RethinkingRethinkingthethe

Great Great DepressionDepression

Part II: The New Deal

The Depression of 1937-1938

Anemic Recovery of 1938-1940

The Effects of WWII on the Economy

FDR & Economic Policy

•No particular economics expertise.

•Change = f(academic advisors)

•The problem of “underconsumption/overproduction” (?)

• Industrial planning

•Reform vs. Recovery

FDR & Economic Policy

•Banking

•Relief

• Jobs

•TVA

•AAA

•NRA

1933 Economic Rebound

•Gold inflows; banks rebound.

March to JulyMarch to July

Non-durables Production

+35%

Durables +83%

Unemployment -5%

1933 Economic Slide

•AAA & NRA kick in.

July to July to NovemberNovember

Non-durables Production

-19%

Durables -32%

Unemployment no change

Back to July 1933 …

•Industrial codes & price fixing.

Date:Date:

Durables Production

July 1935

Manufacturing Production

August 1935

Unemployment October 1934

The Depression of 1937-1938The Depression of 1937-1938• Ur: decreased to 12% by 1937 . . . then, back to 20%

• Production rising . . . now falling by 67% (dur.)• Stock prices rising . . . now down 50%• Downturn worse than 1920-21 & 1929-30 !!!

Why?Why?• FDR continues attacks on business.• Fed raises reserve requirements.• Labor laws raise labor costs.

Anemic Recovery: 1938-Anemic Recovery: 1938-19401940

• By 1940, back to where we were in 1937.

• Ur: decreased but still around 15%.

• Durable mfg. at 96% of July 1929 level.• Housing construction reached 1929 levels . . . in 1951 !!

Why? Regime UncertaintyWhy? Regime Uncertainty• Net Investment = -$18 billion 1931-1935.• From 1930-1940, Net Investment = -$3

bill.• Contractionary monetary policy.

Effects of WWII on the Effects of WWII on the EconomyEconomy

• Ur: decreased to <2% by 1943.

• Gov’t. spending rises by almost 900%.• Rise in Consumption spending.• Economic recovery as prescribed by Keynes.

Were we better off?Were we better off?• Unemployed military.• Rationing and price controls.• Increased taxes.• Increased money supply.

Consequences of Consequences of thethe

Great DepressionGreat Depression• An end to the gold standard.

--Increased monetary destabilization.--Culminated with inflationary 1970s.

• Increased Federalism.--Size of federal gov’t. still growing.--S&L getting 25% from feds.

• Growth in the Regulatory State.--What isn’t “interstate commerce?”--Cap & Trade next?

• Rise of the Welfare State.--Can SS continue?

RethinkingRethinkingthethe

Great Great DepressionDepression

Part II: The New Deal

The Depression of 1937-1938

Anemic Recovery of 1938-1940

The Effects of WWII on the Economy