Chapter 2 Rethinking the Great Depression Smiley Review
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I learned some of the things in this volume in my college economics classes (particularly Coin and Banking), but Smiley's explanation went into greater item and drew a more complete motion-picture show for me. The author talks about the gold standard and scores of other things I won't impact much in my summary, but I'm going to attempt to highlight what stood out for me. Although the book was non horribly dry, I wouldn't telephone call it piece of cake reading either. I'm not sure anyone who does not have a adequately strong interest in economic science would want to plow through it, though he does speak largely in layman'south terms. In short, without FDR's contradictory reform efforts, the Depression would have been much shorter. "Rethinking the Great Depression" paints a moving-picture show of major legislative expansion and increasing federal control, law after police, program later program, each bringing forth unintended negative consequences that have to be "fixed" by further legislation, which itself has unintended consequences. The whole fourth dimension I read, I was reminded of Hayek's famous proverb," The curious task of economics is to demonstrate to men how lilliputian they actually know about what they imagine they can pattern." The downturn was deepened during the transition to FDR's term in part because of uncertainty over what actions his administration would take regarding devaluation of the dollar (he refused to comment on his plans). Then the New Bargain program had inconsistent goals. Businesses were expected to continue prices low while keeping wages high and spreading the work through a shorter piece of work week. The National Recovery Administration (NRA) ended up encouraging the formation of cartels and a reduction in product, which stalled the recovery for 2 years. The NRA was ruled unconstitutional in 1935 unanimously by the Supreme Court, equally were some other programs. (FDR, every bit we all learn in high school, tried to stack the courtroom only failed.) The economy started to recover in the summer of 1935 and indicators looked practiced by January of 1937 – rising stock prices, declining unemployment. Nonetheless, the Federal Reserve increased reserve requirements to stave off what they thought would be impending inflation; the money supply barbarous and interest rates rose, deterring investment. In addition, wages rose quickly because of unionization, and labor costs also increased because of FDR'due south new social security tax. To recoup for higher labor and wage costs, businesses further reduced investments, which contributed to contraction. The social security revenue enhancement as well decreased purchasing power, but, because no one was collecting benefits yet, that decrease was not kickoff by payouts. The tax on undistributed profits was likewise considered a contributor to the contraction. All this resulted in "the depression inside the depression." At that place was a precipitous rising in unemployment. The stock market crash in Oct of 1937 was almost as bad as the one in 1929. In fact, from May of '37 to May of '38, the Due south&P cruel 52%. FDR had completely lost the support of business by at present, but he also began to lose the support of the media and fifty-fifty the Democrats in the House and Senate. His latest reorganization bill was defeated, with over half of the nays coming from Democrats. Republicans gained seats in the House and Senate. Over Roosevelt's objections, the House and Senate eliminated the revenue enhancement on undistributed profits and replaced it with a flat, 18% corporate revenue enhancement. FDR'south assistants finally began to focus on recovery instead of reform, and 1938 marked the cease of the reform efforts. The economy began to recover. World War II additional employment through foreign need for war materials, and information technology besides led FDR to bring top businessmen into his administration equally consultants in preparation for war efforts. This, in turn, diminished the "government dubiousness" that had prevented businesses from investing in the long-term. Smiley points to "regime incertitude" as one of the main contributors to the length of the Great Depression; this uncertainty "ravished the confidence of business organization men" – businesses did not invest, and the economy therefore did non recover. They did not invest because they did not know what the assistants was going to do next, what economic freedoms they might have to surrender, or how secure their holding rights were. John Maynard Keynes argued that a reject in investment contributes to depression and that the federal government should therefore boost amass demand to increment Gross National Product (GNP) either past increasing spending (without increasing taxes) or decreasing taxes (while holding spending steady). While Roosevelt was not impressed with Keynes when they met, the war did lead to an increase in federal spending (up 885.3% from 1940-1943) over and higher up tax revenues (upwardly merely 182%). Unemployment fell and real GNP appeared to increase. Keynes's theory seemed to be validated, and information technology dominated economical analysis for the adjacent 20 years. The idea that the economic system improved during and considering of World War II ("war prosperity") came into question in the 1960s, when economists began to talk nigh monetary policy and the office of the coin supply. The Fed did not act to expand the money supply in the 1930s because of the restrictions of the aureate standard and fears of inflation. Still, from the end of 1939 to the finish of 1943, the Fed moved to increment the money supply over 79%; without this move, federal spending could not have been sustained. The "war prosperity" gospel drew 2 attacks – starting time, information technology was observed that unemployment decreased from 1940-1943 only because armed services employment rose, in large function through draft. Military pay was low, and many of those men died. It wasn't precisely an platonic solution to the unemployment trouble. 2d, the argument that the nation produced more during the war was also drawn into question. Rather, it was argued, consumption was merely transferred from "butter" to "guns" through rationing and price controls that forced civilians to salve more of their coin rather than spend it on civilian appurtenances. Thus, production of non-durable civilian goods declined while production of war goods increased. Tax rates were too sharply increased at this fourth dimension, which took coin from noncombatant consumption to exist used for state of war consumption via the government. While real GNP appeared to increase during the war based on government statistics, information technology is now believed that toll indices were understated at that time because of the toll controls. When this is corrected for, GNP was actually lower during the war years. Despite wartime investment, existing capital connected to depreciate. People were not meliorate off during the state of war. Simply after the war, when price controls were lifted, rationing ended, and labor unions restricted past a more than conservative Congress, did production of civilian appurtenances begin to increment. Prosperity returned not *during* the state of war, merely *after* the state of war, when the command economy was dismantled and the market economy "came back to life." When the war ended, at that place was a new optimism that led to more than spending and investment as well. Stock prices rose. What failed in the 1930s, Smiley argues, was not the market economy, but "governments, in their eagerness to direct activity to attain political ends—ends that were often contradictory."
One hopes we've learned a few lessons about what not to do from the Groovy Depression. Still, it remains to be seen whether or not policy makers and the Federal Reserve will make low-lengthening mistakes in the future. While Smiley's in a higher place summarized "rethinking" of the Great Depression may well exist true, the "state of war prosperity" gospel and the policies of FDR'due south assistants accept forever changed the mode the U.S. federal regime operates. Every bit a famous Time (?) headline stated, "Nosotros're all Keynesians now."
Don't believe what they teach you in high school about FDR'southward New Deal. Reverse to the popular belief that activist government rescued the Us economic system from the ravages of unbridled markets, this volume makes the case that policy failure was a major correspondent to the depth of the downturn and that government intervention snuffed out the recovery by preventing the self-correcting mechanisms of the market to work.
This book is amazingly articulate at explaining the multiple circuitous causes of the Groovy Depression. For example, monetary policy, specifically the decision to back up the English pound, was a major crusade of the Depression. Normally any mention of monetary policy is as good equally a sedative in putting me to sleep, but Smiley makes the cabalistic manifestly. Today all economists agree that increasing involvement rates slows econonic growth, simply in the 1929 interest rates were raised three times in the runup to Black Fri. Ever wonder why farms were repossessed in such numbers? Why so many banks failed? It's all here. Y'all will be conversant in the Low in means that volition print your friends and aid you to improve empathize our modern twenty-four hours economy.
Counterbalanced approach It gives a articulate understanding what happened. Gives positive and negative things about regime and the private sector. Very thoughtful.
This is a tough book to get through as a person with limited knowledge of economics, even though Smiley's intended audition is people without a background in economic science. I call up Smiley is able to prove his argument that the Depression showed that government interference in the economic system worsened and lengthened the economic crunch, even though many people would not agree, since his statement is against the traditional supposition that the Depression showed the need for the government taking more activity to control the economy. Although his writing way and system is by and large clear and focused, it is difficult to fully embrace the slews of statistics that Smiley shoves in at the end of each section to prove his point.
Interesting Quote: "As the number of unemployed workers fell by 7.05 one thousand thousand between 1940 and 1943, the number in the military service rose by viii.59 million...The huge buildup of military personnel--not the expansion of economic activity--sharply reduced the unemployment rate. And it is hard to argue that the unemployed men conscripted into military service were better off...The decline in unemployment during the war years is hardly a sign of prosperity in that period." -Factor Smiley, Rethinking the Great Low
This is a quick read on the Great Low. It'due south more of a high level overview of the event surrounding crisis, though the book is useful as a reminder of the events.
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Nov 25, 2008세계 대공황 - 80년 전에도 이렇게 시작됐다
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