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Rethinking the Great Depression. 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)
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RethinkingtheGreat Depression 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.
1933 Economic Slide • AAA & NRA kick in.
Back to July 1933 … • Industrial codes & price fixing.
The 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? • FDR continues attacks on business. • Fed raises reserve requirements. • Labor laws raise labor costs.
Anemic Recovery: 1938-1940 • 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 Uncertainty • Net Investment = -$18 billion 1931-1935. • From 1930-1940, Net Investment = -$3 bill. • Contractionary monetary policy.
Effects of WWII on the Economy • 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? • Unemployed military. • Rationing and price controls. • Increased taxes. • Increased money supply.
Consequences of theGreat 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?
RethinkingtheGreat Depression Part II: The New Deal The Depression of 1937-1938 Anemic Recovery of 1938-1940 The Effects of WWII on the Economy