Avinash_Tyagi said:Yeah, but in 1937, Jackson, FDR unwisely tried to cut back on spending and balance the budget, now that was far worse than wage inflation and allowing price collusion, and that was when the economy went south again, for all your railing against flawed government intervention, our economy went up during that period, it was only when he stopped following that idea that the economy tanked. Also Jackson FDR did pass the Agricultural Adjustment Act of 1938 and the Fair Labor Standards Act in 1938, but that was the last major legislation he got through because his political power was weakend by the 1937-38 recession, one piece of legislation wasn't enough to undo the damage of those right wing ideas  Also Jackson, the only reason recovery was weak in 1939 was because 1939 was after the new deal had basically been snuffed out and FDR had unwisely reversed himself, you're blaming the new deal when the real culprit was not sticking to the new deal Also After 1939, the US starts gaering for war, and that takes deficit spending and government intervention and that brings us out of the Depression

Again, different types of intervention have different effects. Were it not for the flawed government intervention that produced artificially inflated prices and wages, the economy would have increased at a faster rate. 

The spending cuts/tax increase were coupled with the implementation of payroll taxes in 1937 and other increases in wages in 37 and 38 that markedly raised the cost of employing workers. We can see the negative effects of these policies when they were no longer mitigated by massive amounts of government spending. 

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You;re speculating that te recovery would have been faster, even those economists you cite didn't use data from 19356-36, because they knew that it would disporve their argument they cherry pciked for 39 after the recession

No the negative effects in 37 and 38 were caused by a reduction in government spending and an increase in taxes on the lower tax brackets, before then it was only higher income eraners that were paying higher taxes, payroll taxes are regressive taxes Jackson, meaning they effect lower earners more than higher earners. Payroll taxes aren't an increase to wages Jackson, they garnish wages, to pay for social security. You argue that they were no longer mitigated by government spending, the fact is the opposite, they weren;t the culprits in 37 and 38, it was the contractionary fiscal policies of 37 and 38 that led to the downturn, not wage inflation and price fixing. A reduction in government spending meant less employed and an increase in taxes meant less disposable income.

Avinash_Tyagi said: You;re speculating that te recovery would have been faster, even those economists you cite didn't use data from 19356-36, because they knew that it would disporve their argument they cherry pciked for 39 after the recession No the negative effects in 37 and 38 were caused by a reduction in government spending and an increase in taxes on the lower tax brackets, before then it was only higher income eraners that were paying higher taxes, payroll taxes are regressive taxes Jackson, meaning they effect lower earners more than higher earners. Payroll taxes aren't an increase to wages Jackson, they garnish wages, to pay for social security. You argue that they were no longer mitigated by government spending, the fact is the opposite, they weren;t the culprits in 37 and 38, it was the contractionary fiscal policies of 37 and 38 that led to the downturn, not wage inflation and price fixing. A reduction in government spending meant less employed and an increase in taxes meant less disposable income.

It is not speculation. That was one paper. Other materials they have produced supports their premise by using data from every year of the Depression. For example, using wages and prices from 1929 as a benchmark, they used annual increases in productivity to determine what wages and prices should have been every year during the Depression. In the first three years after the implementation of Roosevelt's wage/price policies, wages were 25% higher than they should have been. Conversely, unemployment was 25% higher than it should have been. 

No, payroll taxes did not increase wages, but they did increase the cost of labor which is tantamount to an artifical wage increase. Unemployment was mostly affected by more artificial increases in wages (which increased markedlt in 37/38) and other measures (payroll tax) that markedly increased labor costs-labor costs increased by 11% in 1937. This time, however, the government spending did not mitigate these negative effects on growth and unemployment rose. 

 

Problem with arguing that is the assumption that increases in productivity will result in increases in employment at uniform levels, as we saw in the early part of this decade, we had productivity growth yet employment did not rise uniformly, so yeah it is speculatio that unemployment was 25% higher than it should have been purely on producutivity gains.

While it is true, that labor costs did increase in 1937, you're trying to foist all the blame on that, while ignoring the contractionary fiscal policies and moneyary policies which were of a greater burden than labor costs, the contractionary government policies were a greater cause of unemployment and declining economic growth than the labor costs, labor costs were 11% you argue, well contractions in governemt  policies were much larger



As you can see in this graph the government expenditures were contracted heavily in 37 from their peak in 36 around a 10% decline, this was much bigger cuase in the downtrun than any increases in labor costs, also don't forget the higher reerve requirements, doubling of the requirements, wihcih contracted the money supply. It wasn't that the government actions were mitigating the effect, the government actions were the cause of the upturn and without them the economy collapsed again.

 

You seem to be arguing that government interventinon only had the effect of dampening bad government intervention and that the economy would have recovered without any intervention, whilke it can be argued that some actions were unwise, to be sure, you fail to accept that without government intervention there would have been no recovery whatsoever, and that it was expansionary fiscaland monetary policy that was the cuase ofor the recovery and that a pullback from that was unwise

Avinash_Tyagi said: Problem with arguing that is the assumption that increases in productivity will result in increases in employment at uniform levels, as we saw in the early part of this decade, we had productivity growth yet employment did not rise uniformly, so yeah it is speculatio that unemployment was 25% higher than it should have been purely on producutivity gains. While it is true, that labor costs did increase in 1937, you're trying to foist all the blame on that, while ignoring the contractionary fiscal policies and moneyary policies which were of a greater burden than labor costs, the contractionary government policies were a greater cause of unemployment and declining economic growth than the labor costs, labor costs were 11% you argue, well contractions in governemt  policies were much larger As you can see in this graph the government expenditures were contracted heavily in 37 from their peak in 36 around a 10% decline, this was much bigger cuase in the downtrun than any increases in labor costs, also don't forget the higher reerve requirements, doubling of the requirements, wihcih contracted the money supply. It wasn't that the government actions were mitigating the effect, the government actions were the cause of the upturn and without them the economy collapsed again.

They did not argue that increases in productivity will increase employment. They used productivity to figure out what wages would have been. If wages are higher than productivity, labor will be shed. If wages are artificially increased to the degree that they were by Hoover and then by Roosevelt, then this will markedly decrease employment. 

I am not attempting to foist all the blame on that. I am foisting the majority of the blame on it. The convergence of all of these policies at approximately the same time led to the downturn. We simply disagree on which deserves the greater share of the blame. There really is no way to change each other's opinion.

Here's what they argue, was that between 1929 and 1939, productivity rose 30% and that labor was down 21% and that it was an above market wage that kept employment depressed



You argue that wages were artifically increased by FDR to a level that resulted in increased unemployment, however as the graph shows wages continued on the same trend growth as always without being inflated beyond where they should have been.

Wages are sricky jackson, employees don't expect to see their wages decline and they expect to see wage increases over time, as the graph shows the argument that you are using that wages were inflated doesn;t seem to exist in the trend line. You can argue that wages were kept up when they shpuld have fallen, but that assumes that employers will cut wages instead of workers, if i'm an employer the last thing I want to do is cut wages, because it hurts moral and may laed to strkes and work stoppages, I will cut workers and hours before wages.

Avinash_Tyagi said:Here's what they argue, was that between 1929 and 1939, productivity rose 30% and that labor was down 21% and that it was an above market wage that kept employment depressed You argue that wages were artifically increased by FDR to a level that resulted in increased unemployment, however as the graph shows wages continued on the same trend growth as always without being inflated beyond where they should have been. Wages are sricky jackson, employees don't expect to see their wages decline and they expect to see wage increases over time, as the graph shows the argument that you are using that wages were inflated doesn;t seem to exist in the trend line. You can argue that wages were kept up when they shpuld have fallen, but that assumes that employers will cut wages instead of workers, if i'm an employer the last thing I want to do is cut wages, because it hurts moral and may laed to strkes and work stoppages, I will cut workers and hours before wages.

Actually, that graph bolsters my argument. The gray area highlights the significant gap between wages and productivity. As I said in my previous post, if wages are higher than productivity, jobs will be shed. Workers were being paid more than they were worth. Wages might be seen as sticky downward by today's Keynesians, but before Hoover, this was not the case. Hoover changed this because he was opposed to the decline in wages during the recession of 20/21 when he was the commerce secretary. Needless to say, that was another failure of Hoover's that was unfortunately perpetuated. 

 

Actually wages even then were sticky Jackson, because of the increasing strength of unions and collecitve bargaining even before the Depression.

Yes wages and productivity were gapped, but again, employers don't want to risk inflaming worker discontent, especially not in that period, they would have shed jobs before wages anyways, even Bernanke in 1986 noted that during the Depression employers were unwilling to cut wages, instead opting to lower hours and shed workers, therefore the argument that things would have been better without wage controls is flimsy, since declines in wages would have been met with worker opposition

the banks are trying to hold on to the money and Obama wants them to loan it out. That's the whole point in the first place; to get people spending again. What's wrong with that?

Avinash_Tyagi said: Actually wages even then were sticky Jackson, because of the increasing strength of unions and collecitve bargaining even before the Depression. Yes wages and productivity were gapped, but again, employers don't want to risk inflaming worker discontent, especially not in that period, they would have shed jobs before wages anyways, even Bernanke in 1986 noted that during the Depression employers were unwilling to cut wages, instead opting to lower hours and shed workers, therefore the argument that things would have been better without wage controls is flimsy, since declines in wages would have been met with worker opposition

Before the Depression, wages really were not sticky. Unions became weaker in the 20s. Union membership decreased markedly until 1923 when it became stagnant for the remainder of the decade. Anyway, I have to get up early tomorrow to return to school.