[quote=HereWeGo]So, about those relation/inflation attempts:
Did they work?[/quote]
Wikipedia says:
Massive increases in deficit spending, new banking regulation, and boosting farm prices did start turning the U.S. economy around in 1933 as shown in the three graphs above, but it was a slow and painful process. The U.S. had not returned to 1929’s GNP for over a decade and still had an unemployment rate of about 15% in 1940 — down from 25% in 1933.
…
The turning point in the depression was in 1933, as can be seen in the above Industrial Production graph. Some economists attribute the subsequent recovery to monetary expansion that began after the bank holiday a few days after Roosevelt was inaugrated on March 4, 1933 and devaluation of the U.S. dollar that was then tied to gold.[27]
These reforms, together with several other relief and recovery measures are called the First New Deal. New regulations and attempts at economic stimulus through a new alphabet soup of agencies set up in 1933 and 1934 and previously extant agencies such as the Reconstruction Finance Corporation brought a sharp upswing of the economy, with GDP returning to the levels of the late 1920s. By 1935, the “Second New Deal” added Social Security (which did not start making large payouts until much later), a jobs program for the unemployed (the Works Progress Administration, WPA) and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment declined by over one-third in Roosevelt’s first term (from 25% to 14.3%, 1933 to 1937). In Roosevelt’s second term, the economy went into a short, sharp recession in 1937-38. In 1929, federal expenditures constituted only 3% of the GDP. The national debt as a proportion of GNP rose under Hoover from 20% to 40%. Roosevelt kept it at 40% until the war began, when it soared to 128%. After the Recession of 1937, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, when unemployment dropped to 2% they abolished WPA, CCC and the PWA relief programs; Social Security, however, remained in place.
and:
In 1937 the American economy took an unexpected nosedive, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The Roosevelt administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and by appointing Thurman Arnold to act; Arnold’s effectiveness ended once World War II began and corporate energies had to be directed to winning the war.
The administration’s other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued that the New Deal had been very hostile to business expansion in 1935–37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive antitrust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than with the corporations, and tax policy became more favorable to long-term growth, according to this argument.
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth resumed only in 1946 (Higgs does not estimate the value to consumers of collective, intangible goods like victory in war). To some Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions, and industrial output would fall to pre-war levels. That Keynesian prediction that a new depression would start after the war failed to take into account massive savings and pent-up consumer demand, along with the ending of the restrictive wartime regulations in most consumer industries, and the cutting of high tax rates starting in 1946. In any case, government spending and changing regulations (first tightening them, then loosening them) appear to have contributed to the recovery, as consumer and producer behavior changed.
So, the reflation attempts may have ‘worked’, but U.S. unemployment rate was at 15% for a decade and it looks like the economy was eventually ‘saved’ by WWII. Today, the unemployment rate is somewhere between 7.2% and 10.4%.
Some differences I see between The Great Depression and now is that our government started throwing money around almost immediately. It looks like the Federal Government back then didn’t become proactive until 19333 — 4 years after the stock market crash of 1929. The stock market went down 90% back then and today the stock market isn’t even down 50% from the top.
Back then, it looks like commodity production (farming, mining, logging) was a large part of the economy. Deflation sucks pretty bad for economies dependent on selling commodities. In the Time article, the stated goals of some of the politicians was to prop up commodity prices.
Have any U.S. politicians today expressed concern about falling commodity prices? I recall a lot of political consternation when the price of oil was going up, but don’t recall hearing any politicians who were concerned about the collapse of oil prices.
Also note that today, we have a more technology-based economy. Technology embraces deflation:
