PARTICIPANTS
Lee Ohanian, John Taylor, Annelise Anderson, Hoyt Bleakley, Michael Bordo, Michael Boskin, Doug Branch, John Cochrane, Steve Davis, Dixon Doll, Michael Droste, William English, Eyck Freymann, Vance Ginn, Rick Hanushek, Robert Hodrick. Ken Judd, Patrick Kehoe, Don Koch, Evan Koenig, Jeff Lacker, David Laidler, Charles Leung, Mickey Levy, Jim Mattis, Axel Merk, Roger Mertz, David Papell, Elena Pastorino, Valerie Ramey, Macke Raymond, Richard Sousa, Tom Stephenson, Marc Weidenmeir, Alexander Zentefis
ISSUES DISCUSSED
Lee Ohanian, senior fellow (adjunct) at the Hoover Institution and professor of economics and director of the Ettinger Family Program in Macroeconomic Research at the University of California, Los Angeles (UCLA), discussed “The Great Depression May Have Started Much Earlier Than We Thought,” a paper with Fatih Öztürk (UCLA).
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
An important open question regarding explanations for the Great Depression is what caused the very rapid initial decline, including a 13 percent drop in real out- put and a 30 percent drop in business investment in the first year of the downturn, well before the Friedman-Schwartz dated banking panics, significant deflation, or large declines in the money supply which are prominent in the literature. Some theories focus on policies that raised real wages, including Bordo, Erceg and Evans (2000), and Ohanian (2009), which in turn use models building off President Herbert Hoover’s program of shifting income to labor, and sharing work. But why did Hoover implement such a policy? This paper shows that in contrast to the standard view that the 1920s economy was on its steady state growth path, that the 1920s economy was in some ways as much of a “one off ” event as the 1930s, including 1920s labor, investment, and output far below predicted values from standard growth theory, with deviations nearly as large as those during the Great Depression. The analysis also documents a very large gap between growth in output per hour and real wages in the 1920s, and a large decline in labor’s share of income. This provides an explanation for why Hoover pursued his policies, why Roosevelt’s New Deal continued them, and suggests that the genesis of the Great Depression may lie in the 1920s economy, which in turn may reflect large changes in the way that businesses were organized and managed and that effectively reduced demand for labor and physical capital.
To read the paper click here
To read the slides, click here
WATCH THE SEMINAR
Topic: “The Great Depression May Have Started Much Earlier Than We Thought”
Start Time: October 30, 2024, 12:00 PM PT
