Sunday, November 23, 2008

Real GDP Fell by 29.3% From 1930 to 1933

The chart above displays annual real GDP growth from 1928-1945 (data here), showing the -29.3% cumulative drop in real GDP between 1930 and 1933 during the Great Depression. That would be like today's real GDP going from the current level of $14.5 trillion back to the level of real output in 1996. And that seems highly unlikely.


At 11/23/2008 5:38 PM, Blogger Rui Yu said...

-29.3%? Hey! Kind of like money supply 29~33.

At 11/23/2008 5:55 PM, Blogger bobble said...

FDR took office march 4, 1933.

according to your chart, the economy improved dramatically after that.

At 11/23/2008 6:20 PM, Blogger the buggy professor said...

1) Once again, Mark, you are doing us all a service by contrasting the dismal reality of the Great Depression era --- especially the 1929-1933 plunge in GDP and employment --- with the far less drastic conditions of 2008.


2) One of the interesting discrepancies in the BEA series for GDP in the 1930s is the gap between its fall from 1929 and 1933 as calculated by two different GDP-deflators : with the use of constant 1929 dollars and with 2000 dollars and the use of a chained deflator to offset inflation or deflation.

In 1929 constant dollars, the fall between 1929 and 1933 is 44%, as opposed to the smaller one that the more up-to-date 2000 dollar base-100 index. I suspect that most of the gap is due to the use of a chained deflator rather than the older unchained one with a base-index for calculating general price-level changes. The latter used a base-100 that was only altered every few years.


3) Here are a couple of useful graphic links for that period.

*For a chart that follows the course of GDP in the 1930s and into WWII: Click here

*For how the fall and rise of unemployment between 1929 through the World War II era is very closely correlated with whether Hoover or FDR pursued fiscal budgetary policies of surplus or deficits: Click here

*For an illuminating post by Mark's former Ph.D. thesis-superviser, Professor Tyler Cowen of George Mason University . . . followed by a lengthy thread of posts that include an extensive buggy analysis:Click here.


4) As you'll note if you go to Prof. Cowen's post and thread, FDR was a fiscal conservative . . . as were his Budget Directors and his Secretary of the Treasury (Henry Morgenthau, 1933-1945).

The biggest FDR deficit as a percentage of GDP --- between 5.0-6.0% in 1934 --- was actually surpassed slightly by Ronald Reagan's record deficit. And the combined New Deal deficits --- either as a percentage of GDP or as measured as a percentage of national debt compared to GDP --- never approached the Reagan-era or that of George W. Bush's.


5) If you look at the chart that traces deficit-spending and unemployment rates in the New Deal era, note that there was a fairly serious recession in the summer of 1937 that lasted about 13 months.

In that period GDP fell nearly 9% --- though the fast GDP growth in the first half of 1937 and the remaining months of 1938 conceal the full drop. From the start of 1937 to 1938, consequently, the drop in the BEA GDP series shows the recession as being about 3.6% . . . still pretty high by post WWII-standards.

Industrial production fell about 33% in that same recession, compared to over 50% between 1929 and 1933. And unemployment --- which had risen to over 20% by 1933, only to fall to 9.5% by 1936 (Darby's updated revision in 1973 for these figures) --- rose in the 1937-38 recession by a third to around 12.5%.

Despite very fast GDP recovery in late 1938 and 1939, unemployment remained in double-digit figures and only fell below 10% by the end of 1940 . . . a year when US manufacturing was starting to sell arms and other related war-materials to the French and British, and when additionally FDR --- despite heavy resistance in public opinion and in Congress --- managed to accelerate a naval rearmament program that his administration had begun in 1936.

In particular, the aircraft carrier program was what enabled us to stop and reverse Japanese advances in the Pacific at Midway in the summer of 1942 . . . just a few months after Pearl Harbor.)


Michael Gordon, AKA, the buggy professor

At 11/23/2008 6:36 PM, Anonymous Anonymous said...

When the stock market finally stopped dropping in July, 1932, it was down 88%. Only 5 of 800 companies on the NY stock exchange had stock prices that had fallen LESS than 2/3rds.

So is it bad, yes. Could it be a damn sight bet.

P.S. 1 in 6 workers was unemployed vs. 1 in 16 today.

At 11/24/2008 1:30 PM, Anonymous Anonymous said...

I wonder how much further it would have dropped after 1939 had there not been a world war to supply.


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