FDR and the depression

[Exapno_Mapcase]

puddleglum, I don’t want to redebate the Depression, let alone in GQ. You leave out several items of crucial importance, though.

First, wage/price policy, even monetary policy, is insufficient to deal with the subject. This depression was not like the earlier ones. It was worldwide, for one thing. With all our major trading partners in Europe having their own failures Congress sprang into protectionist mode and passed the Smoot-Hawley Tariff, exactly the wrong move, something that many people blame for turning a recession into the Depression. Those countries were starting to go off the Gold Standard, a smart move which improved their economies and one that Hoover refused to do. And there was the little matter of the collapse of the banking industry so that Roosevelt’s inauguration saw not a single working bank in the U.S.

And that brings up the overwhelmingly gigantic major issue. A Depression is not economic theories on paper. It is the awful effects on real people who are doing the actual suffering. Remember, there was no system of social programs. Private charity had already collapsed under the weight. Roosevelt in March 1933 had to do Something. It didn’t have to be Correct. It couldn’t be Correct, because nobody on earth knew what Correct was at that point. It’s completely not true that Roosevelt shunted aside Hoover’s advisors; in fact he kept on so many that liberals complained bitterly. He simply told them to get into a room together and create. He would get Congress to pass anything they came up with, as long as it came out fast and looked like it would make a difference. Some worked, some did not, most were throw out by an extremely conservative Court. So what? They were psychologically necessary. There would not have been a functioning small-d democratic America by 1936 if he hadn’t.

Everything else is irrelevant. These moves had to be done; social science trumps economics even in hindsight.

If you have to make this partisan, though, explain 1937. After battling business and conservative forces for four years, Roosevelt had his re-election and the country seemed to be doing better. So he let Congress pass legislation that conformed to their wishes. The economy immediately tanked and did not recover properly until war preparation started. That’s the killing argument for me. Conservative policies were tried in 1930 and 1937 and failed both times. You can’t magic that away with charts and graphs.

[Chefguy]

@geezer1

It is difficult, if not unreasonable to ascribe such power to a “local boy” when the situation was global . . .

BTW, I was a child during this time, in a family of a single mother and three children, and we simply did what we had to, in order to survive – a garden, trapping game, raising chickens for meat and eggs – you quickly learn that the idea is to survive, and enjoyment of any part of life in general was totally out of the question . . .

I was a post-war baby, but my siblings were born in the mid-30s. My brother remembers rutabega soup and no meat for extended periods. On a special occasion, they might have Spam. There was very little resembling a life in those years. My mother graduated high school in 1929 and her yearbook held the dreams of most kids that age. She was determined to go to college and study music. Instead, she had to try to find work to help support her mother and sister. I’m sure that marriage to a truck driver seemed like a good idea to her, but his jobs came and went until he finally went to Alaska to find anything to support his family. As mentioned, there was NO social safety net then. If you were starving, well then you just starved or took desperate measures not to. It affected how she lived her entire life, and the memory of it was a horror for her.

For Republicans to try to revise that history is insulting to those who lived it, but it doesn’t surprise me in the least. Anything to perpetuate the myth of the “job creators” is okay on that side of the fence.

[puddleglum]

@Ulf_the_Unwashed

Beg your pardon…fascist??

Fascist economic theory was that the capitalist system was wasteful because of too much competition between firms and clashes between workers and owners that led to overproduction and busts. To fix this the government would organize industry along sector lines and the sectors and the government would agree on prices, wages, and production. This was supposed to keep the economy strong as companies and labor would be cooperating with one another instead of competing. In Italian Fascism this was known as corporatism.
The NRA was similar in that it created legal cartels that decided how much people in each industry could charge, wages, production quotas and working hours.

[Voyager]

@carnivorousplant

They taught me that it did in school. My Father told me so, too, and he lived through it.

The unemployment rate in 1942 was 4.7% Cite. They don’t show 1943, but it was 1.2% in 1944 - hardly the sign of a depression!

[puddleglum]

@Exapno_Mapcase

puddleglum, I don’t want to redebate the Depression, let alone in GQ. You leave out several items of crucial importance, though.

First, wage/price policy, even monetary policy, is insufficient to deal with the subject. This depression was not like the earlier ones. It was worldwide, for one thing. With all our major trading partners in Europe having their own failures Congress sprang into protectionist mode and passed the Smoot-Hawley Tariff, exactly the wrong move, something that many people blame for turning a recession into the Depression. Those countries were starting to go off the Gold Standard, a smart move which improved their economies and one that Hoover refused to do. And there was the little matter of the collapse of the banking industry so that Roosevelt’s inauguration saw not a single working bank in the U.S.

And that brings up the overwhelmingly gigantic major issue. A Depression is not economic theories on paper. It is the awful effects on real people who are doing the actual suffering. Remember, there was no system of social programs. Private charity had already collapsed under the weight. Roosevelt in March 1933 had to do Something. It didn’t have to be Correct. It couldn’t be Correct, because nobody on earth knew what Correct was at that point. It’s completely not true that Roosevelt shunted aside Hoover’s advisors; in fact he kept on so many that liberals complained bitterly. He simply told them to get into a room together and create. He would get Congress to pass anything they came up with, as long as it came out fast and looked like it would make a difference. Some worked, some did not, most were throw out by an extremely conservative Court. So what? They were psychologically necessary. There would not have been a functioning small-d democratic America by 1936 if he hadn’t.

Everything else is irrelevant. These moves had to be done; social science trumps economics even in hindsight.

If you have to make this partisan, though, explain 1937. After battling business and conservative forces for four years, Roosevelt had his re-election and the country seemed to be doing better. So he let Congress pass legislation that conformed to their wishes. The economy immediately tanked and did not recover properly until war preparation started. That’s the killing argument for me. Conservative policies were tried in 1930 and 1937 and failed both times. You can’t magic that away with charts and graphs.

The reason it was worldwide was because everyone in the world had the same monetary policy, the gold standard. Gold hoarding by france led to deflation everywhere else. The initial cause was monetary and monetary policy would have been sufficient to fix the problem. Every country that left the gold standard recovered economically soon thereafter.
Keeping Hoover’s advisors around was a mistake, Hoover had proven his policies were failures at dealing with the depression. We can not judge policies merely on the fact that people wanted something done and therefore stuff was done. We have to judge the outcomes of these policies. For example Chefguy’s relatives were starving and scraping while the federal government was paying millions of dollars to farmers to plant less food and to destroy food that they had already produced. As Steinbeck wrote"

The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates–died of malnutrition–because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage."

Your invocation of conservative policies in 1937 is odd. What conservative policies? In 1936 there was a law increasing reserve requirements for banks which dried up the monetary supply and caused the recession. That was not a conservative policy. In 1936 there as a tax on undistributed profits, that was not a conservative policy. In 1937 the first Social Security taxes were collected, that was not a conservative policy. In 1936 the pro-union implications of the previous year’s Wagner act could start to be felt unions size doubled in one year, and that was not a conservative policy. The Treasury Department decided to sterlize all gold inflows and that was not a conservative policy.
The only conservative policy was a decline in the amount the government spent for one year after government spending tripled in seven years.

[Hari_Seldon]

It is amazing how far off the rails economists can run by extrapolating the past into the future. Or into some alternate future. FWIW, it is arguable that Japan has been following Hoover-like policies for the past 25 years and has nothing to show for it.

I wish I could find the cite, but in Dec. 2007, an academic economist claimed to have studied the entire post WW II history of US recessions and found a calculator that would predict (retrodict really) every US recession and also had no false predictions. And she entered the Dec. 2007 economic data and concluded that there was no chance we were about to begin a recession!

In fairness one can argue from a vantage 6 years later that she was right. We were entering a depression.

[carnivorousplant]

@Voyager

The unemployment rate in 1942 was 4.7% Cite. They don’t show 1943, but it was 1.2% in 1944 - hardly the sign of a depression!

Yes, World War II was virtually over by 1944.
Unemployment was so low that women were building tanks and aircraft in factories.

[carnivorousplant]

@Hari_Seldon

It is amazing how far off the rails economists can run by extrapolating the past into the future. Or into some alternate future. FWIW, it is arguable that Japan has been following Hoover-like policies for the past 25 years and has nothing to show for it.

I had believed that the Japanese were following a McArthur economic model.

[Exapno_Mapcase]

@puddleglum

Your invocation of conservative policies in 1937 is odd. What conservative policies?

Um, these conservative policies?

The lessons of 1937

The recovery from the Depression is often described as slow because America did not return to full employment until after the outbreak of the second world war. But the truth is the recovery in the four years after Franklin Roosevelt took office in 1933 was incredibly rapid. Annual real GDP growth averaged over 9%. Unemployment fell from 25% to 14%. The second world war aside, the United States has never experienced such sustained, rapid growth.

However, that growth was halted by a second severe downturn in 1937-38, when unemployment surged again to 19% (see chart). The fundamental cause of this second recession was an unfortunate, and largely inadvertent, switch to contractionary fiscal and monetary policy.

Commodity Prices and the Mistake of 1937: Would Modern Economists Make the Same Mistake?

The Mistake of 1937 was to relinquish the benefits of reflation and to set all policy levers in reverse. The Fed and key administration officials hinted at interest rate hikes and endorsed austerity in fiscal policy; the key concern now was containing inflation rather than sustaining recovery.

Is Obama Repeating the Mistake of 1937?

In early 1937, Roosevelt was preparing his budget for the next fiscal year, which began on July 1 in those days. Strong growth in the economy and tax increases over the previous three years, especially the institution of a new payroll tax for Social Security, had caused tax receipts to almost double from 2.8% of GDP in 1932 to 5% in 1936. Projections showed that budget balance was within reach with only a modest reduction of spending.

Roosevelt was also concerned about the reemergence of inflation. After falling 24% between 1929 and 1933, the Consumer Price Index rose by a total of 7% over the next three years and signs pointed to even higher prices in 1937. Indeed, the CPI rose 3.6% that year.

Rather than viewing this as a sign of progress, which had caused the stock market to almost double between 1935 and 1936, Roosevelt and the inflation hawks of the day were determined to pop what they viewed as a stock market bubble and nip inflation in the bud. Balancing the budget was an important step in this regard, but so was Federal Reserve policy, which tightened sharply through higher reserve requirements for banks. Between August 1936 and May 1937 reserve requirements doubled.

During 1937, Roosevelt pressed ahead with fiscal tightening despite the obvious downturn in economic activity. The budget deficit fell from 5.5% of GDP in 1936 to 2.5% in 1937 and the budget was virtually balanced in fiscal year 1938, with a deficit of just $89 million.

[njtt]

@carnivorousplant

They taught me that it did in school. My Father told me so, too, and he lived through it.

My mother lived through it too, in Britain, and she told me the depression was over long before war broke out (in 1939, for us). The fact that Germany was able to undertake a massive rearmament in the years leading up to the war suggests that the depression was over for them too.

Others in the thread are pointing out that the USA suffered a second downturn in 1937. It seems, however, that this did not have the same sort of worldwide effects that the original crash had had; I would suggest that it really should not be seen as part of “The Great Depression” but a separate and more local economic event.

[FoieGrasIsEvil]

@Exapno_Mapcase

I love this.

Obviously the non-Rooseveltian policies from 1929-1933 should have been continued indefinitely because they were working so well! All they had to do was wait until 1936! Nobody wouldn’t have minded if you told them to keep Hoover! What revolution?

They didn’t brush their teeth enough, and there was no Ted Nugent around to guide the way. Duh.

[geezer1]

As a rose, Roosevelt had more than a few thorns . . .

Not the least of which was his attempt to “stack” the Supreme Court by the appointment of 4 more justices, and Cordell Hull, his Secretary of State, told him, “Mr. President, that’s more power than a good man needs, and more power than a bad man should have.”

He did form the Public Works Administration, which was alphabetized to WPA (We Play Around) and was ridiculed for hiring so many more for a specific job than were actually needed,: “We need 2 people with hoes to chop weeds alongside the roadway” so they hired 8, because there would be bathroom and rest breaks: “2 a-coming, 2 a-going, 2 a-sittin’ and 2 a-hoeing” . . .

WW-II insured full employment, as war is a great consumer, and I knew one man who had 3 jobs at Oak Ridge on the atom bomb project, and all three jobs were in the same 48 hour work week: he was a time-keeper for one contractor, taking clock-cards from the rack, and entering into a work-book the names and hours, a job that he said took less than 2 hours a day, so he talked to the contractor on a nearby adjacent site, who had a power station set up that consisted of multiple generators, and the contractor hired him to keep the generators fueled and serviced, another less-than 2 hours a day job, and his third job was as a warehouseman, receiving and stacking building materials, which encroached into his remaining day by an hour or so – the guy was rich, of course, but he was in the same boat as everyone else, there was little to spend his money on . . .

Rationing was the thing, and creativity was the name of the game in controlling the supply of scarce items – if there was one thing the U.S. had plenty of during the war, it was gasoline, so to control the pitiful supply of rubber, (Indochina) gasoline was heavily rationed . . .

The propensity for connivance and outright treachery and thievery by the government (things don’t change much, do they?) was evidenced in the formulation of Social Security – You could begin to draw benefits at age 65, except that the average lifespan of the American male was at the time, 55 . . .

Let’s not forget the concentration camps for the Japanese – Constitutional rights ? ?, Well, let’s talk about them later, meanwhile, you dirty nip, get your worthless yellow butt behind the wire, and don’t worry about your business and property, we will take care of that . . .

[Lord_Feldon]

@geezer1

You could begin to draw benefits at age 65, except that the average lifespan of the American male was at the time, 55 . . .

The average lifespan of the American male at birth was 58 in 1930. But infants don’t pay Social Security taxes.

[Indistinguishable]

@geezer1

He did form the Public Works Administration, which was alphabetized to WPA (We Play Around)

The Public Works Administration and the Works Progress/Projects Administration were separate agencies.

[md2000]

In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

Yes, the above posts are correct - this takes the data as if the Great Depression never happened, and ignores 1929-1932 policy, and then comments on the first 3 years of Roosevelt’s policies. Well, I’m assuming (logically) that he started from far below where the pre-recession data indicated he should have been at, given the Hoover interregnum. His policies did not get up and running for several months - later in 1933 - before the goodies started flowing. So '33 was a write off regardless. The odds that in 34 and 35 he would have recovered to the point where the economy should have been without a depression - even massive government largesse can’t kick start the whole country that fast, to make like the depression never happened in about 24 months.

Remember, consumer confidence is the key to a healthy economy. Few will buy a car, or a house, or larger appliances without a belief that the good times are here for several years to come. That requires typically a past history of good times to instill confidence. Especially, if they don’t have saving from a few years of past good times they will want to build that up first (assuming they trust banks).

RBS is perhaps the best analysis of this article.

It doesn’t take Nobel-level genius in economics to see that when the private sector stops spending or lending, the government can and should step in to help put a floor on that downturn. (The trick as a politician is to understand that when the economy is back on track, you should stop spending like it was seven lean years, and have the intestinal fortitude to tell the voters and lobbyists “No”).

[Voyager]

@carnivorousplant

Yes, World War II was virtually over by 1944.
Unemployment was so low that women were building tanks and aircraft in factories.

The WW II draft was passed in September 1940, and it started drawing men out of the workforce. Plus, the massive spending on war material that began when the war did. Saying the depression lasted well into the war period is quite odd. Perhaps there were pockets of high unemployment in 1943, but New York wasn’t one of them.

[Voyager]

@geezer1

He did form the Public Works Administration, which was alphabetized to WPA (We Play Around) and was ridiculed for hiring so many more for a specific job than were actually needed,: “We need 2 people with hoes to chop weeds alongside the roadway” so they hired 8, because there would be bathroom and rest breaks: “2 a-coming, 2 a-going, 2 a-sittin’ and 2 a-hoeing” . . .

This criticism is a bit unclear on the concept of the WPA.

The propensity for connivance and outright treachery and thievery by the government (things don’t change much, do they?) was evidenced in the formulation of Social Security – You could begin to draw benefits at age 65, except that the average lifespan of the American male was at the time, 55 . . .

Actually, in 1930 if you were age 60 you had a life expectancy of 14.72 years. Cite. My statistician friend absolutely hate this sort of distortion of what life expectancy means.

Did you go down to the TransLux to boo FDR by any chance?

[carnivorousplant]

@Voyager

The WW II draft was passed in September 1940, and it started drawing men out of the workforce. Plus, the massive spending on war material that began when the war did. Saying the depression lasted well into the war period is quite odd. Perhaps there were pockets of high unemployment in 1943, but New York wasn’t one of them.

Are you countering me, or Voyager?

[puddleglum]

@md2000

Yes, the above posts are correct - this takes the data as if the Great Depression never happened, and ignores 1929-1932 policy, and then comments on the first 3 years of Roosevelt’s policies. Well, I’m assuming (logically) that he started from far below where the pre-recession data indicated he should have been at, given the Hoover interregnum. His policies did not get up and running for several months - later in 1933 - before the goodies started flowing. So '33 was a write off regardless. The odds that in 34 and 35 he would have recovered to the point where the economy should have been without a depression - even massive government largesse can’t kick start the whole country that fast, to make like the depression never happened in about 24 months.

Remember, consumer confidence is the key to a healthy economy. Few will buy a car, or a house, or larger appliances without a belief that the good times are here for several years to come. That requires typically a past history of good times to instill confidence. Especially, if they don’t have saving from a few years of past good times they will want to build that up first (assuming they trust banks).

RBS is perhaps the best analysis of this article.

It doesn’t take Nobel-level genius in economics to see that when the private sector stops spending or lending, the government can and should step in to help put a floor on that downturn. (The trick as a politician is to understand that when the economy is back on track, you should stop spending like it was seven lean years, and have the intestinal fortitude to tell the voters and lobbyists “No”).

You are missing the point of the article, they are not saying the economy should have been where it was absent a depression. They are saying the price level should have been different than it was given supply. Since demand fell so much during the great depression basic economic theory says that unless supply falls a commensurate amount then prices should fall. The fact that prices did not fall as much as supply and demand would have indicated shows that it was Hoover’s and FDR’s high wage policies at work. This delayed the end of the depression since market clearing prices were needed.
I am not saying I agree with what they said since I think it overlooks monetary policy which was the reason the depression happened and 3/4 of the reason it lasted so long.
I think the fact that Hoover increased the budget by 50% in 4 years and did not even dent the great depression shows just how ineffective fiscal policy was at that time.

[md2000]

@puddleglum

You are missing the point of the article, they are not saying the economy should have been where it was absent a depression. They are saying the price level should have been different than it was given supply. Since demand fell so much during the great depression basic economic theory says that unless supply falls a commensurate amount then prices should fall. The fact that prices did not fall as much as supply and demand would have indicated shows that it was Hoover’s and FDR’s high wage policies at work. This delayed the end of the depression since market clearing prices were needed.
I am not saying I agree with what they said since I think it overlooks monetary policy which was the reason the depression happened and 3/4 of the reason it lasted so long.
I think the fact that Hoover increased the budget by 50% in 4 years and did not even dent the great depression shows just how ineffective fiscal policy was at that time.

Yes and no. We’re straying into debate territory, but… The article seems to imply if only the great free market had reigned, that things would have returned to normal faster because the prices would ahve dropped and wages would ahve dropped.

This presumes everything drops/rises equally. The trouble with markets “self-adjusting” is that some things don’t drop, some things go up, faster than others. In a way this is good - if gasoline is a scarce commodity, we want people to realize it costs relatively more.

However, when the baisc necessities of life - food, clothing, housing - reach the point where they are out of reach for many, the time for laisse faire capitalism is past. Plus, rapidly fluctuating market prices give windfalls to some over others. In a crisis like a great depression, social and economic stability should be preferred over gifting windfalls to the lucky.

the complaint in the article was that cartels (and labour unions) were holding prices 25% over where they should have been… but consider what that 25% meant - basically, that many factories that overcommitted before the crash should have failed, gone bankrupt, shut their doors, after cheaper, more efficient plants underpriced them out of business. Real market forces were seen as arrogant and vicious and had not worked for 3 years. The whole Roosevelt plan (as I understand it) was to skip over that step, keep plants open and people working, and eventually get to where the plants were producing at market prices, at which point the cartel action could be “cancelled”.

What’s the old joke - a recession is where your neighbour is out of work, a depression is when you’re out of work.