The authors claimed the Depression should have ended in 1936, but that would have meant FDR being responsible for completely reversing, and obliterating the negative effects of almost 3 ½ years in only a slightly longer period of time. This struck me as such an incredibly high growth rate requirement any competent economist would have to object to it as completely unrealistic. More precisely, here is the UCLA announcement about what they wrote:
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
....
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933....
Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
I've cut out a good deal of detail, about which a good deal else might be said, simply to focus on the big picture here: Cole and Ohanian claim the Depression was over by 1943, but it could have been over by 1936, if only FDR hadn't mucked things up. In fact, they say:
The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."
This is, quite simply, ludicrous. And it's easy to show why. So easy that any competent undergraduate in economics ought to laugh this out of court.
Put simply, if we take 1943 to set the level of having recovered from the Depression, and wind that back to a 1936 level that would have been out of the Depression, then the growth rate required to get there from 1933 would have been entirely unrealistic-much stronger, in fact, than the growth rates observed in the late 1920s, which the authors claim to be projecting from. The growth rate from this "lost opportunity" scenario, as I like to call it, is simply inconsistent with anything we know about US economic history.
Now, of course, I didn't check their detailed work. I didn't do a sector-by-sector analysis. I didn't look at detailed productivity figures. I just looked at GDP levels. The GDP gains that their "lost opportunity" scenario required would have averaged 16.9% for four consecutive years, from 1933 to 1936-a totally unprecedented growth rate, for a cumulative 86.7% increase in four years. Indeed, the only years in US history with such growth rates were 1941-43, with growth rates of 17.1%, 18.5% and 16.4%. Even so, the best 4-year run, 1940-1943 fell more than 10% short of their projection-75.8%.
So, in essence, Cole and Ohanian are claiming that if only FDR hadn't mucked things up, the US would have experienced the spectacular growth rates of 1940-1943 seven years earlier, plus another 10.9%.
At this point, the question one wants to ask Cole and Ohanian is "What are you smoking, and where can I get some?" And the question one wants to ask UCLA is, "When did Forest Gump take over running this place?"
Backup Chart and Explanation
The chart below is useful as a framework for further clarifying that above. An explanation follows it.
| Year | GDP Change | GDP Index
(1929=100) | 4.816%
Growth | 9.06%
Growth | 16.9%
Growth | 7.7%
Growth |
| 1929 | -- | 100.00 | 100.00 | -- | -- | -- |
| 1930 | -8.6 | 91.40 | 104.82 | -- | -- | -- |
| 1931 | -6.4 | 85.55 | 109.86 | -- | -- | -- |
| 1932 | -13 | 74.43 | 115.15 | 74.43 | 74.43 | 74.43 |
| 1933 | -1.3 | 73.46 | 120.70 | 81.17 | 87.01 | 80.16 |
| 1934 | 10.8 | 81.40 | 126.51 | 88.53 | 101.71 | 86.33 |
| 1935 | 8.9 | 88.64 | 132.61 | 96.55 | 118.90 | 92.98 |
| 1936 | 13.0 | 100.16 | 138.99 | 105.29 | 139.00 | 100.14 |
| 1937 | 5.1 | 105.27 | 145.69 | 114.83 | -- | -- |
| 1938 | -3.4 | 101.69 | 152.70 | 125.24 | -- | -- |
| 1939 | 8.1 | 109.93 | 160.06 | 136.58 | -- | -- |
| 1940 | 8.8 | 119.60 | 167.77 | 148.96 | -- | -- |
| 1941 | 17.1 | 140.05 | 175.85 | 162.45 | -- | -- |
| 1942 | 18.5 | 165.96 | 184.31 | 177.17 | -- | -- |
| 1943 | 16.4 | 193.18 | 193.19 | 193.22 | -- | -- |
Instead of actual GDP levels, I use an index set to 100 for 129, to make the comparisons as transparent as possible, with the changes in GDP in the first column following the years. I also have four columns showing what GDP levels would have been with constant GDP growth covering various periods of time, which allow us to make various observations or comparisons.
The 4.816% growth column shows what a constant growth would be from 1929 to 1943. Since the authors cite 1943 as the year we emerged from the Depression, this presumably represents the level of economic activity in each year that would have been sufficient to get us out of the Depression in that year. The level for 1936 then becomes the figure that their "lost opportunity" scenario would have to hit.
The next column, 9.06% growth, represents that average growth rate needed from when FDR took office in 1933 to reach the actual GDP in 1943.
The 16.9% growth represents the growth rate required to get out of the Depression in just 4 years (minus three months), which the authors claim would have happened if FDR hadn't mucked things up.
The last column, 7.7% growth, is the constant growth rate matching FDR's actual record from 1933 to 1936, before he cut back on his proto-Keynsian stimulus approach.
Finally, it's worth noting that the actual 4-year growth from 1932 to 1936 (which was not constant) amounted to 34.6%, an extremely high growth level. There were only six earlier periods of higher growth in US history, actually composed of just three different 5-year periods. However, 1933-36 was itself part of a similar 5-year period, and the other 4-year period from that stretch, 1934-1937, was the fastest-growing period of GDP of them all, until the growth spurt that followed after the recession of 1937/38.
Of course one does expect rapid growth in recovering from a severe recession or Depression, so this is not to claim any spectacular achievement on FDR's part. On the other hand, this was not the only time we had experienced a financial downturn in our history. Yet, no other recovery period was as strong as 1934-1937. That surely counts for something, and helps explain why FDR was overwhelmingly re-elected in 1936. |
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