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Rethinking the Great Depression: An Analysis of the New Deal and Economic Recovery (1937-1940)

This piece examines the economic landscape during the Great Depression, focusing on the New Deal's impact, the downturn of 1937-1938, and the subsequent anemic recovery until 1940. It explores vital themes such as the underconsumption-overproduction paradox, banking reforms, and labor laws, while assessing President FDR's economic policies. Additionally, we analyze the effects of World War II on the economy, including dramatic increases in government spending and shifts in consumer behavior. This discussion aims to reassess the effectiveness of those policies and their long-term consequences.

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Rethinking the Great Depression: An Analysis of the New Deal and Economic Recovery (1937-1940)

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  1. RethinkingtheGreat Depression Part II: The New Deal The Depression of 1937-1938 Anemic Recovery of 1938-1940 The Effects of WWII on the Economy

  2. FDR & Economic Policy • No particular economics expertise. • Change = f(academic advisors) • The problem of “underconsumption/overproduction” (?) • Industrial planning • Reform vs. Recovery

  3. FDR & Economic Policy • Banking • Relief • Jobs • TVA • AAA • NRA

  4. 1933 Economic Rebound • Gold inflows; banks rebound.

  5. 1933 Economic Slide • AAA & NRA kick in.

  6. Back to July 1933 … • Industrial codes & price fixing.

  7. The Depression of 1937-1938 • Ur: decreased to 12% by 1937 . . . then, back to 20% • Production rising . . . now falling by 67% (dur.) • Stock prices rising . . . now down 50% • Downturn worse than 1920-21 & 1929-30 !!! • Why? • FDR continues attacks on business. • Fed raises reserve requirements. • Labor laws raise labor costs.

  8. Anemic Recovery: 1938-1940 • By 1940, back to where we were in 1937. • Ur: decreased but still around 15%. • Durable mfg. at 96% of July 1929 level. • Housing construction reached 1929 levels . . . in 1951 !! • Why? Regime Uncertainty • Net Investment = -$18 billion 1931-1935. • From 1930-1940, Net Investment = -$3 bill. • Contractionary monetary policy.

  9. Effects of WWII on the Economy • Ur: decreased to <2% by 1943. • Gov’t. spending rises by almost 900%. • Rise in Consumption spending. • Economic recovery as prescribed by Keynes. • Were we better off? • Unemployed  military. • Rationing and price controls. • Increased taxes. • Increased money supply.

  10. Consequences of theGreat Depression • An end to the gold standard.--Increased monetary destabilization.--Culminated with inflationary 1970s. • Increased Federalism.--Size of federal gov’t. still growing.--S&L getting 25% from feds. • Growth in the Regulatory State.--What isn’t “interstate commerce?”--Cap & Trade next? • Rise of the Welfare State.--Can SS continue?

  11. RethinkingtheGreat Depression Part II: The New Deal The Depression of 1937-1938 Anemic Recovery of 1938-1940 The Effects of WWII on the Economy

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