Treasury, which required payment for government lands to be made in gold and silver after August 15, 1836. The effect of this series of executive actions, and of the fever of speculation which existed, was disastrous. The species which was expected to flow into the treasury in payment for public lands failed to appear. The banks refused discount and called in their loans. Property was everywhere sacrificed, and prices generally declined. Then, like an avalanche suddenly talling upon the land, came the business crash and panic of 1837, which caused the financial ruin of thousands. During the first three weeks of April two hundred and fifty business houses failed in New York. Within two months the failures in that city alone aggregated nearly one hundred millions of dollars. Throughout the whole country the mercantile interests went down with a general crash, involving the mechanic, the farmer even the humblest laborer, in the ruinous consequences of the disaster. Bankruptcy everywhere prevailed, forced sacrifice for valuable merchandise was the order of the day, on less than eight of the States partially or wholly failed, even the general government could not pay its debts, trade stood still, business confidence vanished, and ruin stalked unchecked over the land.

"Ruin stalked unchecked over the land!"

That gothic phrase really isn't as much of an exaggeration about the Panic of 1837-1843 as you might think, in spite of a dearth of appropriate statistical categories for comparison with the Great Depression a hundred years later.

Typo in the second quote (0.00 / 0)
The last sentence should read " less than eight of the States partially or wholly failed..."

Since there were only 26 states in the United States in 1837, this means that about a third of the states were bankrupt.  

[ Parent ]
And Yet... (4.00 / 2)
The GDP did not decrease during this time.  The prime reason was that population boomed, so the GDP conintued to grow, albeit slowly, while population per capita fell for several years, 1837-41, except for 1838.

Still, however horrific it was for the business class, the GDP figures show nothing close to the Great Depression.

There's something to be said for an economy that's not "highly integrated."

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Not to mention (4.00 / 2)
an economy still based largely on family subsistence farming -- outside the cities, anyway, which still represented only 10-15% of the population during the decade in question.

Oh, and population per capita = income per capita, right?

[ Parent ]
I always find myself (0.00 / 0)
wondering how Conservatives explain the fact that WWII did so obviously have the effect of rescuing the US from the Depression. I mean, from an economic point of view, what is a major war but a stimulus by other means? What other attributes of WWII might otherwise account for the recovery?  

I am just throwing this in but don't know where it fits. (0.00 / 0)
One of the factors of the war economy was that people at home rationed and saved.  The government spent money but much of it was through "war bonds".   Even if you were making good money the amount of consumer goods available was limited so people were saving their money and often in very safe investments like Government bonds.
 I know that had a great affect on the after war spending, housing and population boom but did it help get is out of Depression?
 Right now we are all being told consumer spending is the backbone of the economy but what about individual savings and would we be better off putting our money in Government Bonds and have the large deficit owed to the citizens of the country rather than to China?
Do we need a buy bonds time now?  Should there be a concerted effort to move our savings into Government Bonds instead of into the stock market or other financially risky investments?

[ Parent ]

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