Why Does Progressive, Keynesian Economics Work and Conservative, Classical Economics Doesn't Work?
Of course I know that is a loaded question, but the evidence is quite broad and convincing.
Classical economics was the only game in town from 1787 to 1933, Keynesian economics became the rage from 1933 to 2001 after which it moved to back to Classical. Now here is the kicker:
- in the period from 1787 to 1933, 41% of the time was spent either going into or coming out of downturn as large or larger than the Great Recession of 2008 for downturns caused for the same reasons; bursting bubbles.
- From 1940 to 2000, there has been zero time doing the same thing.
What does that tell you?
It tells me that you're question is not only loaded but a bit misleading..lol Many of the downturns were very quick and short lived, and not all that impactful. The 1920-21 period was most certainly more severe than 2008 and in fact 1929. Yet it lasted only about 18 months and led to one of the most rapid and prosperous recoveries. There is a reason why events like 1920-21 aren't remembered as a depression the way we think of 1929, which is commonly referenced as one of the worst economic periods in US history. That's because even though the contraction to GDP and deflationary pressures were worse than 1929...it didn't result in a near 2 decade malaise that some call a recovery.
Case in point, today the US is not, and has not been in a recession since the first half of 2009. Yet we have the smallest labor force participation rate in 40 years, and the composition of the labor force recovery, to the extent there has been one is heavily weighted towards low income and part time employment. Yet, officially...we have been in a state of economic expansion for 5 years. How many people who don't read economic statistics would call this a recovery at all. To most it's another long drawn out malaise that they are praying will end.
So much of what we call contractions in statistical terms didn't have the same impact or feel to the average citizen. And many of the so-called recoveries weren't recoveries for the large majority of the population.
Interestingly, Payden & Rygel just put out of a piece of research on historic deflationary periods in their regular newsletter that you might find interesting considering your penchant for reading economic data. I just received this today at my office, which they also post online. I have always believed that the consensus view of the fear of deflation was overstated. History shows that deflationary contractions were more common and normal for many decades. Yet during that period growth and progress was fairly consistent. Meaning not all deflationary contractions are the chaotic doomsday scenarios many assume they have been. Many of these periods of statistical contraction were in fact very prosperous periods. Have a read...http://www.payden.com/library/pov/POVSpring2014.pdf
Thanks Landmark, I will take a look at it. The data, unfortunately is a bit overwhelming. I culled out the small ones. Out of the 37 NBER classified recessions between 1785 and 1937, I only used 15 of them to get my results; 1920 didn't count.
Unfortunately, the data is misleading. Not all deflationary contractions are a result of a crisis. And not all GDP expansions are much of a recovery. Much like the supposed recovery of today. Also a much easier read the last NBER piece I sent. LOL
The 15 I used were. Each one was the result of a bubble bursting; each had similar characteristics and similar to 2008. I left out those resulting from monetary causes or war and the like.
Not many resulted in 2 decades of stagnate economic malaise like the 1930's into the 40's as it did during the dawn of Keynesian intervention. Many so-called "panics" like 1910 were isolated to the stock market and not wide spread across labor mkts
Again, the ones in my 15, which account for the American population falling into or digging out of deep recessions or depressions for 41% of their history, were just that, deep. They weren't limited to the rich, they were nationwide and destructive.
The question in my view is less depth and more length. No contraction was more deep than 1920-21. And the result was hardly as damaging as 1929 as markets worked thru imbalances. The largest interventions have been extremely slow recoveries.
I would think the fact that only 15 recessions/depressions account for 743 month out of a possible 1800 of depressed economy speaks to their length; that is an average of 50 months per downturn; peak-to-trough-to-recovery back to previous peak.(est)
You're looking at a small subset of data. As the Payden piece pointed out, not all deflationary periods were the same. How many successful rapid recoveries can you cite from aggressive active Keynesian stimulus. The 30's were a total failure.
There were no serious, relative to the pre-1940 activity, downturns to recover from; that is the point. Keynesian economics prevented the wild swings that was the hallmark from 1785-1933. All recoveries were rapid by comparison. 40% is not small.
You're in one now.... 1 trillion in stimulus...and the weakest labor market recovery in decades. We have not consistently used core ideas of Keynes since the 40's. In fact we rarely implemented his ideas since then before the 2009 stimulus.
You and I must have different interpretations of what Keynesian is, for I see the use of macro-micro principals combined with gov't manipulation of monetary and fiscal policy to achieve certain macro goals as the MO from 1945 to 2001.
The US gov't has been manipulating monetary policy long before the 40's. But the active targeting of countercyclical deficit spending (A key tenet of Keynes) has not been a constant since the 40's. Quite the opposite in most instances.
I meant to say this before: the avg length from peak-to-trough-back to previous peak was 20 months fpr the 11 recessions (minus 2008) since 1940, vice the 50 months for earlier recessions/depressions.
I found P&R's analysis on deflation a mixed
There is so much more to evaluate. That is very one dimensional. The 2008 recession ended long ago. But that doesn't tell you much about the current labor market recovery and more importantly the composition of the labor market and purchasing power
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