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The New Deal lifted the US out of the Great Depression
By: Eric, on 09 Mar 2016


The New Deal Lifted the US out of the Great Depression


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The New Deal lifted the US out of the Great Depression
The WPA employed more than 8.5 million workers who otherwise would have been out of work
Unemployment Decreased from 25% to 9% in Roosevelt's first term
War Production Lifted the US out of the Great Depression
British spending on war goods in gold expanded the monetary base in the US
Banking Reforms helped stabilize the economy
Bank failures decreased substantially
Increases in the monetary supply pulled the US out of the Great Depression
Living Conditions improved for farmers
Their average income almost doubled by 1937
The NRA helped boost industrial production
Unemployment really dropped from 24.9% to 14.3% at the end of Roosevelt's first term
The US Reached full employment in December 1941 after entering WW2
Real wages rose 44% in the first 4 years of the war, and the percentage of families with an annual income of <$2000 fell from 75% to 25%
Cole and Ohanian at UCLA argue that the New Deal prolonged the Great Depression by 7 years
The Cole and Ohanian model is flawed.
Cole and Ohanian address the effects of job search friction in their appendix
WPA wages were lower than private sector wages
The Federal Reserve kept the US in the Great Depression by not increasing the money supply
I wasn't actually the author of this Diagram. I imported it from a tester.--Eric
Cole and Ohanian at UCLA argue that the New Deal prolonged the Great Depression by 7 years

The New Deal Lifted the US out of the Great Depression


Mary Beth Norton et al. (2009). A People and a Nation: A History of the United States. Since 1865. Cengage. p. 669. ISBN 0547175604. http://en.wikipedia.org/wiki/New_Deal 


Broadus Mitchell, Decade: From New Era through New Deal, 1929–1941 (1964) (wikipedia)


An influx of foreign gold helped increase the monetary base
Hall, Thomas E., and Ferguson, David J. "The Great Depression: An International Disaster of Perverse Economic Policies". Ann Arbor: University of Michigan Press. 1998. pg 155 (wikipedia)
Glass-Steagall Act FDIC insurance

"This banking reform offered unprecedented stability: While throughout the 1920s more than five hundred banks failed per year; it was less than ten banks per year after 1933." http://en.wikipedia.org/wiki/New_Deal 


Christina Romer argues that suspending the gold standard and allowing the US Dollar to float freely on foreign exchange markets allowed for a 25% increase in industrial production until 1937, and by 50% until 1942. Romer, Christina, "What ended the Great Depression"

Mastering Modern World History by Norman Lowe, second edition, P.117 http://en.wikipedia.org/wiki/New_Deal 


"By the time the NRA ended in May 1935, industrial production was 55% higher than in May 1933." http://en.wikipedia.org/wiki/New_Deal 


You cannot count the workers in the WPA and other job creation programs as employed, so the real unemployment rate dropped to 14.3% in 1937 and rose again to 19.0% in 1938. http://en.wikipedia.org/wiki/New_Deal 


Federal Expenditures accounted for only 3% of GNP in 1929, and war spending consumed 40% of GNP in 1944 http://en.wikipedia.org/wiki/New_Deal 


http://en.wikipedia.org/wiki/New_Deal  119.  America in our time: from World War II to Nixon—what happened and why by Godfrey Hodgson


Cole and Ohanian use BLS statistics to establish average wages and prices in a variety of industries before the crash. They then adjust these for annual increases in productivity to show that prices and wages lagged behind what they would have been in real terms had the New Deal not taken place. Cole and Ohanian specifically blame the lagging economy on wage and price controls undertaken by the Roosevelt administration. They argue that the fixing of prices contributed substantially to the slow recovery. They cite the lack of anti-trust cases taken to court during the years 1932 to 1938. They claim that the economy didn't reach full employment again until 1943. http://newsroom.ucla.edu/releases/FDR-s-Policies-Prolonged-Depression-5409?RelNum=5409  http://hlcole.bol.ucla.edu/NewDealucla.pdf 


They argue that the time cost of searching for a job in a cartelized industry is the same as that of working full time. That is to say, that no one looks for a better job in an industry in which wages are artificially high while holding down another job. Furthermore, their model counts workers for the WPA and other make-work programs as unemployed.

Even without job search friction, their model still shows output falling by 11%. (pg. 11)


http://www.socialwelfarehistory.com/organizations/wpa-the-works-progress-administration/

Milton Friedman argues that if the fed had made more open-market purchases of bonds to keep the money supply constant that the crisis could have been averted. http://fee.org/freeman/detail/the-great-depression-according-to-milton-friedman 



Cole and Ohanian use BLS statistics to establish average wages and prices in a variety of industries before the crash. They then adjust these for annual increases in productivity to show that prices and wages lagged behind what they would have been in real terms had the New Deal not taken place. Cole and Ohanian specifically blame the lagging economy on wage and price controls undertaken by the Roosevelt administration. They argue that the fixing of prices contributed substantially to the slow recovery. They cite the lack of anti-trust cases taken to court during the years 1932 to 1938. They claim that the economy didn't reach full employment again until 1943. http://newsroom.ucla.edu/releases/FDR-s-Policies-Prolonged-Depression-5409?RelNum=5409  http://hlcole.bol.ucla.edu/NewDealucla.pdf ;


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