Once the Great Depression is thrown out as a statistical outlier, we observe no significant change in the frequency, duration, or magnitude of recessions between the period before and the period after that unique downturn. Given that the Great Depression witnessed the initiation of extensive government policies to alleviate depressions and that the Federal Reserve had been created fifteen years earlier explicitly to prevent such crises, this overall historical continuity with a single exception indicates that government intervention and central banking has done little, if anything, to dampen the business cycle.
The history of the Federal Reserve and of attempts to regulate the financial system and control the macroeconomy offers a fascinating study in the relationship of intentions to outcomes.
Suppose that you want to describe history assuming a strong correlation between intentions and outcomes. Then you want to say that:
(a) the creation of the Federal Reserve System helped to stabilize the financial system, since that was its intent.
(b) Franklin Roosevelt’s economic policies ended the Great Depression, since that was their intent
(c) the Fed’s response to the financial crisis prevented another Great Depression, since that was its intent.
However, as Hummel’s analysis shows, (a) appears to be false, although few economists seem to want to make a systematic study of it. (b) seems clearly false, as the data show that the economy was still in terrible shape until at least 1940. (c) is viewed by most economists as true, but it would not surprise me to see that opinion shift in the future.
If you ignore growth has been better.
The long run growth rate should be independent of monetary policy, so the Fed can’t take credit for that.
If we take peak dates, excluding 1944 as influenced too much by WWII, then the years immediately preceding GDP contractions (using data from measuringworth.com) are 1796, 1802, 1806, 1814, 1827, 1833, 1836, 1847, 1853, 1856, 1859, 1863, 1873, 1882, 1890, 1892, 1903, 1907, 1916, 1919, 1926, 1929, 1948, 1953, 1957, 1969, 1973, 1979, 1981, 1990, 2000, and 2007. The highest growth rate of RGDP/Population was between 1859 and 1863, but that may be influenced by the Civil War. If we throw that out the highest peak to peak growth rate is between 1873 and 1882, rivaled in the modern era only by the growth between 1948 and 1953. If we isolate the set of dates before and after the Fed, the growth rates between peaks are generally increasing from 1796-1802 to 1903-1907 and not changing much from 1916-1919 to 2000-2007. So more likely US per capita real GDP growth has been accelerating throughout US history for reasons that have nothing to do with the Fed, since it was doing so before and in fact there’s little indication it has done so after.
Rather than picking and choosing look at the exponential trend over these periods.
From 1854 to 1925 — that way excluding the great depression –or to 1950 –several years after the impact of WW II and using the same measuring worth data the exponential trend growth rate of per capita GDP was 1.5%. Since 1950 the trend per capita real GDP growth has been 2.1%.
So since 1950 per capita GDP growth has been 140%
faster than in the earlier era without large government.
Real GDP per capita growth wasn’t near as impressive to the 1948-07 boom before. Matter of fact, a big part of the creation of Great Depression was a very poor white underclass + the automation. White proverty matched non-white’s in the 1920’s. A large reason behind Franklin Roosevelts policies was his time in Georgia rehabbing from polio. He was ashamed of all the poor white children and people, who he saw living a miserable existence. Thus came the New Deal, which should have been renamed the White Deal. National Socialism came to America as much as Germany.
Financial Crisis is simply the method of how capitalism works. No matter what system is used, you will have rise’s and fall’s just like Monarchies in the Christian era, Empires in the Classical era. Financial Crisis in the materialist era.
More simply, it is not their charter nor their mission nor their mechanism (which involves interest rate and unemployment fluctuations) and as such of course baseline trend growth should be ignored because their job involves the trend line, not the slope.
But we can discuss how you think they might improve growth when they only ever were intended to improve net growth by maintaining trend, which they haven’t. What is their non cyclical mechanism? So we can discuss it but I am going to call post hoc every time.
@Lord:
“If you ignore growth has been better.”
This is gibberish.
“it would not surprise me to see that opinion shift in the future”
These opinions are purely tribal, starting with craven gamma-groveling and ending with self-refuting rationalizations. No one with a set of nads would credit intentions over results.
Yes, don’t let facts muddle your gibberish.
Lever # 5 will (a) release steam pressure from the operating boiler; or, (b) to the degree closed, will maintain pressure for operation.
Without water from which the steam is generated Lever #5 has no function.
Without fuel to create heat for steam Lever #5 has no function.
The are other valves for water entry (and draining); but the sources of water are not related to those valves.
There are now automatic systems for feeding the fuels to generate heat for steam; but, they are unrelated to the sources of the fuels.
“Operators” may have “skills” (even insights) into the uses of the Levers and Valves. Ability to conjure up water and fuel sources are another matter.
Actually, if you look at economy as total unit, it was much improve by 1940, recovered by 1941 and boomed in 1942.
The pains are not where you are, but where you are going. War generates “factory growth”.
“Franklin Roosevelt’s economic policies ended the Great Depression, since that was their intent.”
https://www.google.com.br/search?q=gdp+usa&oq=gdp+usa&aqs=chrome..69i57j0j69i65l2j0l2.5599j0j4&client=tablet-android-samsung&sourceid=chrome-mobile&ie=UTF-8#num=40&q=us+gdp+by+year+historical&imgrc=RPwwxbxRHfjUkM%3A
As a matter of fact, as opposed to Libertarian mythology, GDP under Roosevelt’s New Deal grew almost as fast as it colased under Hoover. By 1936 (after three years and a half of Hoover’s Depression and four years of New Deal), it was back at the 1929 level. By 1941, it was about 50% bigger.
The Big Bank Bailout was to save the banks — to save the financial system — so that the banks could loan to businesses who would then create jobs.
Looking at the amount loaned to new businesses or for US business expansion, it’s not clear that had all the Big Banks gone into US Fed receivership — total loss of old equity, new debt to equity “recapitalization” loss of loan holders and multi- part debt consolidation/ cancellation (A owes B owes C owes A cancels) — after Big Bank Failure, the economy would not have done much worse, if at all. And, since the gov’t money was NOT used it bail out banks, but their irresponsible cash-flow decisions still left sizable assets to be liquidated (possibly at a bankruptcy profit?), the gov’t could have done QE earlier or some other stimulus… like real tax cuts to small businesses wanting to expand.
Just because so many economists wanted to save the Big Banks, doesn’t mean saving them was worth it.