Phase IV-1933-1940
Why Did It Go On?
Lectures in Macroeconomics- Charles W. Upton
WPA and PWA
• Recovery was long in coming and
economists still debate why.
What Went Wrong
WPA and PWA
To get work you
had to be
unemployed. So
people employed
on government
jobs are
“unemployed”
What Went Wrong
What Went Wrong
WPA and PWA
What Went Wrong
What Went Wrong
1
Supply Shocks
Dust Bowl
• There were a number of supply shocks
during the 1930's.
– The Dust Bowl
– The Hawley-Smoot Tariff.
– Damaged Banking System.
What Went Wrong
Dust Bowl
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Hawley Smoot Tariff
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Hawley Smoot Tariff
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Damaged Banking System
Fatal Flaw: two
can play at this
game of
“Beggar Thy
Neighbor”
What Went Wrong
What Went Wrong
2
The New Deal
The New Deal
Literally hundreds of
new government
programs came into
being after 1933.
What Went Wrong
The New Deal
Literally hundreds of
new government
programs came into
being after 1933.
What Went Wrong
The New Deal
Some economists
conclude that,
Literally hundreds
of
whatever
the
wisdom
of these
new government
programs, an economy takes
programs came into
time to adjust to change. The
being after
1933. brought about by the
changes
New Deal were a supply shock.
Whatever their eventual benefits,
their immediate impact was to
reduce aggregate supply.
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National Recovery Act
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Social Security Act
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3
The “Roosevelt Depression”
• In 1937-38. At that time, the Federal
Reserve System cut the money supply by
increasing its reserve requirements, starting
another business downturn.
• When speaking of the Depression, many
people do not separate the two downturns.
What Went Wrong
Could it Happen Again?
• We have seen examples of financial
collapse in other countries.
• There were earlier collapses in the United
States.
What Went Wrong
Could it Happen Again?
However, it is unlikely that this
Stupidity
has
not
mistake
will recur.
• particular
We have seen
examples
of
financial
disappeared
from
the
There
are in
many
collapse
otheroccasions
countries. sincehuman
race
and
gives
no evidence
1929-33
Federal
• There
werewhen
earlierthe
collapses
in the United
of
disappearing
soon. In
Reserve System has acted
States.
short,
anything
wisely, though
there
are alsothat
once canas
happen
occasionshappened
of great ineptitude
well. The lessons ofagain.
the 1930’s
are too well understood.
What Went Wrong
Could it Happen Again?
• We have seen examples of financial
collapse in other countries.
What Went Wrong
Could it Happen Again?
Stupidity of
has
not
• We have seen examples
financial
disappeared
from
the
human
collapse in other countries.
race and gives no evidence
• There were earlier collapses in the United
of disappearing soon. In
States.
short, anything that
happened once can happen
again.
What Went Wrong
Could it Happen Again?
However, it is unlikely that this
Stupidity
has
not
mistake
will recur.
• particular
We have seen
examples
of
financial
disappeared
from
the
There
are in
many
collapse
otheroccasions
countries. sincehuman
race
and
gives
no evidence
1929-33
Federal
• There
werewhen
earlierthe
collapses
in the United
of
disappearing
soon. In
Reserve System
has
acted
States.
When
we
make
short,
anything
wisely, though
there
are alsothat
mistakes
in thecan
future,
once
happen
occasionshappened
of great ineptitude
as
we
will
almost
certainly
well. The lessons ofagain.
the 1930’s
different ones.
are toomake
well understood.
What Went Wrong
4
End
©2006 Charles W. Upton.
All rights reserved
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