Lessons from the Great Depression for Economic Recovery in 2009

Économiste Monétaire

Christina Romer, Chairperson of the CEA, presented a short, non-technical paper with this title to the Brookings Institute. Find it here.

silverharp

A few random thoughts, in as much as it matters is unemployment calculated the same way as the 30's? I gather the rate would be much higher now if the same calc. was used ?

The US was a creditor nation in the 1930's and self sufficient in oil etc. can the US get away with debt splurge now?

In the article it mentioned an inflow of gold into the US against which treasury notes were issued. The gold represented real savings , again I dont think you get the same effect by printing money?

There seemed to be alot of cause and effect statements made. I'd be careful of drawing conclusions, just because 2 events happen concurrently that doest mean that there is a cause and effect.

The pension issue is huge , just because people havnt lost their bank accounts this time they have / will have pension savings more or less wiped out.

Économiste Monétaire

silverharp wrote: »

A few random thoughts, in as much as it matters is unemployment calculated the same way as the 30's? I gather the rate would be much higher now if the same calc. was used ?

From my understanding of the BLS U-3 and U-6 measurements, there is a significant disconnect between the figures she is quoting and what is a more appropriate means of comparison. The last major change, that I can think of, is when the BLS adopted a different approach to calculating unemployment and 'discouraged workers' in 1994. Are you asking whether the official unemployment figure is masking a large number of the hidden unemployed, which, if we included the 'marginally attached' persons the number would be substantially higher? The BLS defines unemployment as being either: on temporary layoff, or having actively looked for work in the past four weeks. Discouraged workers being be those who have lost their jobs and simply given up trying to find a job--and so are counted as out of the labour force when they are, by one's subjective measure, really unemployed. Your question, in the broad sense, has been argued for the last 50 years, and there are rakes of papers on the issue. For example, Lucas and Rapping's work on unemployment measures and the effect of money wage rates on reported unemployment. They also cite, in a '72 paper on unemployment during the Great Depression, the 1933 25% unemployment figure.

Today, workers are classified as discouraged if they have searched for a job within the last year. George Borjas, a Harvard Labour Economist, noted that the change in the 1994 methodology of what is a 'discouraged worker' reduced the previous year's discouraged worker count from 1.1 million to 400,000. There's a short paper by Paul Flaim, of the BLS, on how strong the links are between discouraged workers and the labour market. The official unemployment figure is somewhat artificially low if one were to include the hidden unemployed (or, those who are 'marginally attached') but the consensus is that we shouldn't include them. For example, a quote by Borjas: "over a third of the discouraged workers in the 1980s had not worked for five years."

You could turn the unemployment rate around and say that it's being inflated by those with no interest in finding employment, but are just there to receive unemployment benefit. There are problems with pretty much every measure of unemployment and what constitutes the 'true' figure. I think if Romer's paper wasn't a simple speech then she wouldn't be so political with the truth (at least I hope she'd be more accurate).

silverharp wrote: »

The US was a creditor nation in the 1930's and self sufficient in oil etc. can the US get away with debt splurge now?

The U.S. Federal government or the private citizens? The government shouldn't have any major issues raising funds. The Fed has provided a lot of cheap money to banks, which are obviously averse to lending it to Joe Broke, and can easily buy up the record weekly debt issuances. The NY Fed only recently added (or is intending to add) new primary dealers to alleviate the strain.

silverharp wrote: »

In the article it mentioned an inflow of gold into the US against which treasury notes were issued. The gold represented real savings , again I dont think you get the same effect by printing money?

I think she meant that the real exchange rate depreciated and, because goods were cheaper (along with the uncertainty in Europe), gold flooded in as exports increased. Your gold-standard specie flow mechanism, but without the painful domestic price level adjustment vis-á-vis further protracted recession, just a gold-dollar exchange rate realignment. I think she's relating that to a dirty floating policy, which they could use to their advantage.

silverharp wrote: »

There seemed to be alot of cause and effect statements made. I'd be careful of drawing conclusions, just because 2 events happen concurrently that doest mean that there is a cause and effect.

I agree.

silverharp wrote: »

The pension issue is huge , just because people havnt lost their bank accounts this time they have / will have pension savings more or less wiped out.

True. A large demographic, nearing retirement, with their on-paper wealth taking a nose dive.

silverharp

Économiste Monétaire wrote: »

You could turn the unemployment rate around and say that it's being inflated by those with no interest in finding employment, but are just there to receive unemployment benefit. There are problems with pretty much every measure of unemployment and what constitutes the 'true' figure.

I guess it is just the way the numbers are thrown around with the subtext that things are not anyway close to 30's levels or could get that high. There is a guy in the US John Williams who has made a sport of tyring to get like for like numbers going back in time. This is one of his charts on umemployment

Économiste Monétaire wrote: »

I think she meant that the real exchange rate depreciated and, because goods were cheaper (along with the uncertainty in Europe), gold flooded in as exports increased. Your gold-standard specie flow mechanism, but without the painful domestic price level adjustment vis-á-vis further protracted recession, just a gold-dollar exchange rate realignment. I think she's relating that to a dirty floating policy, which they could use to their advantage

It seems to be a fascination with quantitative easing or how can the money supply be bumped up. If they can do it from trade surpluses that would be fine. There was a funny unintended consequence of the easing in Britain, it blew the annuity rates out of the water so probably had a larger effect on pension values then any good the new cash was to do.

Économiste Monétaire

Interesting graph, though I'm sceptical of anyone trying to accurately amalgamate discouraged workers and the unemployed. That's a huge discrepancy between U-3 and his estimate. I always thought Great Depression measurements were somewhere between U-5 and U-6. China has been rolling the printing presses to keep the Yuan down. It's pretty dangerous to employ that type of policy when you're just trying to improve your terms of trade, as opposed to creating a liquid market for specific areas of debt to bring down spreads.

nesf

silverharp wrote: »

There seemed to be alot of cause and effect statements made. I'd be careful of drawing conclusions, just because 2 events happen concurrently that doest mean that there is a cause and effect.

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