This is an interesting tid-bit from the article:
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.
This last bit is good too:
NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.
Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
40 comments:
Problem is: Economics is not a science. Therefore, this essay is merely an opinion.
Also, the data is stupid, because in constant 1990 dollars the average worker was making 6773 dollars in 1920 and 24,259 in 1990. THAT incredible difference is the result of unionization coupled with competition for those wages. The authors of that essay ignore that small business can only pay small money: Hence teh 6773 1990 dollars in 1920!
Bigger corporations guaranteeing higher wages means 25% more spending, which means the economy jump-started.
Of course, you had to have factories producing to get the entire system working again. Since the 1930s economy had less factory production than our global economy does, it follows that it was harder to restart the money flow on just spending. People had to make something for growth to start again. This is where WWII kicked in.
"Economics is not a science. Therefore, this essay is merely an opinion."
Maybe not, but Austrian economists have been right far more than they have been wrong.
"in constant 1990 dollars the average worker was making 6773 dollars in 1920 and 24,259 in 1990"
There was a recession in 1920 due to over spending during the war.
"Bigger corporations guaranteeing higher wages means 25% more spending"
No, this just means more people are out of work and higher prices...which is exactly what happened during the depression.
"which means the economy jump-started."
10 years is a long time for the economy to jump start.
During WWII government spending tripled and ever since then the US government has pretty much ignored deficits. What we're seeing now in the US is the outcome of poor economic policy for 80 years and its going to destroy the US dollar.
Of course the left has already started blaming the right's deregulation, however the economy has never been so regulated and the republicans advocated more regulation 5 years ago.
"Maybe not, but Austrian economists have been right far more than they have been wrong."
In your opinion.
"There was a recession in 1920 due to over spending during the war."
No, that was the average wage for the 1920s, Josh. You can't explain it away. Wages before the New Deal did not increase fast. They were low, slave wages.
http://www.workinglife.org/wiki/Wages+and+Benefits:+Real+Wages+(1964-2004)
Oh look! The average wage started to decrease at the same time that unionization stopped! Not a surprise.
"No, this just means more people are out of work and higher prices...which is exactly what happened during the depression."
No, it meant someone was spending their wages. That's what it meant.
Other problems that extended the GD:
1. No one trusted the private banks. 9000 of them collapsed due to speculation.
2. Everyone back then was taught to save their money. These days, spending one's income is seen as the engine of the economy, and for good reason. If I buy a video game, that money goes to Nintendo. Nintendo then takes that money and pays its employees. Those employees in turn spend their wages on whatever and so goes the money flow. In the 1930s, no one trusted the banks and everyone was taught to save their money. Therefore, there was no surprise that the economy took a long time to recover! The depression of 1873 took four years to recover, and that was without a lot of the special circumstances that made the Great Depression unique! SAVING EXCESSIVELY EQUALS PROLONGED DEPRESSION OR RECESSION.
3. Workers were paid slave wages, which meant if the middle class was spooked by collapsing banks and alway saved their money, there was no other spending class to jump start the economy. FDR's measures changed this. He created a class of workers that made "25% more than they were worth" and who increased the average wage correspondingly in the long-run.
"10 years is a long time for the economy to jump start."
Everyone pinced pennies then. What do you expect? Most the profits went to the corporations and businesses, which created a small luxury economy. The reason why all the recessions after 1940 didn't hurt as much as the Great Depression is the fact that workers were paid money that was traditionally the profit of business. They took that money and bought cars, and televisions, and houses. In the pre-New Deal era that money would have simple become part of a corporations worth.
"During WWII government spending tripled and ever since then the US government has pretty much ignored deficits. What we're seeing now in the US is the outcome of poor economic policy for 80 years and its going to destroy the US dollar."
That would make sense if the US government were like a household. Unfortunately, government is not akin to a house. As you said, governments can ignore debt.
"Of course the left has already started blaming the right's deregulation, however the economy has never been so regulated and the republicans advocated more regulation 5 years ago"
Sorry, the CRA of 1995 was de facto regulated deregulation. The banks could do whatever they bloody pleased. Moreover, the Democrats are idiots for blaming "deregulation" when it is obviously the lose of millions of jobs that has created this mess.
The 25% higher wages for workers meant that there was a 25% increase in the spending economy. Once the traditional spenders started spending again, that meant that the economy was ready for the 1950s.
Again, saving all that you make is a relic of the poverty economics of the pre-capitalist era.
"These days, spending one's income is seen as the engine of the economy, and for good reason."
Spending isn't the problem. The problem today is that people are buying things with money they don't have. Consumer debt has soared over the past 20 years.
Savings provide the base for a healthy economy because it allows people to invest and spend money they have on prospects and items determined to be worth it. The risk is higher, the spending is wiser, and investment is better allocated.
"FDR's measures changed this. He created a class of workers that made "25% more than they were worth" and who increased the average wage correspondingly in the long-run."
And yet unemployment never dropped below the high teens!
"That would make sense if the US government were like a household. Unfortunately, government is not akin to a house. As you said, governments can ignore debt."
The government is like 100 million poorly run households actually. And the bankers in Saudi Arabia, China, and Japan are soon to foreclose.
"when it is obviously the lose of millions of jobs that has created this mess."
I'm not sick because I'm coughing, I'm sick because I have a cold.
"Again, saving all that you make is a relic of the poverty economics of the pre-capitalist era."
People saved in the 50s too. In fact, they had to save up 20% of the price of a house for the down payment.
"People saved in the 50s too. In fact, they had to save up 20% of the price of a house for the down payment."
Yup, but they saved a whole lot less than they did in the 20s.
"Yup, but they saved a whole lot less than they did in the 20s."
Thats weird. The US experienced an economic boom in the 20s. What was your point again?
The spending class consisted of the middle class and rich people in the 1920s. It definitely was a boom for them.
"The spending class consisted of the middle class and rich people in the 1920s. It definitely was a boom for them."
Unemployment was low during the 20s as well, so not many people were poor either...
I thought your point was that savings doesn't help an economy. And then you admitted people saved a lot in the 20s and this was bad. But then the economy boomed in the 20s....
"Unemployment was low during the 20s as well, so not many people were poor either..."
Yeah, but they made shit wages, so they didn't have much money to spend!
"I thought your point was that savings doesn't help an economy. And then you admitted people saved a lot in the 20s and this was bad. But then the economy boomed in the 20s...."
My point was that saving every penny during a depression does not help end the depression. That was my point.
The economy boomed for a select number of people.
"The economy boomed for a select number of people."
Yep, the select number of people who had jobs, which were more than the 1930s.
"Yep, the select number of people who had jobs, which were more than the 1930s."
Nope, it boomed only for the upper half. Just because people have jobs does not mean they are "booming" economically. That they are/were booming is a central myth of free market evangelism.
Well they weren't lining the street at soup kitchens. They were making enough money to feed themselves, and buy houses for which they were later forclosed on when they lost their jobs during FDR's reign.
Hey, just enough, eh Josh!
Again, the boom definitely did happen, but it only happened for the upper half.
Well how much should uneducated, unskilled workers make Chris?
In current dollars I would say about 50,000. 50,000 allows for a house, food, shelter, education assuming a long-term savings plan, car, and a reasonable amount of leisure. The Chinese workers only get the very basics....
Then I suppose there should be an imposed minimum wage of $50,000/year?
Actually, I'm a bigger fan of tariffing the corporations that do business with wage slaves.
Tariffs are ok.
If tariffs are okay, then you must agree that there is no real reason to let foreign competition into the country other than to drive down wages?
I'm not sure I understand how foreign competition drives down wages. . .
Because there are more poor people in the world than there are companies that create wealth.
So foreign companies shouldn't be able to create new jobs?
"So foreign companies shouldn't be able to create new jobs?"
Not if they are there expressively for to pay slave wages. ;)
I suppose I'd rather not have a job than be able to buy food.
Hence the lack of choice in a free market. Hence the lack of choice in a low wage market.
There is still choice. Anyway, in a free market, the value of the wages would be more and people wouldn't need to make the choice between a slave wage job and eating.
Sorry, Josh, but there are just too many people without the means to creation other corporations for wages to increase due to competition. The fact of the matter is that there are a lot of people and a few corporations. This leads to low wages, just like in China.
In a free market there would be more corporations. Lets not forget wealth travels from the upper class to the lower, not the other way around.
10 guys go to the bar. A couple are wealthy, a few are middle class, and a few are poor. At the end of the night they decide to divvy up the tab by wealth. The wealthy fellas pay a good chunk, the middle class pay a bit, and the poor guys don't pay anything. The middle class guys look at the poor guys and say "well thats not fair, if they don't have to pay anything neither do we!". The rich guys get stuck with the tab. Guess who doesn't show the next night?
How do you figure, Josh? Are you of the opinion that men can get rich without the labor of other people? If not, then the flow of wealth goes up and down.
"10 guys go to the bar. A couple are wealthy, a few are middle class, and a few are poor. At the end of the night they decide to divvy up the tab by wealth. The wealthy fellas pay a good chunk, the middle class pay a bit, and the poor guys don't pay anything. The middle class guys look at the poor guys and say "well thats not fair, if they don't have to pay anything neither do we!". The rich guys get stuck with the tab. Guess who doesn't show the next night?"
I'm a bit confused. Are you talking about the welfare state or the economy? Because your bar example sounds a lot like the welfare state. In the real world the poor guy would created the wealth for the rich guy, or in a more rational world, the worker would create value in the production process, take his fair share and leave the rest for the capitalist as profit.
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