Frank Steindl reports:
During the
depression, both output and prices fell, as was their usual behavior in
depressions. The bottom of the depression was May 1938, one year after it
began. Thereafter, output began growing quite robustly, rising 58 percent by
August 1940. Prices, however, continued to fall, for over two years. Figure 8
shows the depression and revival experience from May 1937 through August 1940,
the month in which prices last fell. The two shaded areas are the year-long
depression and the price "spike" in September 1939. Of interest is that the shock
of the war that spurred the price jump did not induce expectations of further
price rises. Prices continued to fall for another year, through August 1940.
Here are some graphs (see Figure 
and more. Steindl concludes:
The economic phenomenon that was driving the recovery was probably increasing
productivity.
In his view that also explains why it was a "jobless recovery" in the 1938-1940 period, namely that the demand for labor did not need to rise so much. It also has been argued that the technological innovations of the Great Depression were labor-saving ones and that 1930s unemployment cannot be understood apart from this fact.
I do not mean to present these opinions as definitive (by the way here is more by Steindl); I hope to read more in the area and report back to you. Most generally, I would like to stress how poorly we understand the economics of the 1930s and 40s.
I would like to stress how poorly we understand the economics of the 1930s and 40s.
Tyler Cowen is the only person on the Internet who does not have a complete understanding of the causes of the Depression and what caused it to end.
I am somewhat surprised to see someone refer to May 1938 as the “bottom” of the recession. According to the data available on the St. Louis Fed website, the depression bottomed in 1931 with real output 27% below the 1929 level. By 1938, real output had increased by 38% from 1931 (granted, it had declined by 3.5% from 1937). And, while prices fell by 24% (according to the CPI) between 1929 and 1933 (and by 27% from 1926 to 1931), the CPI rose by 8% from 1933 to 1938 (even with a 2% decline from 1937 to 1938). By 1940, the CPI was less than 1% below its 1938 level, and by 1941, the CPI was 4% above its 1938 level (and 2% above its 1937 level.
I’m also not sure what he means by a jobless recovery. Although the CES employment series only goes back to 1939, CES-measured employment grew by 5.7% between 1939 and 1940, and by 19% between 1939 and 1941. Jobless? I think not, unless one has, shall we say, eccentric standards.
As I consumer I can’t stand it when prices fall and my dollar goes farther.
“I would like to stress how poorly we understand the economics of the 1930s and 40s.”
Of course, Dr. Roosevelt is gone and can’t tell you how he brought us out of it.
This blog hits home because my grandfather comes from a rather poor family who went threw the great depression. My grandfather is the youngest of nine children; he was born in 1924 a while before the Great Depression. He talks about his life during the Great Depression almost every day. When the Great Depression began at the end of the 1930s and the start of the 1940s my grandfather was just getting out of high school and starting school at Lenoir Rhyne College in Hickory, NC. My grandfather spent his senior year of high school working two jobs to try and help support his dad and step-mom. His poor family lived in Youngstown, Ohio, which at the time was a booming city but they had no money for food sometimes.
My grandfather experienced the Great Depression first hand; it has made him who he is. Every day he goes out to the Laundromats, movie theatres, gas stations, manual car washes, and anywhere else that people are most likely to drop change or just throw tin cans around. He goes out for hours at a time trying to find change and cans so that he can put it all away so that he will always have money since he grew up without any. Today my grandfather is one of the wealthiest people in Drexel, NC because of what he went through. He always tells me that everything seems to move in cycles; the weather, the snow one year and the heat the other, the number of people in different towns, and the economy. He has lived many years and seen many things and he believes that this recession we are in is just part of the cycle, something that is just reoccurring like it has in previous years like the Great Depression. He feels that we will never go into a Depression like that again because he thinks that as a country we can look into our country’s history and avoid what has happened, or what is to come by using what we know from the past to avoid another Depression and hopefully no more recessions.
Doesn’t Tim Geithner look more like a hockey coach than a Treasury secretary?
I’m thinking that government recession policy is just a jobsfare program. Accept it. Then, the trick is making sure that no permanent idiocy gets put in place.
WWII as a jobs program explains the “end of the depression” as far as reducing unemployment, but without smashing our world competitors and creating regime uncertainty everywhere but here, I don’t think it would have been sustainable.
One simple, and I mean very simple approach to the productivity issue is to remember that historically, productivity is highly cyclical.
It tends to be very strong in the early stages of the cycle and slow as the cycle ages and turns negative late in the cycle -early in the downturn.
But the 1930s was all recovery and no expansion. Technically, recovery is the rebound from the bottom of the recession until output exceeds the former peak.
By this definition the entire 1933 -1936 economic expansion was a recovery or early cycle period with above trend growth and productivity. The 1937-38 recession replaced what normally would have been the expansion period — the time from when output exceeds the prior peak until the peak. Moreover, the 1938-40 period would also have been a recovery period from the 1937-38 recession.
So when you look at the 1930s what you get is all early cycle recovery when growth and productivity tend to be the strongest and no expansion period when growth and productivity are the weakest.
I think that unemployment is all that most people care about.
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