Tuesday, May 6, 2014

The Economic Pain of the Great Depression

By the late 1930's, the misery of the Great Depression had been growing for several years. Unemployment in the United States was worse in 1938 than it was in 1937, and the stock market remained a disaster. What began as a temporary correction in late 1929 was extended for a decade.

Roosevelt's celebrated New Deal programs included four steps: the creation of a large amount of debt as the government borrowed huge sums of money; a significant increase in taxation; a high degree of regulation on almost every aspect of the economy; and a series of "make work" programs which created government jobs.

In August 1937, after the nation and its economy had suffered extensive damage inflicted upon it by the New Deal programs, many of the country's employers were unable to offer meaningful work. Historian Amity Shlaes writes:

Companies were also marking new lows. Leonard Ayres, the executive at Cleveland Trust who had called on Alf Landon with Anderson in 1936, tried to get a grasp on the story by comparing the profitability of corporations in the current decade to that in the preceding one. He found that close to two of three had been profitable from the midteens through the 1920s. Since the Depression, however, that ratio had dropped below one in three, so that "for nearly a decade now the great majority of corporations have been losing money instead of making it," he would note. The editors at the Economist in London were also watching, trying to put what was happening to the United States in perspective. In 1930, the per capita national income of the United States had been one-third larger than that of Britain, the magazine wrote. At the end of the 1930s, it was about the same. The problem, the magazine would conclude several years later, was "institutional obstructions to a free flow of capital." The 1930s, all in all, the magazine would decide, were a strange decade; maybe, as it wrote, the United States really had forgotten how to grow.

It was a decade of misery. Several other countries had been able to find a slow steady path to recovery, but in the United States, the indicators got steadily worse. The Great Depression was worldwide, but took a different shape in each country. In America, the New Deal programs, well-intentioned as they might have been, prevented recovery.