Quote:
Originally Posted by nickerman
My unprofessional take on it is that a recession that goes on and on is eventually called a depression. But there is probably much more to it.
|
It's a series of recessions.
If you look closely, the Great Depression actually starts in 1925, with the 1925 Recession, followed by the 1928 Recession, the 1930 Recession, the 1935 Recession, the 1937 Recession, the 1946 Recession, the 1949 Recession, and then the three recessions during the eight-year Eisenhower Administration, with the last ending in 1961.
There was a primary cause, and then a series of aggravating factors or circumstances.
The primary cause was structural unemployment created by technology and changes in industrial engineering.
All manufacturing was piecemeal, that is an individual worker produces a product. Henry Ford changes that in 1912-1913 by introducing the assembly method of production. Over the next 10 years, it is slowly implemented by other manufacturers, then rapidly implemented in the mid-1920s. The assembly line method of production is much more efficient, yet it requires fewer workers.
Unemployment begins to ramp up.
At the same time, manufactures are taking advantage of new technology enabled by electricity. Hand and foot operated lathes, mills, borers, planers and drill presses are now electrified, so that one man operating a electric lathe can do the work of 6 men operating manual lathe that uses a treadle.
The use of this new technology and manufacturing methods is pervasive by the 1930s, generating more unemployed workers.
There were numerous aggravating factors, mainly the failure of the Federal Reserve to act. The fact that the Republican-controlled House and Senate stupidly enacted what was then the highest tax increase in US history (yes, a federal excise tax was even put on chewing gum), plus the Smoot-Hawley Tariffs, and their failure to act in the absence of the Federal Reserve didn't help. The Dust Bowl, which displaced an estimated 2.5 Million people didn't help, either. FDR's policies had adverse effects as well.
What did solve the problem -- only temporarily -- was war.
1936 $24.2 Million
1937 $46.1 Million
1938 $86.3 Million
1939 $143.7 Million
1940 $873.1 Million
Those are the revenues collected by the government solely for fees on war materiel export licenses. In other words, if you wanted to export anything classified by the government as "war materiel" you had to have a license which cost a nice fee. Consider that in 1940 the US government collected $6.5 Billion in revenues, so $873 Million is 13.5% of all revenues collected....
just for licenses to export war materiel.
When WW II ends, naturally you go back into recession, since the problem of structural employment was not totally resolved, and end up with four more recessions over the next 10 years.
What ultimately resolves the problem of structural employment is the slow adaptation of military technology for consumer consumption. That results in the creation of numerous new businesses and scores of new jobs, which eventually absorbs the unemployed.
Could it happen again?
A change in agricultural techniques bars the recurrence of a Dust Bow. The Federal Reserve is much quicker to act, and Congress now knows better than to raise taxes during a recession, so aggravating circumstances wouldn't come into play.
If the implementation of automation occurs at the same rate technology was implemented in the 1920s, then, yes, it would create structural unemployment.
However, the rate of automation will be so slow, that structural unemployment will be barely perceptible. People will adjust over a few decades to one-wage-earner families, like it was in the early 1970s, instead of the majority of households being two-wage-earner families as it is now.
There is one aggravating factor I didn't mention and that is Deflation. Throughout US history, all periods of Inflation have been followed by periods of Deflation. Not all periods of Deflation are harmful or particularly evident. Most people didn't notice the deflationary period that followed the Inflation of the 1970s, but it was there. It was slightly worse during the 1930s, and was particularly harmful after the Inflation in the 1860s.
Since I believe there will be a rather severe period of Inflation beginning about 7 years from now, possibly caused by the reaction to the next recession, I also believe there will be a period of Deflation immediately following, but I'm unable to gauge its possible effects.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
