Econ 210c, Spring 2002, Reading Notes for March 20: The Great Depression II

Brad DeLong

  • Robert Margo (1993), "Employment and Unemployment in the 1930s," JEP 7 (Spring).

    J.R. Vernon (1994), "World War II Fiscal Policies and the End of the Great Depression," JEH .

    J. Bradford DeLong (1996), "Keynesianism, Pennsylvania-Avenue Style," JEP 10:3 (Summer), pp. 41-53.

    Alberto Alesina, Edward Glaeser, and Bruce Sacerdote (2001) "Why Doesn’t the U.S. Have a European-Style Welfare System?"

    Wage rigidity... persistently high unemployment rates... long-term joblessness. These are key characteristics of the Depression-era labor market experience as outlined by Bob Margo. During the Depression as much as two-thirds of the jobless had been out of work for a year or more, yet real wages (and nominal wages) remained extraordinarily sticky. To what extent was high wage stickiness a result of Depression-era welfare-state policies? Margo evades this question, I think. And he also evades a more important question: to what extent will any democratic government produce policies in a Great Depression that lead to high wage stickiness? It is no use calling for governments to adopt policies leading to wage flexibility if there is no chance that they will do so. Alternative anti-Depression government policies are called for...

    Perhaps the most interesting part of Margo's paper is his analysis of the 1940 Census, and his claim that workers were eager to keep extremely low-paid WPA jobs rather than run the risk of higher-paid private sector jobs--but private sector jobs that they feared woul prove ephemeral. This is an important claim that may provide the key to why the Great Depression lasted for so very long.

    Vernon takes pot shots at both Christie Romer and this guy DeLong. The issue turns on exactly what "World War II fiscal policies" are. And there is a subsidiary issue--Robert Higgs's claim that the U.S. during World War II was not "prosperous" because consumption is low. But from my perspective what is still the most interesting thing about the fiscal policy in the Great Depression is how little it was tried. Why not? This is especially interesting because denunciations of Roosevelt's "Keynesian" policies have been a staple of the right from the mid-1930s to today.

    This guy DeLong argues that the Great Depression produced a large and fundamental change in the way the government viewed its responsibility for the economy. According to DeLong, at least, no Great Depression, no acceptance by the U.S. government of a strong full-employment guaranteeing role. Is he right? Could the Depression by itself made so much difference?

    While DeLong argues that the Great Depression turned the United States into a (semi-) social democracy, Alesina and company argue that not even the Great Depression was enough to turn the United States into a real social democracy. Why is the U.S. such an outlier in its social insurance system?