The Stimulus Seems to have failed

[Chris L]

lomiller, where are you getting those figures?

 

[lomiller]

Actually the medium unemployment rate throughout the new deal was 17.5%. Thats from wikipedia.

US employment int he great depression

http://en.wikipedia.org/wiki/File:US_Employment_Graph_-_1920_to_1940.svg

Note how jobs are lost though the entire "don't stimulate" Hover administration and grows immediately and almost continually throughout the new deal in 1933 with the exception of the dip in 1937 where they tried to pull back on stimulus to balance the budget.

 

[Chris L]

and the figures dealing with other countries?

 

[lomiller]

lomiller, where are you getting those figures?

They are common historical knowledge, any global timeline of the great depression will tell you how and when various governments responded, how deeply the depression was felt and how quickly they recovered.

 

[Chris L]

The figure I stated is from the same source, wikipedia.

 

[Chris L]

A slight correction, the actual figure is 17.2%.

 

[Cavemonster]

Countries like Sweden and Japan that began stimulus immediately already exceeded their pre-depression GDP and total employment by 1932. Countries like Germany and England which delayed a bit recovered next and had much smaller drop in GDP. It was really only countries like the US that refused to try stimulus where you saw 40%+ drops in GDP.

I'd like to hear stimulus critics respond to this.
Japan went into deficit spending right away, recovery was swift and profound, transforming the Japanese economy in a positive way.

The Netherlands insisted against deficit spending and was hit brutally by a long depression. Chile attempted austerity measures and is veiwed as one of the countries hardest hit by the depression.

Look at Australia and New Zealand. Australia chucked out the strongest proponents of stimulus spending and had an agonizingly slow recovery. New Zealand voted in a labor Government in 1935 that heavily increased spending and raced to recovery while Australia still stagnated.

 

[joobz]

To those who state that the New Deal didn't help us out of the Great Depression, What did?

 

[lomiller]

The figure I stated is from the same source, wikipedia.

The figure you are quoting isn't relevant to the discussion because it doesn't show what's happening to employment over time. By removing all the trend data you come up with a simple number that is clearly useless for proving you point.

I.E. if unemployment was 25% when the new deal started and averged 16% before spending cuts started in 1937 this means unemployment dropped by an average of 4.5% per year.


BTW other then an occasion link out to a graphic the figures I’m using figures from memory, the fact that you can get similar ones from wikipedia simply supports that they are indeed commonly know. Looking in wikipedia for example Sweden was indeed the fist country to fully recover from the Great Depression but didn’t do so until 1934, whereas I had thought it was 1932.

 

[lomiller]

I'd like to hear stimulus critics respond to this.
Japan went into deficit spending right away, recovery was swift and profound, transforming the Japanese economy in a positive way.

In fact by the mid 1930’s Japans economy was actually overheating. The finance minister who took Japan off the gold standard and initiated the stimulus wanted to reign in the deficit spending and was ousted by the military who would have taken cuts.

 

[MikeMangum]

To those who state that the New Deal didn't help us out of the Great Depression, What did?

Three things:

1)The federal Reserve changing to an expansionary policy (how the Fed was largely responsible for the depression is touched on briefly in this post on the 'Audit the Fed' thread).

2)Massive new expenditures on infrastructure and capital plant and concomitant massive reductions in expenditures on consumption - remember, there was substantial rationing during the war. Anytime you dramatically reduce consumption and redirect that wealth to investment, you are going to cause (in the long term, at the very least) economic growth. I've also detailed in other threads here how there was investment in creating or repairing new rail sidings, ports, roads, etc. (utterly massive improvements in infrastructure), literally thousands of cargo ships (that later went on to become the backbone of the US merchant fleet), cargo planes (which went to post war airlines and air freight companies), not to mention all the R&D that happened during the war, much of which had commercial application after the war. Most of this spending was funded by war bonds - the personal savings of the nation.

3)The removal of most of the New Deal wage and price controls - Uncle Sam was the buyer, after all, and wasn't going to artifically increase prices for the goods it was purchasing. People were without work, but companies couldn't afford to hire them because of government policies that artificially increased labor costs. People were without food, but the government artificially propped up the price of food.

The impact of New Deal policies on the depression?

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

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.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

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.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

After the war, the piper came calling for his due and the economy shrank again. The saving grace for the US economy was that it had just seen the largest expansion in production capacity ever, along with the largest expansion in rail/port/road capacity ever, and (oh by the way) the rest of the industrial world had coincidentally just been bombed to rubble. The rest of the world needed goods that could really only be provided in the quantities needed by US factories.

If you can find anything other than a war to motivate the entire nation to lend their personal savings (at almost no return) for a massive investment in infrastructure improvement and a massive increase in capital plant, while at the same time accepting very strong curbs on consumption, at the same time devastating the industrial capacity of the rest of the industrial world, you've found a way to get us out of this mess quickly and easily. Of course, the rest of the world might not like it much.

ETA: wanted to add a bit more from the UCLA blurb:

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

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.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

 

[MikeMangum]

In fact by the mid 1930’s Japans economy was actually overheating. The finance minister who took Japan off the gold standard and initiated the stimulus wanted to reign in the deficit spending and was ousted by the military who would have taken cuts.

It was not stimulus spending, it was removing Japan from the exchange rate peg and freeing them from the monetary contraction of the US Federal Reserve.

 

[BeAChooser]

Note how jobs are lost though the entire "don't stimulate" Hover administration and grows immediately and almost continually throughout the new deal in 1933 with the exception of the dip in 1937 where they tried to pull back on stimulus to balance the budget.

By all means. You just go on repeating claims that have already been proven (using government sources) to be nothing but lies.

You are totally destroying any residual credibility you might have.

 

[BobTheDonkey]

Three things:

1)The federal Reserve changing to an expansionary policy (how the Fed was largely responsible for the depression is touched on briefly in this post on the 'Audit the Fed' thread).

2)Massive new expenditures on infrastructure and capital plant and concomitant massive reductions in expenditures on consumption - remember, there was substantial rationing during the war. Anytime you dramatically reduce consumption and redirect that wealth to investment, you are going to cause (in the long term, at the very least) economic growth. I've also detailed in other threads here how there was investment in creating or repairing new rail sidings, ports, roads, etc. (utterly massive improvements in infrastructure), literally thousands of cargo ships (that later went on to become the backbone of the US merchant fleet), cargo planes (which went to post war airlines and air freight companies), not to mention all the R&D that happened during the war, much of which had commercial application after the war. Most of this spending was funded by war bonds - the personal savings of the nation.

3)The removal of most of the New Deal wage and price controls - Uncle Sam was the buyer, after all, and wasn't going to artifically increase prices for the goods it was purchasing. People were without work, but companies couldn't afford to hire them because of government policies that artificially increased labor costs. People were without food, but the government artificially propped up the price of food.

The impact of New Deal policies on the depression?

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx


After the war, the piper came calling for his due and the economy shrank again. The saving grace for the US economy was that it had just seen the largest expansion in production capacity ever, along with the largest expansion in rail/port/road capacity ever, and (oh by the way) the rest of the industrial world had coincidentally just been bombed to rubble. The rest of the world needed goods that could really only be provided in the quantities needed by US factories.

If you can find anything other than a war to motivate the entire nation to lend their personal savings (at almost no return) for a massive investment in infrastructure improvement and a massive increase in capital plant, while at the same time accepting very strong curbs on consumption, at the same time devastating the industrial capacity of the rest of the industrial world, you've found a way to get us out of this mess quickly and easily. Of course, the rest of the world might not like it much.

Yes, but unemployment had already turned around and reached pre-depression lows before war spending really began. Economic recovery, necessarily, follows reemployment.

Anyone tries to claim that other policies ended the GD, ignoring that the New Deal provided jobs for millions of workers that otherwise would have remained unemployed, while providing the infrastructure that was so beneficial to the war production/growth is just sticking one's fingers in their ears and screaming "I can't hear you" over and over.

 

[BeAChooser]

Countries like Sweden and Japan that began stimulus immediately already exceeded their pre-depression GDP and total employment by 1932. Countries like Germany and England which delayed a bit recovered next and had much smaller drop in GDP. It was really only countries like the US that refused to try stimulus where you saw 40%+ drops in GDP.

This is a complete distortion of history.

First of all, you neglect to mention that the reason Japan rapidly recovered from the Great Depression is that it was a nation preparing for and at war. The depression started in Japan in 1930 and it began buying and building the arms it would use to invade and conquer Manchuria in 1931. In fact, the Japanese government even said as justification for those actions that invading China to take Manchuria would stimulate economic growth and relieve the depression. So just as military preparations and war eventually brought the US economy out of depression between 1940 to 1942, they brought Japan out of it between 1930 to 1933. And after conquering Manchuria, Japan set out to colonize it. That stimulated the economy and put people to work as well. And don't forget the hundreds of thousands of Japanese who went to Machuria during that time, which also had a big effect on stimulating the economy and reducing unemployment. Not to mention what stealing resources from the conquered country did to help their GDP. And then they continued fighting wars throughout the rest of the 30's, keeping their factories going and people employed. So there really is no legitimate comparison with FDR's New Deal approach to recovery.

By the way, you also forgot to mention that Japan experienced rapid deflation during the early stages of the Great Depression and that reduced both the severity and duration of their downturn. This deflation is in large part a result of the monetary flexibility they gained from going off the gold standard in 1931. Deflation helped stimulate their economy by making their goods more competitive in world markets. Whereas the US maintained the gold standard until around 1933. And sure enough, our economy also began to improve after that.

Furthemore, if you want another clear example of stimulus not working, you need only look at Japan's efforts in the 1990s to stimulate their stagnant economy. Japan's national debt more than doubled with no positive effect on the economy. In fact, the 1990s are now known as the "lost decade" and it looks like we may have one of our own soon, thanks to Obama.

To summarize, your characterization of Japan's experience with stimuli, depressions and economic growth is nothing less than dishonest.

Now let's consider your claims about Sweden and Great Britain.

First, as Wikipedia's article on the Great Depression notes (http://en.wikipedia.org/wiki/Great_Depression_in_the_United_Kingdom ), Great Britain had not recovered from WWI when the Great Depression hit. It's economic output was still below what it had been in 1918. And it spent much of the 1920s in recession. So it's economy didn't have nearly as far to fall in the Great Depression, making what might be perceived as recovery easier. Now here is an interesting fact. As the depression deepened, the party in power (Labour) appointed a committee to look at what should be done. In July 1931, that committee came back urging public sector cuts in wages, and large cuts in public spending. The government rejected that advice. The ensuing chaos and indecision only made matters worse. This led to the collapse of the Labour government and the formation of a new, Labour AND Conservative government. On September 10, 1931, this new government instituted deep cuts in public spending and wages (some 10%) but then raised taxes, essentially canceling out the effect. The economic slide continued, particularly since the gold standard was still in place. It wasn't until September 21, when the government abandoned the gold standard and the pound was devalued by about 30%, that the economy began to approve. So again, the recovery wasn't due to a stimulus like you claimed, but something else. And as pointed out in the Wikipedia article, it was the policy of rearmament that began in 1936 in the face of a Nazi threat, that really provided the stimulus to end the depression.

And the same is true regarding your claim about Sweden. It wasn't Keynesian deficit spending that ended the depression, but monetarist measures (again currency devaluation and export growth). In 1931, it left the gold standard and THAT is when Sweden began to recover from the depression. By 1935, the volume of Swedish exports exceeded pre-depression levels. Here's a CATO report that gives a better picture of Sweden:

http://www.cato.org/pubs/pas/pa-160.html

The standard history of Swedish politics holds that the Social Democrats took power during the depression of the 1930s and ended mass unemployment with their Keynesian fiscal policies. That interpretation of events has been influential in keeping the Social Democrats in power, but it is misleading.

In fact, thanks to a large devaluation after the abandonment of the gold standard in 1931, the depression in Sweden was relatively mild, and recovery--led by an export boom--began before the Social Democrats came to power. According to the late Swedish economist Erik Lundberg, the depreciation of the krona in September 1931 was the necessary condition for economic recovery. … snip … That view is supported by most Swedish economic historians. According to Lars Jonung, only the years 1933-35 witnessed an expansionist fiscal policy. At that time, the upswing had already begun. During 1935-36 fiscal policy was contractionary not expansionary.

Finally, regarding Germany, it was one of the worst hit by the Great depression and was only getting worse and worse until Hitler arrived. In fact, by the time he came to power in 1933, there were 6 million unemployed (25% unemployment). But contrary to what you claim, it wasn't stimulus spending of the sort FDR was attempting that ended Germany's depression, it was stimulus spending of the sort we've all come to associate with Hitler … armaments and the military. It was war preparations that led Germany out of depression, lomiller. Just like Japan. Just like America much later. Another thing to keep in mind is that Hitler's unemployment statistics were fudged. They didn't include women and Jews (in fact, before the war both groups were forced out jobs so unemployed non-Jewish men could take their place), the people that were sent to pre-war concentration camps, or those who joined the German military (which went from 100,000 strong in 1933 to 1.4 million by 1939).

So once again, we catch you distorting actual history, lomiller.

 

[MikeMangum]

Yes, but unemployment had already turned around and reached pre-depression lows before war spending really began. Economic recovery, necessarily, follows reemployment.

Unemployment in 1939 was 17.2%. That hardly qualifies as meeting pre-depression lows.

 

[jimbob]

But war-spending was a massive targeted stimulus package in effect. You couldn't make battleships without spending on industry.

 

[YoPopa]

But war-spending was a massive targeted stimulus package in effect. You couldn't make battleships without spending on industry.

To simplistically equate war time spending with a stimulus package while simultaneously ignoring the detailed posts above by BAC and MikeMangum on that same topic is insulting to everyone who takes this discussion seriously.

By your logic we could just build battleships today and enjoy good times tomorrow.

 

[MikeMangum]

Anyone tries to claim that other policies ended the GD, ignoring that the New Deal provided jobs for millions of workers that otherwise would have remained unemployed, while providing the infrastructure that was so beneficial to the war production/growth is just sticking one's fingers in their ears and screaming "I can't hear you" over and over.

Parts of the New Deal did indeed provide jobs; other parts destroyed them. The other thing to keep in mind is what the jobs provided actually did. Simply providing jobs, is not in and of itself, going to improve the economy. The government could hire 5 million people right now to dig holes and immediately fill them again, and it would not improve the economy. That Which is Seen, and That Which is Not Seen: The Disbanding of Troops.

Some of the infrastructure improvements undoubtedly did contribute to economic growth, but many of the jobs were essentially make-work. The CCC essentially created what was to eventually become the state and national park system (which was a substantial gift to later generations), but it really didn't do much to provide for economic growth. Things like the TVA and the various dams built around the country certainly led to economic growth. The problem is that not all infrastructure expenditures create economic growth. If a perfectly serviceable road is torn up and repaved simply to provide temporary jobs, it has no benefit. If a giant rail siding is built in a location that has no use for it, it provides no economic benefit. I'm not sure how the construction of the Timberline Lodge^WP provided any economic benefit, at least not until The Shining was filmed.

 

[joobz]

Three things:

Excellent. Thank you for that.
it was very informative.

2)Massive new expenditures on infrastructure and capital plant and concomitant massive reductions in expenditures on consumption - remember, there was substantial rationing during the war. Anytime you dramatically reduce consumption and redirect that wealth to investment, you are going to cause (in the long term, at the very least) economic growth. I've also detailed in other threads here how there was investment in creating or repairing new rail sidings, ports, roads, etc. (utterly massive improvements in infrastructure), literally thousands of cargo ships (that later went on to become the backbone of the US merchant fleet), cargo planes (which went to post war airlines and air freight companies), not to mention all the R&D that happened during the war, much of which had commercial application after the war. Most of this spending was funded by war bonds - the personal savings of the nation.

this would suggest that it isn't spending that stimulates the economy, but logical investment/spending. Is this right?

an advantage of the war time spending wasn't simply in manufacturing capacity, but I'd also wager technological capacity. The know-how that resulted in the war time effort for better/faster machines resulted in engineering concepts that drove industry forward by leaps and bounds.