Transcript Crop-Destruction Program (Roosevelt)

Printing Money
and Spending it.
A Monetarist Look
At the Great Depression
Stock Market Crash
Frictionally unemployed?
Structurally unemployed?
Cyclically unemployed?
Unemployment
Bread Lines in New York
Prices were either too high or zero.
Food Lines in Paris
Oklahoma Dust Bowl
Make-shift Housing
Migrants Going West
Migrant Family
in California
Dorothea Lange's "Migrant
Mother," destitute in a pea
picker's camp, because of
the failure of the early pea
crop. These people had just
sold their tent in order to buy
food. Most of the 2,500
people in this camp were
destitute. By the end of the
decade there were still 4
million migrants on the road.
Despondency
10 years
Publication of John Maynard Keynes’s General Theory
Query: Was Keynes’s book really a “general theory”
or was it a tract for the times?
Per-capita GDP
Relative to the 1889-1929 Trend
10 years
Waning of “animal spirits”?
Sticky-Price Spiraling Downward
of Income and Expenditures?
Per-capita GDP
Relative to the 1889-1929 Trend
Monetarism
as applied
to the Great Depression
The equation of exchange is so near and
dear to Milton Friedman’s heart that he
A. tasteful appearance on his head stone.
B. spelled out in pansies in flower garden.
Gribouillis économiques
C. parody to the popular Y.M.C.A.
D. vanity license plate number.
GREG MANKIW’S BLOG
Random Observations for Students of Economics
September 16, 2006:
Curious question from Mankiw:
“How can you identify my car?”
Gregory Mankiw
Former Chairman
Council of Economic Advisors
George W. Bush Administration
mvpy writes:
You know, I hate to spoil things, but I must say, I think Milton
Friedman has a better plate. This is from an article I came across:
"Years ago, trying to find the Friedman’s apartment in San
Francisco, I knew I was in the right location when I spotted a car
with the number plate MV = PT."
A. Delaique writes:
Milton Friedman's licence plate was MV = PQ, not MV = PT.
Picture here : http://gribeco.free.fr/article.php3?id_article=12
Anonymous writes:
That's pretty ridiculous..
Canée writes:
I love economists.
Monetarism
MV = PQ
Monetarism
MV = PQ
18-30 months
This is the Quantity Theory of Money.
Monetarism
MV = PQ
18-30 months
In the long run, increases in M
affect nothing but P (and W).
Monetarism
18-30 months
MV = PQ
In the long run, decreases in M
affect nothing but P (and W).
Monetarism
Abstractly considered
MV = PQ
35%
35%
Suppose M falls from $45 billion to $30 billion.
P must fall proportionally to avoid a recession.
Monetarism
Historically considered: 1929-1933
MV = PQ
35% 15%
24%25%
The phenomenon of bust and depression was observed and
argued about long before the Great Depression and long before
Keynes wrote his General Theory.
A fully satisfying explanation requires that we consider the
phenomenon of boom, bust, depression, and recovery.
But sorting out the differences between Milton Friedman and
Maynard Keynes can be achieved with the narrower focus, i.e.,
bust and depression.
This focus suggests two questions in need of an answer:
1. What caused the bust? What was the triggering
mechanism? What change in market conditions required
adjustments of some kind on an economywide scale?
Keynes claimed it was a waning of animal spirits.
Friedman pointed to the collapse in the money supply.
2. Why did it take so long for markets to adjust to the
changed market conditions? If prices, wages, and interest
rates needed to adjust, why didn’t they adjust?
Keynes claimed it was price and wage-rate stickiness.
Friedman pointed to perverse government policy.
Consider policies pursued by Hoover and Roosevelt:
.
High-wage policies (Hoover)
.
Crop-Destruction Program (Roosevelt)
.
Potatoes, pork, cotton, dairy.
Consider policies pursued by Hoover and Roosevelt:
“Roosevelt did not forget agriculture. On May 12, 1933,
. CongressHigh-wage
policies
(Hoover)
passed the
Agricultural
Adjustment Act (AAA). The
two goals—to raiseProgram
farm prices
quickly and to control
. Act had Crop-Destruction
(Roosevelt)
production so that prices would stay up over the long term.”
.
Potatoes,
pork,though,
cotton, dairy
“In the AAA’s
first year,
the .supply of food
outstripped demand. The AAA could raise prices only by
paying farmers to destroy crops, milk, and livestock. To many,
it seemed shocking to throw away food while millions of
people were going hungry.”
“The New Dealers claimed
the action was necessary
to bring prices up.”
From The American Journey,
2003, p. 724.
Consider policies pursued by Hoover and Roosevelt:
.
High-wage policies (Hoover)
.
Crop-Destruction Program (Roosevelt)
.
Potatoes, pork, cotton, dairy.
.
.
Cartelization of Industry (Roosevelt)
Railroads, Steel, Banking
.
Blue Eagle Program (Roosevelt)
.
Make-Work Projects (Roosevelt)
.
WPA, CCC, “Give a Man a Job”
Social Security Program (Roosevelt)
Undistributed Profits Tax (Roosevelt)
CCC
Civil Conservation Corp
Make-Work Projects
New Deal-era promo for the NRA
(National Recovery Administration).
Producer: Metro-Goldwyn-Mayer
Featuring: Jimmy Durante
Click the “Blue Eagle” for the 2 min. 49 sec. video.
Keynesianism
vs
Monetarism
Monetarism
Historically considered: 1929-1933
A Summary view:
In 1929, the Federal Reserve
blundered monumentally in
allowing the money supply to fall.
Monetarism
Historically considered: 1929-1933
A Summary view:
Had the blundering not been
compounded by further blundering,
P would have fallen and there
would have been a short-lived
recession (18-30 months?).
Monetarism
Historically considered: 1929-1933
A Summary view:
The Hoover administration
instituted a “high-wage policy.”
Prices, which reflected high labor
costs, were also propped up.
Monetarism
Historically considered: 1929-1933
A Summary view:
The Roosevelt administration
further propped up prices through
its NRA legislation, involving crop
destruction, cartel arrangements,
and the “Blue Eagle” program.
Monetarism
Historically considered: 1929-1933
A Summary view:
The Roosevelt administration
worked through unions to prop
wages up. It was more “successful”
in blocking wage declines than in
blocking price declines.
Monetarism
Historically considered: 1929-1933
A Summary view:
All told, there was a double blunder
with a catastrophic twist:
M collapsed; P and W were propped
up--W more successfully than P.
Monetarism
Historically considered: 1929-1933
A Summary view:
The “real wage rate” (W/P) rose,
and unemployment peaked at 25%.
The Great Depression lasted for a
decade (1929-1939).
Keynesianism
MV = PQ
Keynesianism
MV = P(QC + QI)
MV = PQC + PQI
Y=
C + I
Keynesianism
MV = P(QC+QI)
Prices are “sticky downward.”
Investment suffers from a waning of “animal spirits.”
Consumption falls as the economy spirals downward.
Keynesianism
MV = P(QC+QI)
People begin to hoard money (“V” falls)
and may even become “fetishistic” in
their money-hoarding propensities.
Keynes believed that the velocity of
money was subject to dramatic and
unpredictable change.
He believed that people “hoard” money,
more so some times than others.
(increased hoarding means a decrease
in velocity.)
In extreme episodes, people may be
overcome by the “fetish of liquidity,”
the fetish often accompanying the
waning of animal spirits.
Keynesianism
MV = P(QC+QI +QG)
The government should increase the
money supply enough to offset people’s
“fetishistic” propensities and….
Keynesianism
MV = P(QC+QI +QG)
…to finance the fiscal policy (such as an
increase in government spending)
required to drive the economy back to its
full-employment level of income.
Printing Money
and Spending it.
Monetarism and Keynesianism
Historically Considered