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aceventura3 · 02-19-2009, 09:41 AM

Quote:

Originally Posted by dippin

So dropping the unemployment rate about 3% a year sounds pretty good to me.

We simply will disagree. I see the recession of 1937 as a consequence of government spending. I don't deny that government spending can have a temporary impact on the economy, but my position is that the spending will lead to higher taxation on the economy or inflation slowing the economy. I think the recession of 1937 shows government spending is not the answer.

Quote:

By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high, although it was considerably lower than the 25% unemployment rate seen in 1933. In 1937, the American economy took an unexpected downturn, 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. In two months, unemployment rose from 5 million to over 9 million, reaching almost 12 million in early 1938. Manufacturing output fell off by 40% from the 1937 peak; it was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors hourly earnings continued to rise throughout the recession, which partly compensated for the reduction in the number of hours worked. As unemployment rose, consumers' expenditures declined, leading to further cutbacks in production.

The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to act; Arnold was not effective, and the attack ended once World War II began and corporate energies had to be directed to winning the war.

The recession was short, and by 1939 the effects had disappeared.

The Administration's main response to the 1937 recession was a $5 billion spending program in the spring of 1938, an effort to increase aggregate demand and mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued the New Deal had been hostile to business expansion in 1935–37 and had encouraged massive strikes.

It began to get better in mid-1938, and every month it was better. However, employment did not regain the 1937 level until the war boom began in late 1940. Productivity steadily increased, and output in 1940 was well above the levels of both 1929 and 1937. Personal income in 1939 was almost at 1919 levels in aggregate, but not per capita. The farm population had fallen 5%, but farm output was up 19%, so the remaining farmers were better off than the average farmer in 1939.

Employment in private sector factories recovered to the level of the late 1920s by 1937 but did not grow much bigger until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.

I think the clear lasting spark for the economy was war production and productivity gains from the innovations during that period.