Frankly ridiculous and I'm rather sick of hearing it since its poorly partisan "security blanket" talk based on falsehoods, poor data and assumption which is overly recycled. The government did not trigger the Depression and the government did not exacerbate it when it acted. Not intervening, not regulating for that decade before hand (the laissez faire 20's), that was what allowed it to come about in the first place and what exacerbated it. And no depression was near as bad as the Great one.
I wish I thought like you. Life would be so much easier if I could simply dismiss people and ideas based on their perceived political leanings. Unfortunately, I wouldn't be a very good economist if I did that, so I'm stuck with being fair and open minded, rather than happy and close minded.
The 20's were mostly laissez faire only in comparison to the decades which they were sandwiched between. Wilson's war economy (and pretty much his whole proto-fascist 'progressive' economic program) and FDR's New Deal were such huge examples of obvious and out-in-the-open intervention that very few people realize just how much was being done behind closed doors under Coolidge and Hoover. Most important was the Federal Reserve taking its baby steps, but there was also rather significant manipulations of the same sort all around the world.
One thing that made the whole decade of the 20's so volatile (recessions in '20, '23, and '26 IIRC) was attempts by the Federal Reserve to help bring the British back onto the gold standard at their pre-war parity. They did this by 'sterilizing' gold flows in and out of the country, which is basically them controlling the rate at which gold enters and leaves the country by stockpiling it and marketing it, respectively. This is a little bit of modern day mercantilism, but we never actually left mercantilism behind so it's not surprising.
The Depression worsened under Hoover as long as it was under Hoover at a continuous pace. FDR takes over, institutes the New Deal, and things consistently get better. Unemployment goes down every year save the 37-38 recession. GDP increases every year save the 37-38 recession.
In
spite of the New Deal, mind. It's one of those embarassing coincidences of history, but the contraction bottomed out a little while after FDR took office. It then spent the next fifteen years TRYING to recover, but constantly being headed off by external events.
To understand the coincidence, you need to understand the 'Great Contraction' a little better. Monetarists and their ilk use the term 'Great Contraction' to specifically mean the point when the money supply shrank by a third from '30 to '33, but for my own ease I'm using it to mean the whole thing from the crash in '29 onward.
The first counter-intuitive thing you need to know about the Contraction is that it was actually three separate events. The first was the general business recession and then the Stock Market crash that happened in 1929. This part happened mainly because of the immense stock price bubble that the Federal Reserve blew into being with their very easy monetary policy from '27 onward.
After the bubble burst, the economy started trying to correct itself, but then the second thing happened. Banks started failing across the country. As more and more banks failed, they rolled up their assets and tried to sell them, causing prices to plummet and taking out even more banks. By the time it all ended, thousands of banks had closed and the money supply had shrank by a third. This is the main 'cause' of the Depression according to monetarists, but monetarists are crazy and we don't listen to them
The bank crash was mainly due to the fact that Hoover was doing a combination of things, mostly providing subsidies to unprofitable businesses that would have otherwise failed as well as using something we economists call 'moralsuation' to get businesses to keep wages high, which was also the reason unemployment went so damned high. Now, the economy was already experiencing severe deflation at the time, so these policies couldn't be sustained indefinitely and eventually something had to give. It just so happened that that thing was the banks.
The last thing to happen was the collapse of overseas banks. This started with the Credit Anstahlt bank in Austria, which then took out banks all over central Europe and eventually leaked across the Atlantic, taking out whatever remained of international trade. This one happened as a side-effect of the first two and because of the already weak central European economy (still trying to recover from German hyperinflation in the beginning of the 20's).
After the CA bank in Austria went under, however, and its effects had stopped reverberating through the global economy, the body blows had ended. This one-two-three combo to the face did a lot of damage, but there was nothing
stopping the economy from starting to recover by the middle of 1932, and indeed it did begin to recover in '33. But then FDR came along with his New Deal. While he did do a few smart things (the bank holiday, for instance), he also had a lot of funny money type ideas that were going to go no where.
The biggest impediment he set up was the NRA. It was
supposed to be a kind of 'self-government' organization for American industry, but what it ended up being was a cartelization device for big corporations. Capital, labor, and management were supposed to get together and negotiate things like wages and prices amongst entire industries, basically an attempt at 'democratic' price fixing. It failed utterly and retarded recovery until the Supreme Court threw out the NIRA (the bill which established the NRA) in 1935. You can see this in how economic growth went from 9% to almost 14% over the course of 1936.
(and ignore Schlaes. She excises Public sector labor entirely which makes her unemployment grossly incorrect. Its like counting war causalities and only looking at Americans for the whole casualities of every nation)
Well this is just downright unfair. I haven't personally gotten around to reading
The Forgotten Man, but I'd heard this objection to the book before. I got curious of why it was such a big deal (even if you include public sector labor unemployment still never went below 9% in the 30's), so I searched out some info on it. I found a video of Schlaes responding to the criticism and she was honestly one of the most reasonable, patient, and calm people I've ever seen. Certainly quite a bit different from her foaming-at-the-mouth detractors. She calmly explained
why she didn't include public sector employment, namely that she was looking at long-term employment only and you can hardly expect any of the WPA jobs to have been long term.
Here's the article, the key part being this:
He intentionally did not include temporary jobs in emergency programs -- because to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects.
As an aside, it's interesting that people would rag on her for someone
else's statistics. The Lebergott/Bureau of Labor Statistics series happens to be the most widely used set for Depression statistics there are. That's how you can tell people who try and snipe with this ammo are really just looking for anything at all to detract with, almost definitely with political rather than academic motivations.
And why did that recession come into being? Failure of the New Deal? No. It was when FDR stopped his New Deal and attempted to balance the deficit before reversing that policy in the face of economic troubles that that resurrected.
This is wrong, actually, and it saddens me when I see economists putting it out there, since it tricks regular guys like you.
Firstly, the magnitude of the spending cuts was waaaay too small for it to have the effect of throwing the entirety of the economy into recession. Combined with a series of smaller cuts (about $30 million in Federal education spending, a general shifting around of welfare payments that amounted to a $1 million cut, a $25 million cut in transportation infrastructure spending), the two major cuts came in spending on Veteran's education (about a $600 million cut) and farm subsidies (a $200 million cut). They also spent MORE on a lot of things, so the total spending cut measures out to about $350 million dollars. Even with a spending multiplier of 4 (a common number for the Great Depression), that's about $1 billion total, only a little more than 1% of the economy at the time. For comparison, the economy contracted by $5 billion during the '37 recession.
The biggest shift wasn't in spending, believe it or not, the biggest shift was in
revenue. The major tax code change that happened here was the Social Security Act in 1935. The new payroll taxes brought an additional $300 million into government coffers, and economic growth brought $600 million more in individual and corporate income taxes. Something like $1.1 billion in new tax revenues were picked up by the Treasury in 1937.
But none of these
caused the new contraction. They might have contributed to weakening the economy, but the main cause was a sudden doubling of reserve requirements by the Federal Reserve in 1936. This was
supposed to vaccuum up a whole bunch of excess reserves banks were keeping at the time, but the actual effect was to cause banks to simply double their reserves in response, leading to bad deflation. The '37 recession was the economy adjusting to the new monetary situation.
It's important to understand that the New Deal wasn't really 'Keynesian' in character, except accidentally, until '38, and even then only marginally. Keynes'
General Theory wasn't even published until 1936, and him and Roosevelt never did get along very well. Trying to put Keynesian factors into the equation is being either anarchronistic or dishonest, depending on how well informed you are.
So if you clearly see things worsen in the Depression when you let the market go back on its own to fix the economy, and see things improve only when you return to being an active force, how you can say intervention did anything negative is perplexing beyond belief. Were all programs effective? No (because FDR leaped before he looked from time to time). But that is not a potchmark on the fact that the overall thing worked.
Unfortunately, no, it didn't. The New Deal helped turned what should have been yet another harsh correction that should have been over by 1935 into a decades spanning depression the likes of which the world hadn't seen since the Roman Empire fell. We didn't return to the urban prosperity of the 20's until the late 40's, which ought to tell you something about the 'success' of the New Deal.
Of course what got us out of the Depression in the end? WW2. Yes, to the economic libertarian, that's all that needs to be said and because of that, they claim the New Deal failed and WW2 did it all on its own and in total. Do they ask why WW2 got us out? No. Its just something that wasn't the New Deal so they can claim the New Deal failed and massive spending to get out of a hole fails. Of course why did WW2 get us out of the Depression? Massive Government Spending. On tanks, aircraft, guns, ammunition, etc. The same things that had gone toward infrastructure build up and civilian production turned over to war production. You could have produced all those planes and threw them into the sea and have gotten the same thing, but frankly I'd have preferred constructing bridges and dams.
Actually, WWII didn't get us out of the Depression, the
end of the war and the end of rationing, wage and price controls, and other government fingers on the levers of the economy being lifted is what ended the Depression. You can't really talk about a 'return to prosperity' during the war, no matter what the statistics show, because people weren't living prosperous lives. Food, gas, and leather were rationed, economic life was significantly curtailed and, most importantly, the majority of production was turned over to making war materials. I hope I don't have to describe to you the difference between making tools of destruction with our capital goods and making tools of construction with them.
So sure, don't enact a New Deal. And enjoy the prospect that you may get back in the black by 1954.
Try 1935, which is the most common estimate these days. 1954 is, actually, quite an ironic year for you to chose, though, because it's around then that the stock market returned to pre-1929 crash levels. It took the stock market a
quarter century to return to the previous level. So sure about the New Deal, now?
International markets won't close down to the US in turn saving a lot of gripe in resecuring that and fixing the further fallout that it caused in the economies and markets. The Depression could be more quickly repairable by a few years.
Smoot-Hawley was like door that falls off of a car after its just hit a tree. Yeah, it sucks that the door fell off, but you've got bigger problems. The effects of Smoot-Hawley, while significant, were not a
major contributer to or cause of the wider crisis. Getting rid of it would ease some pain and recovery may happen somewhat earlier, but I'd rather get rid of Hoover's informal wage controls, first.