The Great Depression: Australia’s record humiliates Roosevelt and refutes Keynesianism

This is another response to a Keynesian critic.

My Keynesian critic says I “cannot compare the USA in 1938 and Australia in 1938 apart from both having stimulatory policy”. Well, I can and I did and justifiably so. It’s ludicrous to argue that comparisons are not justified. You also stated that in 1937 America “had the greatest change in fiscal policy under Roosevelt”. Complete baloney – and I have spent considerable time examining the data from official sources. I made my case in my post on the 1937-1938 crash. Prove me wrong and I will cheerfully (well, perhaps not cheerfully) publish it and graciously admit my error.

After that you returned to your GDP mantra even though GDP does not measure growth. In heavens name, how can an economy enjoy economic growth while at the same time consuming its capital? This is akin to a community getting rich by eating its seed corn. I pointed out in my post that it was estimated that net capital consumption dropped by minus 15.2 per cent1. Your response was to completely ignore that fact and keep on stressing Roosevelt’s grossly misleading super-duper GDP record.

You then argued that Australia’s 1931 budget raised unemployment to 30%. I pointed that for the preceding two years unemployment rocketed by 74 per cent and then 42 per cent respectively. After the so-called “silly” budget the increase in unemployment for that ear slowed dramatically to only 5.8 per cent. It seems to me that you have no perspective when it comes to history and statistics.

What you call a devaluation is what used to be called “exporting unemployment’. You seem incapable of distinguishing between a deliberate depreciation of the currency and a genuine devaluation designed to ensure that the currency reflects its purchasing power parity which was certainly the case with Australia. You also ignored my point that any classical economist would have argued in favour of a devaluation. Furthermore, devaluations are no more responsible for inflation than are deficits. You have since posted another comment in which you once again asserted that devaluation generated an inflation that cut real wages and by doing so put people back to work. As you refuse to produce any evidence to support your case allow me to produce evidence to support mine. The chart below is constructed from a table of real wages produced by Douglas Copland2, a prominent economist at the time and a key player in contemporary economic events in Australia.

coplandrealwage

The first thing to note is that the series starts with the first quarter of 1930 with a base of 100 below which real wages never fell. The real average wage for the first quarter of 1931 is 104. This is of particular interest because it was in January 1931 that the Australian currency was devalued—and yet exactly one year later the real wage is still 104. During the remainder of the period the real wage averaged 104.5. The next chart is built on Schedvin’s figures3, which are extremely close to Copland’s results, and reveal that the average real wage of factory workers remained basically flat during the years 1927-8 to 1936-7.

schedvinrealfactorywages

The next chart was constructed by me and is based on statistics from the same source that Schedvin used4.

CYBaveragerealwages1

We can see that not only did real wages not fall back to their 1929 level but the average real wage for the period exceeded it. (However, a caveat is in order. The differences between the years are too small statistically to really matter. Therefore, all that we can really say about the charts is that they tell us that real wages remained comparatively flat, even after the devaluation). What also stands out is that retail and wholesale prices continued to fall despite the devaluation. For example, from 1931 to 1936 coal and metal prices fell by 14.2 per cent5. In addition, as I mentioned in my previous post, manufacturing prices did not start rising until 1937-38, some seven years or so after the devaluation. The rising prices and the downward trend in real wages that Nottrampis constantly refers to are nothing but figments of his Keynesian imagination.

I am accused of “putting too much influence on just manufacturing”. It would have been highly incompetent of me not to have done so. Now I emphasised manufacturing for the same reason most economists and economic historians who study the period do. Firstly, manufacturing led the recovery. Secondly, 43 per cent of the unemployed were from manufacturing. The situation in America was very similar. Another reason is that it allowed me to calculate the ratio of the money wage to the money value of output for a large segment of the labour force.

I have already explained that employers do not hire on the basis of a price level. What matters to them is the ratio of the money wage to the money value of the product, though they never put it that way, regardless of what the price level is doing. So what we had in Australia was a situation in manufacturing where real wages remained unchanged, prices fell but the demand for labour rose. When we examine the data we find that the demand for factory labour started to rapidly rise once the real factory wage6 started its steep decline, just as standard economics predicts. Given all the evidence the only solution to the alleged puzzle is that the fall in input prices combined with increased efficiency widened profit margins thereby encouraging increased production. In short, the recovery was production-driven.

“We had recession levels of unemployment until WW2 started then it miraculously fell to 4%. Amazing what occurs when aggregate demand is increased!” There is no miracle involved in putting huge numbers of men in uniform and then claiming you just slashed the unemployment rate.

“Germany was the only country to reach full employment until WW2. The USA would have got there in 1936 as well IMHO if they cut real wages.” This statement is a real beauty. The Nazi Party achieved full employment by implementing a policy of massive rearmament in preparation for its forthcoming war. This is very easy for a totalitarian party to do and only those with suicidal tendencies would have openly opposed the policy.

In preparing for war the Nazi Party became a massive customer for industry. Payments could easily be made through massive taxation, compulsory contributions and bank credit, which is inflationary. The effect was to expand heavy industry by severely restricting consumption, which is why consumption and therefore real wages fell. There is nothing here that a classical economist would fail to recognise.

It seems to me that you are little schizophrenic when it comes to real wages, jobs and consumption. To argue that Roosevelt could have achieved full employment by 1936 if only he had cut real wages is to agree with the classical school and those who follow in its footsteps that widespread persistent unemployment is the result of raising the cost of labour above its market clearing rate and keeping it there. On the other hand, you also argue that consumption drives the economy. If this is so, then cutting real wages has the same effect as reducing consumption, which is what Hoover and Roosevelt believed. More importantly, if excess real wages caused the unemployment then demand deficiency becomes a Keynesian fiction, which it is.

You correctly observe that “most countries experience a contraction after a war”. You then assert, because you only produce assertions and never any evidence, that “pent up demand means it doesn’t last. In the USA it occurred after both world wars!” Another Keynesian rationalisation. The classical economists noted that “distress immediately accompanies a change from war to peace” because war alters the “channels of trade”. Once peace has been declared prices must be left alone so that markets can make the necessary adjustments.

However, as it turns out I am in the process of producing a post on the “The Great Depression of 1946” that no one noticed. It will show that the idea of “pent-up” demand was invented by Keynesians to rationalise away their failed predictions of mass unemployment. There will also be a post on “The Great Depression of 1953” that President Eisenhower caused when he stupidly cut spending by a whopping 25 per cent. No wonder he went down in history as “General Hoover”.

The facts are as straightforward as can be. According to Keynesianism cutting spending and running surpluses during the Great Depression should have devastated the Australian economy. It didn’t. What followed was a rapid expansion of manufacturing and a steady fall in unemployment. If this had happened in America Keynesians would never have stopped promoting it as an economic miracle.

During the war numerous Keynesians predicted that once peace was declared and the servicemen demobbed there would be a depression and mass unemployment. They were wrong. They have been rationalising away their failure ever since. When Eisenhower became president he slashed spending by 25 per cent. According to Keynesianism this policy should have tanked the economy and created mass unemployment. It didn’t. Not only is this another Great Depression that never happened but the whole incident has mysteriously vanished into the Keynesian memory hole.

Nottrampis has since made another comment in which he refers to real wages, interest rates and money supply. Regardless of what he thinks the statistical evidence shows that real wage remained basically flat. As for the money supply, it always increased after a depression and interest rates always fell again. This is precisely what happened after every nineteenth century depression and it is what happened in Australia but with something of a twist with respect to the money supply. From March 1929 to September 1931 M1 shrank by 27.2 per cent, after which it began expanding again. However, from March 1932 to September 1933 M1 contracted again, this time by 10.3 per cent and yet the economy did not even burp.

* * * * *

1Arthur Lewis, W. Arthur Lewis, Economic Survey 1919-1939, Unwin University Books, 1970, p. 205.

2Douglas Copland, Australia in the World Crisis 1929-1933, Macmillan and Company, 1934, p. 203. The series only went to the first quarter of 1933 because he was in the process of having the book published. His base year for the wage was actually 1928 but I adjusted it for 1930. This does not, of course, alter the percentage changes.

3C. B. Schedvin, Australia and the Great Depression, Sydney University Press, 1988, p. 350. “[I]t is apparent that there was no significant downward trend in average real earning in manufacturing…” (ibid).

4Official Year Book of the Commonwealth of Australia, No. 32—1939, pp. 424. 437.

5(ibid p. 424)

6The real factory wage is the ratio of the average manufacturing money wage to the value of manufacturing output.

57 thoughts on “The Great Depression: Australia’s record humiliates Roosevelt and refutes Keynesianism”

  1. And I thought Gerry’s last post was crushing. These statistics are devastating for Nottrampis. There is no honest way he can escape them unless he cans produce statistics really proving that devaluation immediately drove up prices and drove down real wages.

  2. Sarah is underestimating nottrampis. It’s true that the statistics are crushing but Notrampis is a true believer. He will simply, as Gerry would probably put it, try to rationalise them away because if the statistics were on his side he would have used them. I figure he is on his own here because his Keynesian mates won’t help once they see Gerry’s stuff. If they thought they could beat Gerry they would have already been here.

  3. These statistics got me thinking about steve Kates and Sinclair Davidson. Why didn’t they do this? Davidson produced one chart on spending for the great depression and he was hailed as a hero. If he and Kates did what Gerry just did the right-wing would be calling them geniuses.

  4. The more I look at the figures the more I realise how lethal they are. Nowhere on the graph do money wages fall below retail prices. So could anyone argue that real wages fell?

  5. Nottrampis will find away, lenny. Sherlock has a point about these charts Sinclair Davidson or Steve Kates had produced them they would be all over the place. I bet Andrew Bolt would be publishing them just like he published Davidsons stuff before.

  6. This really puts Nottrampis in a spot. How can he argue that unemployment fell because devaluation made real wages fall when real wages didnt fall? I suppose he could attack the accuracy of the figures. Just how accurate are they anyhow?

  7. MK’s query about the accuracy of these indexes is an important one and justifies a response. It is true that 100 per cent accuracy for price indexes is impossible. Statisticians can only strive to do their best with what’s available. What we get from them depends on the deflators they use and the weighting they give to the various components in their basket of goods. Then there is the obvious fact that goods do not change prices at the same time or at the same rate, including those goods in the same index.

    The wholesale price index stopped falling in 1933. However, coal and metals, important industrial inputs, kept on falling until 1936. Chemicals and building materials continued to fall until 1935 while the prices of manufactures were still falling into 1935 after which they levelled off until 1937. Moreover, the increase in price of some goods over the preceding year might be so small as to be insignificant. For example, the difference between the index for building materials between 1935 and 1936 was 0.25 percent. For 1936 to 1937 the difference in the chemical index was 0.05 per cent. Given the range of goods being considered these are differences without a distinction. This should give you some idea of the limitations of price indices.

    Considering these facts I think we can confidently state that it was 1934, three years after the devaluation before there was a real general rise in prices. Even if someone were to just finger the middle of 1933 as the point in which the real rise began that would still be some 30 months after the devaluation, which was in January 1931.

    One should also bear in mind that what matters for industry is not any price level, which can only give us a trend, but the prices it has to pay for its inputs. With respect to what really happened regarding prices, I don’t actually know of any historian who supports the view that real wages fell throughout the Great Depression or that they ever suffered a steep fall at any time.

  8. I don’t see how nottrampis can get out of this. Not once on Gerry’s chart do money wages fall below retail prices. Only in 1936 does the money fall below the wholesale price index and even that difference is very small. Even more damaging for Notrampis is that the other two charts back gerry’s results a 100 per cent.

  9. Thanks Gerry for answering my question about the price indexes. I had no idea how awkward it is to construct these things and how sometimes you need to split the difference. I now see why an index can go up while some prices are still going down.

  10. It just hit me what is funny about the first chart. It was published in 1933 and shows the Keynesians are wrong about the devaluation and real wages but gerry is the only guy who used this stuff. Goes to show that Sinclair Davidson and Julie Novac really didn’t do their homework on the great depression. These are the same jokers who say Australia went off the gold standard in 1931.

  11. I’ve been thinking about what Jack and Sherlock said Sinclair Davidson and the Great Depression. I did a bit of googling and I searched Catallaxy too. It looks like Davidson and Novac shut up about the Great Depression and Australia once Gerry started to post his stuff on it. I figure that pair are now too scared to discuss it anymore so they decided to ignore it instead.

  12. The problem with Keynes is that he created confusion with his book the General Theory. He describes in monetary terms the effects of gov’t interventions like the propping up of wages, increased taxes, regulations, tariffs, etc on the investment of cash in the economy without naming these interventions as the cause of unemployment and slowdown in production during the great depression. He attributes the slowdown in production and increased unemployment to things like animal spirits and cash horading. He doesn’t mention the uncertanity that all the interventions caused which resulted in less investment. Ever since on all sorts of economists and politicians have advocated inflation instead of fixing the structural issues.

    Keynes framework was a special case to use monetary policy to neutralize the effects that govt intervention caused which he never states was caused by govt. During the Great Depression policies to prop up wages first in a deflationary environment with jawboning by Hoover and later in an inflationary environment with regulations, by Roosevelt, increased taxes (payroll, etc), regulations( minimum wage, wagner act, NRA codes, social security tax), tariffs and other policies caused profit margins to narrow and unemployment to soar. Keynes thought by using inflation it would increase the prices of producer and consumer goods thus widening profit margins leading to increased employment thus neutralizing the effects that all the govt interventions had on the economy.

    Also to note, Keynes actually was a Hawk when it came to inflation. If anyone reads his writtings he does mention that inflation is a threat and is something to worry about. So his General Theory was just a special case to use inflation for certain period of time to try an neutralize the effects of govt interventions like taxes, propping up wages etc. As a result he prescribes a medicine like inflation that leads to even more problems on top of the structural issues.

    It’s important to dispel the notions that the gold standard and deflation caused the long depression of the 1930s. Gold at most only ever backed like 10% of the US money supply. During the 1929-1932 period there were excess reserves of gold so the monetary base could have been expanded further. The Federal Reserve during the 1929-1932 period did purchase Treasury bonds and could have expanded further but didn’t because some board members were afraid increased Treasury bond purchases would fund speculation.

    Just because the Federal Reserve didn’t expand futher because it only wanted to fund real business credit or “Real Bills” during the 1929-1932 period doesn’t mean it caused or prolonged the depression. Increased interventions like the propping up of wages were the cause. For example, with the money supply contracting and wages not falling; this mean’t less people could be employed at pre-deflation wage levels. So unemployment resulted. Even in an inflationary environment the same result could occur. Lets say wages are propped up at a high wage rate but inflation is not high enough to cause positive profit margins, then unemployment would also result.

  13. These charts have changed my mind about the depression. I was taught that real wages were slashed and now I find they stayed the same.

  14. These charts have changed my mind about the depression. I was taught that real wages were slashed and now I find they stayed the same.

  15. Ref: Mr. E

    Keynes “General Theory” is the most contradictory and convoluted book I have ever read. It clearly revealed that he had no capital theory to work with and probably didn’t care anyway. He was determined, no matter what, to remove excessive wage rates as the reason for persistent widespread unemployment while, consciously or otherwise, letting them in through the backdoor. To a considerable extent, at least in my opinion, his “animal spirits” as the source of booms and busts is straight from Marshall who got it from John Stuart Mill.

    What Keynes delivered was just a half-baked version of the Tooke-Mill theory of the trade cycle, the one that Australia’s Steve Kates falsely calls the classical theory. The one thing Tooke and Mill have in their favour is that they, unlike Keynes, did not abandon the gold standard or Say’s law.

  16. I’ve been googling Nottrampis, Steve Kates and Sinclair Davidson. Neither Davidson nor Kates would respond to any criticism by nottrampis. It looks like they never took on keynesians down here. that pair seem to be afraid of a real debate.

  17. Gerry,

    The change in fiscal policy of Roosevelt was the greatest because it was a large change from structural deficit to structural surplus ( as distinct from headline) which meant that in headline terms the budget went to surplus however unemployment ROSE! Hmm clasical econmics not working there!.

    I most certainly did not say the 1931 caused unemployment to rise. The cut in nominal wages which was one of the reason we got deflation and thus a large increase in real wages was the cause for unemployment to shoot from around 20% to 30%. We must always remember the unemployment statistics are probably the most uncertain numbers of the periods as they came from Trade Union statistics.

    What you are asserting is that of all the countries that had devaluations ( it doesn’t matter a tinkers cuss what the devaluation occurred by the way) and we had the largest somehow we missed out on the inflation all other nations got except England ( they had only a small one.

    If real wages had not fallen then how how unemployment fallen? There is a large fall when real wages fall as excepted.how does Unemployment fall without a fall in real wages. Strange?

    By the way Most people got employed in industries not defence when WW2 occurred although it doesn’t matter.

    you do seem to understand what pent up demand is.

    In war people have plenty of savings but nothing to spend it on EXCEPT war bonds. This is why we get high levels of inflation.
    War ends suddenly production falls for a short time. and then consumption rises as people start spending on items they couldn’t during war. It occurred after WW1 and WW2 in the USA. I do not understand how Gerry doesn’t understand this basic concept.

    By the way Germany did not get out of the Depression by boosting rearmaments. They did it by boosting infrastructure and housing. They certainly boosted rearmaments but nowhere near Where Gerry alleges.

    of course this is impossible if classical economics is correct.
    of course if it was correct we all know about a certain Mr Bruning and Hitler would not even be a footnote in history.

    Gerry also doesn’t understand Keynesian economics.

    Keynes never said running surpluses would cause the economy to fall and fall.

    a CHANGE in the structural budget say from deficit to Surplus would cause a fall in economic activity the first time HOWEVER to keep on doing this you would need to keep on CHANGING the structural surplus. This is VERY hard if not impossible to do.

    Wayne Swan’s budget did just this!

    I might just add in the Australian context the blowout in the deficit occurred was purely because of the economy. In other words if the economy was normal the budget would have been in balance.

  18. I have only just realised Gerry is looking at headline numbers of budgets.

    You can have a budget deficit but have a highly contractionary budget. We have seen this in Europe.
    you can have a budget surplus yet have expansionary policy We saw this in Costello’s last budgets.

    In Australia during the great depression we had ONE tight budget ,in 1931, and then had budgets that were neutral and then mildly expansionary. monetary policy was also quite expansionary. by 1938.
    unemployment was over 8%!
    In 1938 the USA had highly contractionary fiscal policy and tight monetary policy hence Gerry is comparing apples with oranges

  19. Absolute nonsense. My figures were not “headline numbers” but came straight from official statistics. You are simply trying to move the goal posts again. For example, “Keynes never said running surpluses would cause the economy to fall and fall.” Where did I say he did? (Anyway, I don’t recall Keynes arguing for surpluses during a depression).

    I stated quite clearly stated that according to Keynesianism the Australian government’s spending cuts and surpluses should have been a disaster. That’s the God’s truth and you know it. So what do we get: post-Keynesians saying that the spending cuts were deflationary (Schedvin) and you saying that the surpluses which Keynesians always called contractionary were really expansionary.

    If there had been deficits then that would have been proof that Keynesianism works. But since governments ran surpluses, that too is proof that Keynesianism work. And I thought Marxists with their bloody dialectic were bad.

    This is a real beauty: “If real wages had not fallen then how how unemployment fallen? ” I proved that real wages did not fall and you still deny it. I explained why unemployment fell and you ignored it.

    Now for the money supply. So what? As I pointed out elsewhere, the money supply always rose during a recovery, as was noted in the nineteenth century. It could not be otherwise on a fractional reserve banking system. But of course you would only know this if you had read the classical economists and economic history.

    And then there is this one: “In 1938 the USA had highly contractionary fiscal policy and tight monetary policy hence Gerry is comparing apples with oranges”. Complete baloney. I proved otherwise in my post on the 1937-38 crash.
    http://gerardjackson.com/the-great-depression-and-the-real-facts-behind-roosevelts-1937-38-depression

    Just one point for this one: the money supply only started to shrink after the economy began to sink. This is in my 1937-38 post

    Now for unemployment. At no time during the Great Depression did unemployment in the US even fall to 8 per cent. Moreover, at its lowest point there was still massive hidden unemployment in manufacturing.In Australia there was a continuous fall in umeployment with only a slight interruption in 1938.

    During the Great Depression the US consumed capital, Australia did not.

    Australia cut spending and ran deficits. Roosevelt did the opposite and got the opposite result.

    I provide statistics in support of my case: Nottrampis provides, assertions, rationalisations, distractions and accusations in support of his.

    Nevertheless, I want to thank him for providing me with another opportunity to drive even more nails into the Keynesian coffin.

  20. I have been waiting for Gerry’s reply. No doubt about it, Nottrampis is pathetic. Gerry is arguing about Australia in the grat depression and nottrampis brings in Germany, Wayne Swan, structural stuff that was never mentioned. He is throwing everything in there except the kitchen sink! The only things he cannot throw in are statistics that prove Gerry wrong. Show us your evidence, Nottrampis.

  21. The man is unbelievable. He knows he’s lost so he throws a load of other stuff in to try and confuse us. It’s so stupid it is insulting. He really thinks we are idiots. Keynesians are always telling us that you have to run deficits during a depression because surpluses make things worse. Now he tells us Australian deficits were expansionary. My God!!

    Nottrampis said that real wages fell because there was an inflation. Gerry shows with three charts that real wages did not fall. He also has a chart showing that prices fell. Gerry must have the patience of Job.

  22. Nottrampis is a cultist. Facts don’t mean anything to him. Gerry produces statistical evidence and nottrampis either ignores it or tries to rationalise it away. He doesn’t understand that he cannot beat Gerry unless he produces statistical evidence that refutes the man’s argument. He hasn’t done it because he can’t.

  23. This is my first visit so I don’t know who the author of this blog is but I do know that the statistics he produced completely confirm his thesis. Judging by his response, this guy Nottrampis couldn’t cut butter with a hot knife.

  24. It’s very simple. Nottrampis either produces the statistics to beat Gerry or he shuts up. He argued with Gerry on Australia and the Great Depression and Gerry demolished him with statistic after statistic.

  25. I think someone is feeding Nottrampis this stuff. he lost the argument and now his keynesian pals are trying save his sorry backside by feeding him stuff they think will baffle and sidetrack us.

  26. I liked it when he said Gerry didn’t understand Keynesian economics. That was proof to me that Gerry had won because thats a losers argument. If Gerry did not really know Keynesianism Nottrampis would have spotted it from the start and said so. He didnt

  27. I think Margo is right. Something else as well. If there was anything wrong with Gerry’s stats Notrampis’s friends would be swarming all over them.

    Nottrampis’s silly comment about ‘headline numbers’ still gets me.

  28. There is still this notion that WW2 was needed to get the US out of the depression because it led to increased gov’t spending. This notion that war is good for the economy is a fallacy.

    Before the war during the 1930s, the US gov’t did increase expenditures but also intervened with policies that propped up wages, increased taxation, regulations and tariffs. These policies had the effect of decreasing revenues, profits and increasing costs for the private sector which led to unemployment being kept artificially high.

    During the 1940s to finance the war, the US gov’t increased spending by increasing the money supply and used cost-plus-fixed-fee-contracts, payment advances and negotiated contracts with armament manufacturers that guaranteed profits no matter what the costs. This removed any uncertainty armament manufacturers had with regards to making profits. The use of these contracts was why gov’t spending was more successful in generating full employment during the war than it was before it.

    So technically the gov’t could have guranteed profits to companies before the war to increase employment but this would have entailed a full command economy in peacetime. So the notion that war is needed to generate full employment is a fallacy.

  29. I used to believe that stuff, Mr. E, about WWII and prosperity. It was many years before I saw that didn’t look right. I now know that’s because it wasn’t right.

  30. Gerry,
    I said Structural surplus. you used headline numbers.
    Roosevelt went from a structural deficit to a structural surplus in 1937. ( The structural side of the budget is the important part of the budget. The cyclical part is by far the largest but is affected by the state of the economy. De long is the last person I remember who estimated this. It is the greatest change in fiscal policy when Roosevelt was President,)
    According to you the economy should have improved it didn’t it went backwards. No devaluation to help them.

    The reason unemployment did not get below 8% is because
    1) there was no reduction in real wages
    2) they cut off the recovery which was occurring.

    The Fed was tightening monetary policy. Try Reading Friedman and Schwartz on that.

    By the this time the Australian Government was running a slightly expansionary fiscal policy with an expansionary monetary policy.

    Simply because a budget is in surplus doesn’t mean it is contractionary. That doesn’t even pass econ 101.
    If you have a surplus of say 1% of GDP and the economy grows at say 3% and you have the same surplus again. This simply means fiscal policy all things being equal fiscal pocy has changed and become losser.
    Until you can understand that there is no point in talking any further.

    in 1938 the USA was in a recession of which classical economics said it should be recovering.
    In 1938 Australia was in its 5th year of a weak recovery.

    To compare both is silly

  31. Just for interest Australian
    GDP rates from 1928 are:
    -1.6
    -1.0
    -4.9
    1.7
    -2.6
    5.7
    3.8
    4.1
    4.8
    5.7
    0.7

    We had a large output gap going into the Depression and a larger one coming out of it. That is why unemployment more than halved after 1938 without any labour pressures.

    In the UK GDP per capita fell by 1% in the decade to 1929. The US experienced three recessions in 7 years from 1920.

    The roaring twenties was far from roaring.

  32. You’ve got a bloody nerve, nottrampis. You kept telling us that devaluation caused the recovery by starting an inflation that cut real wages. Gerry proved you wrong. Now you are telling us that it was the output gap that did it. You must think we are stupid.

    BTW Gerry already wiped your clock on that 1937 crash thing. If he got it wrong prove it.

    Christ almighty, why does Gerry put up with you!!!

  33. Sarah has your number, mate. You now say that “We had a large output gap going into the Depression and a larger one coming out of it. ” Thats not what you said before. You never mentioned an output gap until gerry destroyed your inflation argument. Now you’re even trying to confuse the argument by dragging in the UK.

    Just be a man and admit you got it wrong on inflation and real wages.

  34. Sarah, I think Gerry puts up with Nottrampis because he is throwing every Keynesian argument and rationale he can think of at him. So far Gerry has batted every one of them out of the field. This is why Nottrampis keeps moving the goalposts. Gerry has to know you cannot reason with a man like that. I think he is just using him to expose Keynesian fallacies.

    The people you should be mad at are the catallaxy crowd. If they meant what they say about free markets and Keynesians they would be joining in. Come to think of it, I bet they are hoping Nottrampis flattens Gerry.

  35. Gerry hasn’t at all.
    his main claim is that real wages rose . But they were rising from 1932!
    Rising real wages with a tight fiscal policy that Gerry clearly doesn’t understand ( fiscal policy is way more than spending) together with monetary policy being tightened meant a recession.

    The output gap is neither here nor there except to show unemployment clearly could fall further than 8 % if tried. ( It did in NZ).

    Gerry’s problem is that if Devaluation did not increase inflation and real wages did not fall then how did unemployment fall?

    By the way you sound like people from Catallaxy!

  36. Are you dumb? Gerry proved that real wages did not fall. He also showed that unemployment in manufacturing fell because in his words the real factory wage fell. This was because the value of the output rose. He pointed to the fall in the costs of other inputs for manufacturing and increased efficiency. So admit it you got it wrong. You bloody well ignored all of this. He produced statistics showing that real wages did not fall but prices did. You couldn’t provide the time of day let alone real statistics.

    The Australia government cut spending and ran deficits and then unemployment fell while real wages stayed the same. Roosevelt did the opposite and got mass unemployment. You don’t know what you are talking about. America consumed capital and Australia didn’t. You ignored that too.

    Gerry wiped your clock on the 1937 depression. All you can do is babble on abut structural this and structural that. Not a shred of proof. Then you throw UK gdp figures at us and expect us to collapse.

    BTW we are much smarter than the Catallaxy mob.

  37. Just got back from the hospital and I have to go back again tomorrow. I should have a response for Nottrampis on Friday.

    By the way, Nottrampis, real wages and 1932: I take it you are talking about Australia.

  38. I was going to get stuck into Notrampis until I see Gerry’s comment so I thought better of it. I think its better to wait for Gerry’s reply. It’s bound to give us something to chew on it.

  39. Gerry, out of hospital?? Are you okay? Get better quickly.

    HERE is a paper which will enlighten Brad shows the Structural budget and headline budget under Roosevelt are shown.
    It does show as I said fiscal policy was tightened drastically in 1937.

    Sarah,

    If deflation is still around as Gerry asserts then Real wages CANNOT fall.Real wages is merely nominal wages less inflation. If deflation is occurring then that is added to nominal wages.

    Please I may disagree but I try to remain courteous. People at Catallaxy are not. Do not replicate them.

  40. That link to a guy called delong that Nottrampis posted said nothing about the 1937 crash or Australia. There is nothing there that supports him. Anyhow, Nottrampis never said anything about structural balances or whatever they are until Gerry nailed him. Everything was devaluation, inflation and real wages.

    I did see that Delong attacked the Austrian theory as an ‘overinvestment theory’ and that’s when I remembered that in his post ‘Unemployment and reduced output is the cost of having inflation, not the cost of fighting it’ Gerry explained that the Austrian theory is a malinvestment theory and not an overinvestment theory and he blamed some guy called Haberler for getting it wrong.

    So nottrampis is telling us to accept the word of another Keynesian who cant even get the Austrian theory of the trade cycle right. No thanks. I think I’ll just wait for gerry’s next post whenever that’ll be.

    BTW I looked at Catallaxy today. Rafe champion did a roundup. Reading him you’d never know Gerry existed. Gerry has launched lots of detailed attacks on Keynesianism and Rafe Champion never says a word. Hes got to be one of the Keynesians best allies. I bet even Nottrampis would agree that Gerry is better at than Sinclair Davidson or Steve Kates. Nottrampis knows that Gerry will always reply.

  41. Sarah,

    You are obviously did not read the paper properly.
    It has an estimate of the structural deficit/surplus in the USA. It shows Roosevelt greatest change in fiscal policy was in 1937. It is even in a graph!

    Gerry was wrong on 1937. fiscal policy was highly restrictive!

    you combine that with tightening monetary policy and increased real wages you get a recession.

    let us compare USA 1937 and Australia 1931
    both has tight fiscal policy ( although the States ameliorated this somewhat in both countries), both had tight monetary policy ( this was caused by deflation in Australia which made real interest rates much higher) and both had increasing real wages ( this was mainly caused by deflation in Australia.

    Two different outcomes??? Australia did have a very large devaluation whereas the USA’s was way back.

    In a country dominated by Oligopolies Gerry wants to believe the lag associated with the devaluation was the longest recoded in economic history.
    I have said previously the statistics of this time is not of the highest order.. Unemployment is taken from Trade Union records for example.
    Thus you have a manufacturing bias,

    I would love to know how unemployment falls significantly if real wages do not fall.

    it rose between 5 and 10 percentage points when real wages rose because of deflation. It therefore makes sense if it falls by a similar amount if real wages fall.perhaps .
    No theory can explain such a fall if real wages have not fallen.

  42. First it was that structural stuff that you never mentioned before and now its oligopolies. You never mentioned them before either. The only stats that are accurate are those that support you. If the stats dont support you, so much for the stats. So real wages fell no matter what everything else shows. Blah blah blah blah.

    You say there was tight money. Gerry already said that. He pointed out that the deflation was twice as big as was believed. You say “Gerry wants to believe the lag associated with the devaluation was the longest recorded in economic history.” That’s a lie. He just said the lag was simply too long. He never even hinted about it be the longest of anything.

    Gerry produces evidence. You produce nothing. I cant wait for Gerry’s next post.

  43. Nottrampis is amazing. Any statistics he thinks support Roosevelt and Keynesianism are uncritically accepted. Any statistics Gerry uses are dismissed. Nottrampis is adamant that real wages must have fallen. Gerry provides statistical proof from several sources that they did not. Nottrampis dismisses them without providing a shred of evidence that might prove them wrong. He also distorted what Gerry had written about the devaluation. Nobody can take a person like Notrampis seriously.

  44. I’ll tell you whats amazing, Mandrake. Gerry is single-handedly taking on Keynesianism and doing it in a detailed and historical fashion while Sinclair Davidson and Steve Kates preen themselves over at Catallaxy. I followed Sarah’s example and went over to take a gander. Kates answer to Keynesianism was to tell catallaxy readers to buy his book!!!! Don’t explain whats wrong with it. Just tell people to buy the book.

    Nottrampis should go over and bash them instead of trying to drag Gerry down.

  45. GDP as a statistic really just represents monetary turnover in the economy. It’s a reflection of the growth of the money supply. The faster the monetary pumping the greater will be GDP growth. GDP can decline even with monetary pumping continuing at times because inflation after a period of time will cause profit margins to be squeezed thus resulting in lower profits which lead to worker layoffs. The layoffs then cause a decline in consumption especially for consumer discretionary goods. Today it’s questionable how much monetary pumping may even increase GDP because the GDP figure is calculated with imputations and hedonics and is deflated with price indexes that use hedonics, geometric weighting, substitution effects and etc.

    To determine if economic growth is occurring the real economy has to be looked out. The real economy can be declining while GDP shows as growing because monetary pumping is pushing up the monetary amount spent on new goods and services. An economy grows properly when the structure of production fits the structure of demand which should be determined by the majority of the population’s time preference. When the real economy is growing capital accumulation increases and real wages rise. So when the real economy is growing there should not be extreme income equality, mass decay of infrastructure and large swings in the unemployment rate.

    So whether there is a government budget surplus or deficit or whether a budget surplus or deficit leads to an increase or decrease in GDP, it really can’t tell us if the real economy is growing or not. The GDP number has always been questionable because it doesn’t actually count in physical terms the amount of new output and services but the monetary amount. There are many scenarios that an economy could be growing which means capital accumulation with employment increasing but GDP could show in monetary terms to be declining. Gerry has mentioned many times in the past about 1946. Some examples:

    -One year after WW2 in 1946, GNP fell 19%, the biggest one year decline in US history and industrial production declined by over 30%. Government expenditures fell by 55.3 Billion leading to 5.4 Federal Gov’t surplus while consumer spending increased 23.7 Billion and Investment increased 20 Billion. The increase in private consumption and investment was less than the decrease in Gov’t expenditures yet employment increased from 52.3 million to 55.8 million.

    – If we look at Japan’s nominal GDP from 1995-2010, the nominal GDP never reached it’s 1995 nominal level until 2010, yet GDP based on PPP (Purchasing Power Parity) values from 1995-2010 show that economic growth must have occurred because people in Japan could buy an increasing amount of goods and services with their currency even though a lot economists considered it to be undervalued at the time.

    Some Good References:

    The Myth of Japan’s Lost Decades
    http://mises.org/library/myth-japans-lost-decades

    What is Up with GDP
    http://mises.org/library/what-gdp

    Saving the Depression: A New Look at WW2
    http://mises.org/library/saving-depression-new-look-world-war-ii

    The Great Depression of 1946
    http://mises.org/library/great-depression-1946

    Fuzzy Numbers
    http://www.peakprosperity.com/crashcourse/chapter-16-fuzzy-numbers

    US GDP Will be Revised Higher by 500 Billion
    http://www.zerohedge.com/news/2013-04-21/us-gdp-will-be-revised-higher-500-billion-following-addition-intangibles-economy

    The Core Rate
    http://www.financialsense.com/node/891

  46. The BIG problem is for Gerry and for you lot is if Real wages di not fall then how in the hell did unemployment fall in such a fashion.

    if we go back to when it rose. It is 20-25% and then moves up to 30% because of real wages rising courtesy of deflation. without inflation real wages do not fall significantly so there is for unemployment to fall quite a bit.

    Sarah if you understood economics then you would understand it is the interests of producers to raise prices when a evaluation occurs. The lag would be shorter not longer.

    As for evidence i have already shown Gerry to be badly wrong on the US budget in 1937.

  47. 4 things, Nottrampis.

    1 Gerry proved that real wages did not fall and prices did not rise after the devaluation.
    2 You proved nothing about the US budget in 1937. all you did was refer to what someone else said. That’s not proof.
    3 You never attempt to prove anything. You have never produced a single statistic to prove Gerry wrong.
    4 Gerry has not finished yet.

  48. The problem with GDP is that it’s a statistic that really just represents monetary turnover in the economy. It’s a reflection of the growth of the money supply. The faster the monetary pumping the greater will be GDP growth. GDP can decline even with monetary pumping continuing at times because inflation after a period of time will cause profit margins to be squeezed thus resulting in lower profits which lead to worker layoffs. The layoffs then cause a decline in consumption especially for consumer discretionary goods. Today it’s questionable how much monetary pumping may even increase GDP because the GDP figure is calculated with imputations and hedonics and is deflated with price indexes that use hedonics, geometric weighting, substitution effects and etc.

    To determine if economic growth is occurring the real economy has to be looked out. The real economy can be declining while GDP shows as growing because monetary pumping is pushing up the monetary amount spent on new goods and services. An economy grows properly when the structure of production fits the structure of demand which should be determined by the majority of the population’s time preference. When the real economy is growing capital accumulation increases and real wages rise. So when the real economy is growing there should not be extreme income equality, mass decay of infrastructure and large swings in the unemployment rate.

    So whether there is a government budget surplus or deficit or whether a budget surplus or deficit leads to an increase or decrease in GDP, it really can’t tell us if the real economy is growing or not. The GDP number has always been questionable because it doesn’t actually count in physical terms the amount of new output and services but the monetary amount. There are many scenarios that an economy could be growing which means capital accumulation with employment increasing but GDP could show in monetary terms to be declining. Gerry has mentioned many times in the past about 1946. Some examples:

    -One year after WW2 in 1946, GNP fell 19%, the biggest one year decline in US history and industrial production declined by over 30%. Government expenditures fell by 55.3 Billion leading to 5.4 Federal Gov’t surplus while consumer spending increased 23.7 Billion and Investment increased 20 Billion. The increase in private consumption and investment was less than the decrease in Gov’t expenditures yet employment increased from 52.3 million to 55.8 million.

    – If we look at Japan’s nominal GDP from 1995-2010, the nominal GDP never reached it’s 1995 nominal level until 2010, yet GDP based on PPP (Purchasing Power Parity) values from 1995-2010 show that economic growth must have occurred because people in Japan could buy an increasing amount of goods and services with their currency even though a lot economists considered it to be undervalued at the time.

    Some Good References:

    The Myth of Japan’s Lost Decades
    http://mises.org/library/myth-japans-lost-decades

    What is Up with GDP
    http://mises.org/library/what-gdp

    Saving the Depression: A New Look at WW2
    http://mises.org/library/saving-depression-new-look-world-war-ii

    The Great Depression of 1946
    http://mises.org/library/great-depression-1946

    Fuzzy Numbers
    http://www.peakprosperity.com/crashcourse/chapter-16-fuzzy-numbers

    US GDP Will be Revised Higher by 500 Billion
    http://www.zerohedge.com/news/2013-04-21/us-gdp-will-be-revised-higher-500-billion-following-addition-intangibles-economy

    The Core Rate
    http://www.financialsense.com/node/891

  49. Gerry make sure you get better. Writing is nowhere near as important as your health.

    Sarah,
    1) you do not seem to understand if real wages did not fall then how did unemployment fall reasonably quickly given output was tepid at best.
    2) I showed that US fiscal policy was VERY tight and the largest change in Roosevelt’s Presidency!
    3) Like Gerry I am wary of the quality of statistics at that time. I certainly am very wary of statistics which appear to say one thing when others are saying something else again.

    4) I certainly hope so.

  50. Nottrampis, the only statistics you accept are those that support your argument. I find it instructive that you cannot dig up any statistics to refute Gerry.

    BTW
    At least you are considerate. Gerry’s health is far more important than rushing to get up a post. Waiting doesn’t cost us anything.

  51. I should add I had forgotten about Darby. He estimates unemployment was only just above 9% when you count government programs as you should in the USA

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