Inflation Detour II: Crisis and Recovery across Great "Fluctuations"
We are now almost 24 months into the Great Recession. While many expect NBER will eventually say that The Great Recession ended several months ago, they have not yet.
By contrast, the recession that began The Great Depression, per NBER, lasted 43 months. It seems only fair to compare the two, so I trust I can be forgiven for not yet having declared The Great Recession over.
One of the problems is that of official government data. Many of the statistics we now consider “standard” were first tracked as part of the government funding and jobs created by FDR’s Administration. (The irony of multiple economists and idiots arguing that the data shows that those programs should never have happened should not be lost on the reader.)
For an examination of Wall Street, though, reasonable proxy data is available. With some issues noted, we can use the change in Real Prices as a proxy. Comparing the two periods produces:
Fairly comparable. The market had a better six months prior to the October 1929 crash, which is rather neutralized by the drop about five months after the first Depression Recession begins, which is steeper than the comparable drop in the current period.
In spite of all the support for the banking system, the recovery is fairly comparable to the one from the Great Depression—at least so far.
Below the fold, let’s look at Main Street.
As noted above, most of the data required for measuring Main Street—most especially a reliable measure of unemployment—is not available publicly. (If anyone wants to provide me with a copy of the Haver Analytics data, for instance, I won’t complain. Meanwhile, see this post at CR for a graphic of that data from the Depression Era.)
So let’s take another approach. Accept, for the sake of discussion, the traditional Republican argument that inflation reduces the ability of Main Street to grow business, borrow money, and generally live.
If we therefore take the inverse of the Annual Inflation Rate, we can see the “gain” the consumer makes. (Note that, in most periods, the consumer is deemed to have lost. Reality may be different, as smoothing hides may variances. But that is always true, and likely always shall be.)
So let’s look at how Main Street fares, then and now:
Judging strictly by the two periods, it appears that Main Street did significantly better—speaking in terms of earning power—during the time leading up to and beginning the Great Depression than it has during the Great Recession. Indeed, the two paths track each other rather well.
It would appear—information that will surprise few other than perhaps Larry Summers and Tim Geithner—that all of the efforts of the Federal Reserve Board and the U.S. Treasury have had no positive effect on Main Street, leaving its purchasing power significantly lower than the same period of the Great Depression.
Probably more on this on a future rock. Comments and suggestions are rather welcome.
So deflation is a *good* thing, now? Please explain.
JW Mason,
I don’t want to answer for Ken, but I think I can quote him from his post:
“So let’s take another approach. Accept, for the sake of discussion, the traditional Republican argument that inflation reduces the ability of Main Street to grow business, borrow money, and generally live.
If we therefore take the inverse of the Annual Inflation Rate, we can see the “gain” the consumer makes. “
You can be sure of one thing: the pointy heads in this administration will make a mess of anything they do.
cactus-
But (1) That argument is insane. Deflation is terrible for working people. Saying that we should accept, for the sake of argument, that it is good is like saying that we should accept, for the sake of argument, that black is white. A top priority fo the Roosevelt administration throughout the New Deal was to *halt* deflation. Do you deny this? And if not, why should we regard the failure to do so, as a sign of success? And note Ken’s conclusion: “Main Street’s purchasing power significantly lower than the same period of the Great Depression.” Even though unemployment, industrial output, etc. had all fallen further. Do you actually believe this? Does Ken?
(2) Deflation is good is not a traditional Republican argument at all. I challenge you, or Ken, to find me a single prominent Republican saying that. The traditional Republican argument is that price stability is very important, and both inflation and defaltion should be avoided.
Again, I’m not answering for KH.
My own belief is that there’s a happy range – too much inflation is bad, and too little inflation (i.e., deflation) is bad.
But once again, notice KH’s statement… “Accept, for the sake of discussion, the traditional Republican argument that inflation reduces the ability of Main Street to grow business, borrow money, and generally live.” If you accept that argument for the sake of discussion, and KH is accepting it for the sake of discussion (I don’t see him insisting its true anywhere except in the context of purchasing power, which is a tautology, after all) then it has a logical implication. That logical implication is that no inflation or anti-inflation (i.e., deflation) doesn’t have the following problems – it doesn’t “impair the ability of Main Street to grow business, borrow money, and generally live.”
Now, it just may be that this argument is not correct. As I noted, from reading the post, the only instance in which KH indicates he himself is in some agreement with this is from the point of view of purchasing power – falling prices means the dollars in my pocket buy more stuff. Pointing out that the implications of the argument are nonsensical, as KH is doing, is one way to indicate that the entire argument is flawed.
JW Mason,
I tend to agree with you that no prominent Republican will come out with words like “deflation is good.” But call it whatever you like, if you are in favor of falling prices, you are in favor of deflation.
One obvious example… when Reagan was running for re-election, he went traipsing around the country talking about how the oil decontrol had led to a decrease in fuel prices. (As a young political junkie at the time, I remember the whole “8 cents a gallon” spiel.) Now, he had a good point that the government had no business interfering in the pricing mechanism, but when you’re bragging about price decreases, you’re cheerleading for deflation. And I’d say if anyone qualifies as a prominent Republican, Reagan is it. His corpse could probably win the Republican nomination.