Sunday, April 24, 2011

Conventional Thinking - Possibly Wrong Again

There are basically two main theories as to how "we" got out of the Depression; 1) that the New Deal got us out and 2) that the second world war got us out. I've already addressed the first article of faith in a previous post (concluding that the New Deal was essentially a wash). In this one, I'll examine the latter................................................................................................To those who argue that WW2 got us out of the Depression, these people generally point to the significantly lower unemployment rate and the historic expansion of GDP (they also argue that this is proof-positive that Keynesian economics works). Rather than the New Deal programs (which a lot of these individuals actually saw as too anemic), these people say that it was the amped up production necessitated by the war that finally got the economy moving............................................................................................Of course, what these folks refrain from telling us is that a lot of that reduction in unemployment came from a huge increase in the number of people serving in the military. It was largely this military build-up, and not an expansion of economic activity (not that that wasn't a factor at all, mind you; the manufacturing of weaponry, etc.), that sharply reduced the unemployment rate...............................................................................................There were also other factors indicative of a non-recovering economy. 1) The production of non-durable civilian goods significantly decreased. 2) Consumption itself fell. 3) Rationing increased and increased sharply. 4) Income taxes went up FOR EVERYBODY. 5) Investment spending decreased. 6) Price controls continued and, more than likely, hid significant inflation..............................................................................................So, if the New Deal didn't get us out the Depression, and the second world war didn't get us out of the Depression, what ultimately did. According to a lot of these so-called revisionist historians, the U.S. market didn't really come back to life until AFTER the war. President Truman and the Congress a) lifted price controls and b) peeled back even further on trade tariffs. Rationing ended and a freer economic landscape emerged. Probably, though, the most important factor of all was simply the stark difference between Truman and Roosevelt. While the latter was constantly raising taxes (and/or threatening to), badmouthing the business community, etc., the former put forth a significantly more positive approach....I think that we all know the importance of that these days.

5 comments:

w-dervish said...

The New Deal was a "wash"? The US market didn't really come back to life until AFTER the war? Both of these "factoids" must have come from revisionist historians, because they are both totally wrong.

Will "take no prisoners" Hart said...

Well, what is it, did the New Deal get us out (unemployment ticking back over 20% by April 1939) of the Depression? Or was it the war (during which both investment and consumption went down) that got us out of the Depression? THEY BOTH CAN'T BE TRUE!

w-dervish said...

The New Deal got us out of the depression. I said that "The US market didn't really come back to life until AFTER the war" was revisionist history because it happened earlier.

Will "take no prisoners" Hart said...

The New Deal did NOT get us out of the Depression. Unemployment oozed back up to 20% in mid 1939. That is poor/disgraceful. Roosevelt in many ways was a great man but, in terms of economics, he knew virtually nothing.

Will "take no prisoners" Hart said...

And in terms of this revisionism, it was the progressive, boot-licker historians who did the majority of it. I remember as a kid the grown-ups (you know, the people who actually lived through the Depression) constantly saying that the New Deal didn't get us out of the Depression. They knew that a lot of it was frigging snake-oil, make-work, etc..