I have posted on this before (e.g. here and here, but there is more). Here a short excerpt from Joshua Hausman dissertation, supervised by Barry Eichengreen and Brad DeLong. He suggests in this particular paper that the 1936 Veteran Bonus was essential for the expansion of consumption and growth in 1936. Table below show aggregate data. Note that most of the accelerated expansion is explained by consumption (one might add, investment is derived demand and follows the accelerator, but that's another discussion).
He says: "All this is not easily explained by factors other than the bonus. Monetary factors were if anything contractionary in 1936. Broad money supply growth slowed from 14 percent in 1935 to 11 percent in 1936. And in August 1936, the Federal Reserve raised reserve requirements."
Hausman correctly notices that monetary policy had little effect on the boom in 1936, which fits what Eccles thought about that, and also about the role of monetary policy in the 1937-8 recession. The recession was for Eccles caused by a fiscal contraction largely due to two factors, the new Social Security Law that went into effect, increasing taxes, without initially disbursing payments, and the end of soldier’s bonus payments, which would add support to Hausman's story. Yep, multipliers (effective demand) work.
Hausman correctly notices that monetary policy had little effect on the boom in 1936, which fits what Eccles thought about that, and also about the role of monetary policy in the 1937-8 recession. The recession was for Eccles caused by a fiscal contraction largely due to two factors, the new Social Security Law that went into effect, increasing taxes, without initially disbursing payments, and the end of soldier’s bonus payments, which would add support to Hausman's story. Yep, multipliers (effective demand) work.
Great post, I am familiar with Hausman's work and I hope he keeps pursuing this work on the Great Depression and econ history in general at Michigan - unfortunately, not many young mainstream scholars doing work on economic history! The paper reminds me of the underconsumptionist views of the causes of the Great Depression, something that Temin elaborates on in "Did Monetary Forces Cause the Great Depression?"
ReplyDeleteHere is a great quote from FDR (talking about the National Industrial Recovery Act) in 1933: "The aim of this whole effort [i.e., the NIRA] is to restore our rich domestic market by raising its vast consuming capacity."
Social security and the minimum wage were sought for similar reasons.
By the way, I've commented on your blog before regarding your work on the Great Depression. I assigned your CJE paper right after discussing Romer. Your econometric methodology is inconsistent and flawed but the students definitely appreciated and grasped your critique of Romer's monetary framework.