Here's a very common claim:
Sure, we didn't have a pure free market, but before the 1930s we came as close as we've ever come. And the recessions/depressions we had were wiping out production 10-30% at a time. Since then, we've had much less severe recessions/depressions. So how can you say Keynesianism (and later monetarism) have no value?
And this article claims Reagan did away with the business cycle for 25 years.
What am I to make of this?
We have had various forms of credit expansion and central banking since before the 1930s (e.g. the First and Second Bank of the United States, various national banking regulations which promoted credit expansion, and finally the Fed in 1913). But before serious attempts by government to stimulate the economy, all of these recessions were very short. In contrast, recessions have actually gotten worse since Keynesianism took hold in the 30s. The Great Depression is one example. Stagflation is another. The only serious long-term economic crises pre-Keynes was the Long Depression, which was caused by several real factors (e.g. the Franco-Prussian War) and government mandated monetary contraction (the demonetization of silver). Nothing could have avoided the first and a real free market would not allow the second to occur.
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It's also worth noting that the underlying cause of the recession has not changed before and after intervention. All that has changed is that when we've moved up to government manipulating the money that now the easy credit period lasts longer and the contraction comes later. Sure, you give yourself a longer boom, but you also necessitate a much longer and more severe bust. Couple that with make-work programs and deficit spending and you have a recipe for a great disaster. Unemployment is still more than 1 in 10 people. At times before the Great Depression, we had as little as only 1 in 50 out of work.
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krazy kaju,
Stagflation was one long depression? What in the world do you mean? Are you referring to the entire decade of the 1970s? If so, that's news to me (and the NBER). It was certainly a period of slow growth and high inflation, but I don't see how you can say much more than that.
As for more recent years your assertion is simply dead wrong. The volatility of output growth has decreased markedly since the mid-1980s for the U.S. and other developed nations. And evidence suggests that claims by journalists and some economists that this "Great Moderation" is over are overstated at best. Here is a good article on the subject.
http://artsci.wustl.edu/~morley/great_moderation.pdf
But really, I find the entire premise of this thread a bit difficult to wrap my head around. Terms like "Keynesianism" are really just too vague to mean anything these days.
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Student:Stagflation was one long depression?
I never said it was one long depression.
Student:As for more recent years your assertion is simply dead wrong. The volatility of output growth has decreased markedly since the mid-1980s for the U.S. and other developed nations.
You're missing the entire point of this thread. Since the rise of hyperinterventionist government in the early 20th century, we've had a Great Depression and a stagflation. Before then, sure, we had a few busts, but they were short in duration. And now? Sure, we have the "Great Moderation" (which, yes, has ended with this severe recession) but we also have had low growth despite record technical progress.
krazy kaju: You're missing the entire point of this thread. Since the rise of hyperinterventionist government in the early 20th century, we've had a Great Depression and a stagflation. Before then, sure, we had a few busts, but they were short in duration. And now? Sure, we have the "Great Moderation" (which, yes, has ended with this severe recession) but we also have had low growth despite record technical progress.
Wait, so your entire argument rests on two vaguely defined examples? Well call me convinced.
First, the causes of the Great Depression continue to be disputed and there are plenty of smart people that would disagree its the result government "hyperintervention" (whatever that means). But hey they could be wrong, right? So, let's assume they are. That's one data point. One many people would characterize as an outlier. Can you cite any thorough comparison of the recessions in the 19th century and the 20th century that concludes that recessions in the later are longer on average?
PS* And low growth compared to what?
PPS* I am not saying you are wrong in general (though are still certainly wrong about recessions in recent decades and no I am not convinced the Greater Moderation is over), I just hate glib responses to factual questions. Just a quick google search reveals some interesting counter examples to your argument that recessions were shorter in the 19th century. For example, there was a recession from 1815-1821 that lasted 6 years. The Depression of 1807 lasted 3 years. And of course, as you mention, the Long Depression of 1873 lasted over 5 years.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
I am not citing these as conclusive proof (its a wikipedia article so come on ), just saying its not obvious to me that recessions were shorter in the 19th century. I would like to see some hard evidence before I swallow that line.
First of all, national income accounting did not exist until the early 20th century, so it's really impossible to tell and we can't really make any scientific comparison. That said, make a short list of the longest periods of economic stagnancy in the history of the United States. That list would comprise of the Long Depression, the Great Depression, stagflation, and soon we'll include what's happening now. Three of those four happened after the progressives brought the era of Big Government. As for lower economic growth, you should see your own source.
So because data are so sparse, an accurate comparison cannot be made....but you're willing to make a comparison anyways. Great to know that about you!
Also, I should note that wikipedia lists a recession between 1815-1821 that lasted 6 years (see link above), which is longer than the Long Depression. So I guess we went from 1 out of 3 to 2 out of 4! haha.
krazy kaju: We have had various forms of credit expansion and central banking since before the 1930s (e.g. the First and Second Bank of the United States, various national banking regulations which promoted credit expansion, and finally the Fed in 1913). But before serious attempts by government to stimulate the economy, all of these recessions were very short. In contrast, recessions have actually gotten worse since Keynesianism took hold in the 30s. The Great Depression is one example. Stagflation is another. The only serious long-term economic crises pre-Keynes was the Long Depression, which was caused by several real factors (e.g. the Franco-Prussian War) and government mandated monetary contraction (the demonetization of silver). Nothing could have avoided the first and a real free market would not allow the second to occur.
According to Rothbard the Long Depression did not existed:
Orthodox economic historians have long complained aboutthe “great depression” that is supposed to have struck theUnited States in the panic of 1873 and lasted for an unprece-dented six years, until 1879. Much of this stagnation is sup-posed to have been caused by a monetary contraction leading tothe resumption of specie payments in 1879. Yet what sort of“depression” is it which saw an extraordinarily large expansionof industry, of railroads, of physical output, of net nationalproduct, or real per capita income? As Friedman and Schwartzadmit, the decade from 1869 to 1879 saw a 3-percent-per-annum increase in money national product, an outstandingreal national product growth of 6.8 percent per year in thisperiod, and a phenomenal rise of 4.5 percent per year in realproduct per capita. Even the alleged “monetary contraction”never took place, the money supply increasing by 2.7 percentper year in this period. From 1873 through 1878, beforeanother spurt of monetary expansion, the total supply of bankmoney rose from $1.964 billion to $2.221 billion—a rise of 13.1percent or 2.6 percent per year. In short, a modest but definiterise, and scarcely a contraction. It should be clear, then, that the “great depression” of the 1870sis merely a myth—a myth brought about by misinterpretation ofthe fact that prices in general fell sharply during the entireperiod. Indeed they fell from the end of the Civil War until 1879.Friedman and Schwartz estimated that prices in general fellfrom 1869 to 1879 by 3.8 percent per annum. Unfortunately,most historians and economists are conditioned to believe thatsteadily and sharply falling prices must result in depression:hence their amazement at the obvious prosperity and economicgrowth during this era. For they have overlooked the fact thatin the natural course of events, when government and the bank-ing system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production andeconomic growth so great as to swamp the increase of moneysupply. Prices will fall, and the consequences will be not depres-sion or stagnation, but prosperity (since costs are falling, too)economic growth, and the spread of the increased living stan-dard to all the consumers.
M.Rothbard "History of money and banking in the USA..." pages 154-155
Student: So because data are so sparse, an accurate comparison cannot be made....but you're willing to make a comparison anyways. Great to know that about you! Also, I should note that wikipedia lists a recession between 1815-1821 that lasted 6 years (see link above), which is longer than the Long Depression. So I guess we went from 1 out of 3 to 2 out of 4! haha.
That wikipedia article is completely bullshit. I would not bother with it.
There was deflation through much of the 1800s. When GDP numbers are put in real terms, the 1800s look more attractive. Also, note that looking purely at GDP is not perfect as much GDP is wasted by the government in "stimulus", war, and borrowing.
hugo,
haha enlightening comment.
Wikipedia is just the first that came up on a google search. I have no dog in this fight really. I just wanted Krazy Kaju to back up him claim that recessions were longer in the "age of big government" (i guess form 1932 to now?). I only quoted the wiki as a quick way to suggest the OP should be at least suspicious of such a broad claim lacking empirical evidence.
If you have an peer-reviewed sources on the matter I would enjoy reading them.
Thanks in advance!
Student: hugo, haha enlightening comment. Wikipedia is just the first that came up on a google search. I have no dog in this fight really. I just wanted Krazy Kaju to back up him claim that recessions were longer in the "age of big government" (i guess form 1932 to now?). I only quoted the wiki as a quick way to suggest the OP should be at least suspicious of such a broad claim lacking empirical evidence. If you have an peer-reviewed sources on the matter I would enjoy reading them. Thanks in advance!
Depressions in 1807? A depression between 1815-1821? They never made it into the history books I've read so I feel half-cheated half-vindicated. From what I know of US History there were no great upheavals of production during these time periods (that is, I never read of people being unemployed, politicians being worried, etc. during these years). The first date had to be somewhere in the Adams-Jefferson period and the only big things going on then was anxiety over french wars, and trade disputes plus constitutional controversies surely no depressions. The second date is during the era of good feelings and division over the great compromise again nothing about a depression (although the panic of 1819 happened but it was only a year or two long).
Student: If you have an peer-reviewed sources on the matter I would enjoy reading them.
Student,
I would suggest Friedman and Schwartz themselves, who although they do chronicle that period as a recession, they admit that despite the deflation there was still economic growth, and so admit that their definition of recession and their beliefs on the effects of deflation may be incorrect. Of course, I exaggerate the way they put it, as they would never admit that they're wrong (just the chance that they are), but it is still a profound statement made in the book (A Monetary History of the United States).
You have a very good example in my previous post, documented and with the source.