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EconTalk

• Higgs on the Great Depression
  

  Robert Higgs, of the Independent Institute, talks with EconTalk host Russ Roberts about the Great Depression, the New Deal, and the effect of World War II on the American economy. Using survey results, financial data, and the pattern of investment in the 1930s, Higgs argues that New Deal policies created a climate of uncertainty that prolonged the Great Depression. Using consumption data, he argues that prosperity did not return during wartime, but rather after the war when government intervention in the economy subsided.

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  Readings and Links related to this podcast

  Podcast Readings

  HIDE READINGS
  About this week's guest:
  • Robert Higgs's Home page
  • Depression, War, and Cold War, by Robert Higgs. At Amazon.
  • "Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Returned After the War," by Robert Higgs. The Independent Review, Spring 1997.
  • "Wartime Prosperity? A Reassessment of the Wartime Economy of the 1940s," by Robert Higgs. Journal of Economic History, March 1992
  About ideas and people mentioned in this podcast:
  Books:
  • Pride, Prejudice, and Politics: Roosevelt vs. Recovery, 1933-1938, by Gary Dean Best. At Amazon.
  Articles:
  • "Economists' Views on the Costs of War, Part I" and Part II, by Morgan Rose. Library of Economics and Liberty.
  • "National Income Accounts", by Mack Ott. Concise Encyclopedia of Economics.
  • "Price Controls", by Hugh Rockoff. Concise Encyclopedia of Economics.
  • "Rent Control", by Walter Block. Concise Encyclopedia of Economics.
  • "Great Depression", by Gene Smiley. Concise Encyclopedia of Economics.
  • "Simon Kuznets". Biography. Concise Encyclopedia of Economics.
  Podcasts and Blogs:
  • Rauchway on the Great Depresson and the New Deal. EconTalk podcast.
  • More EconTalk podcasts on the Great Depression

  Highlights

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  Podcast Highlights

  HIDE HIGHLIGHTS
  0:36Intro. Great Depression, events of 1930s-1940s. Papers, easy reading. Standard view is that WWII got us out of the depression. Argument against that: War supposedly ended depression because it brought the rate of unemployment down; and at the same time, real domestic product was shooting up; consumer well-being rose during the war years even though resources were being diverted to war purposes. Taken to be facts. Squeezed the data; they collapse and don't support those claims. People didn't think very hard about the war's change to the institutional set-up, or about what it meant to be unemployed, produce real output, or have well-being. Used same measures, but those measures had lost their content because of the wartime mobilization. Aside: when asked to explain something, it's always a good idea to see if that something is true. Starting in 1940, Depression was not over. Real GNP was about back to 1929 levels; but 10 years had passed, so just being back to that level doesn't mean the Depression was over. Capacity had grown greatly in those years. 5:43Why had capacity grown? population had grown; lots of new technology had been developed but had not yet been applied. One place we see that is in the still-high rate of unemployment rate in 1940 of 15.7%. Includes those who were working but not counted as unemployed, WPA, non-private sector; make-work jobs. Stanley Leibergott, who put these data together argued it was wrong to count them as employed. If you count them as employed, Michael Darby's number, 9.5%, still very high. Rate of unemployment starts to fall quickly, by 1943 it's in the neighborhood of 1-2%. For fiscal year 1944, starting July 1, 1943, measured unemployment rate was 1.3%, effectively zero. Jobs were very easy to get during the peak war years. Employers beating the bushes to get more employees and keep the ones they had. Question is: what should we make of that? Usually decline in unemployment reflects better economic conditions. In this case, though, starting in 1940 less than 2% were in the armed forces or in munitions production; but by the time we get to 1943-1945, almost 40% in armed force and munitions; 12 million people in the armed forces; similar number to support them; diversion of workforce. Could say: Just another sector of the economy. Buildup hinged on government coercing people into the armed forces. Ten million drafted, and others signed up because they didn't want to get drafted into the infantry; so buildup hinged on coercion of workers. What if today we arrested that many people and put them into prison? We'd have to build the prisons and feed them; the jailed people could work. Gets rid of unemployment, but it's fake. Or people could just be put to work building ditches and filling them in. That was the choice in the 1940s with the draft. Coercion. Automobile industry at the time was compelled to stop civilian vehicles. Leaves only 60% of the rest of the economy to produce goods for the whole economy. Naturally, fewer goods will be produced. Plus, you've removed some of the most productive people--prime age males with labor market experience; replaced in the private labor force by young, elderly, and women who before the war had no experience in the labor force. Astonishing that civilian output would be expected to be maintained or increased. Preposterous that people have believed this. 16:34Keynesian mindset that spending has this big multiplier: idea is that when the government buys something, the money goes racing through the economy many times. Agnostic interpretation: war is not productive, it's destructive, so when you shrink co