Posts Tagged ‘Great Depression’


Mark Tansey, “Discarding the Frame” (1993″

Obviously, recent events—such as Brexit, Donald Trump’s presidency, and the rise of Bernie Sanders and Jeremy Corbyn—have surprised many experts and shaken up the existing common sense. Some have therefore begun to make the case that an era has come to an end.

The problem, of course, is while the old may be dying, it’s not all clear the new can be born. And, as Antonio Gramsci warned during the previous world-shaking crisis, “in this interregnum morbid phenomena of the most varied kind come to pass.”

For Pankaj Mishra, it is the era of neoliberalism that has come to an end.

In this new reality, the rhetoric of the conservative right echoes that of the socialistic left as it tries to acknowledge the politically explosive problem of inequality. The leaders of Britain and the United States, two countries that practically invented global capitalism, flirt with rejecting the free-trade zones (the European Union, Nafta) they helped build.

Mishra is correct in tracing British neoliberalism—at least, I hasten to add, its most recent phase—through both the Conservative and Labour Parties, from Margaret Thatcher to Tony Blair and David Cameron.* All of them, albeit in different ways, celebrated and defended individual initiative, self-regulating markets, cheap credit, privatized social services, and greater international trade—bolstered by military adventurism abroad. Similarly, in the United States, Reaganism extended through both Bush administrations as well as the presidencies of Bill Clinton and Barak Obama—and would have been continued by Hillary Clinton—with analogous promises of prosperity based on unleashing competitive market forces, together with military interventions in other countries.

Without a doubt, the combination of capitalist instability—the worst crisis of capitalism since the first Great Depression—and obscene levels of inequality—parallel to the years leading up to the crash of 1929—not to mention the interminable military conflicts that have deflected funding at home and created waves of refugees from war-torn zones, has called into question the legacy and presumptions of Thatcherism and Reaganism.

Where I think Mishra goes wrong is in arguing that “A new economic consensus is quickly replacing the neoliberal one to which Blair and Clinton, as well as Thatcher and Reagan, subscribed.” Yes, in both the United Kingdom and the United States—in the campaign rhetoric of Theresa May and Trump, and in the actual policy proposals of Corbyn and Sanders—neoliberalism has been challenged. But precisely because the existing framing of the questions has not changed, a new economic consensus—an alternative common sense—cannot be born.

To put it differently, the neoliberal frame has been discarded but the ongoing debate remains framed by the terms that gave rise to neoliberalism in the first place. What I mean by that is, while recent criticisms of neoliberalism have emphasized the myriad problems created by individualism and free markets, the current discussion forgets about or overlooks the even-deeper problems based on and associated with capitalism itself. So, once again, we’re caught in the pendulum swing between a more private, market-oriented form of capitalism and a more public, government-regulated form of capitalism. The former has failed—that era does seem to be crumbling—and so now we begin to turn (as we did during the last system-wide economic crisis) to the latter.**

However, the issue that keeps getting swept under the political rug is, how do we deal with the surplus? If the surplus is left largely in private hands, and the vast majority who produce it have no say in how it’s appropriated and distributed, it should come as no surprise that we continue to see a whole host of “morbid phenomena”—from toxic urban water and a burning tower block to a new wave of corporate concentration  and still-escalating inequality.

Questioning some dimensions of neoliberalism does not, in and of itself, constitute a new economic consensus. I’m willing to admit it is a start. But, as long as remain within the present framing of the issues, as long as we cannot show how unreasonable the existing reason is, we cannot say the existing era has actually come to an end and a new era is upon us.

For that we need a new common sense, one that identifies capitalism itself as the problem and imagines and enacts a different relationship to the surplus.


*I add that caveat because, as I argued a year ago,

Neoliberal ideas about self-governing individuals and a self-organizing economic system have been articulated since the beginning of capitalism. . .capitalism has been governed by many different (incomplete and contested) projects over the past three centuries or so. Sometimes, it has been more private and oriented around free markets (as it has been with neoliberalism); at other times, more public or state oriented and focused on regulated markets (as it was under the Depression-era New Deals and during the immediate postwar period).

**And even then it’s only a beginning—since, we need to remember, both Sanders and Corbyn did lose in their respective electoral contests. And, at least in the United States, the terms of neoliberalism are still being invoked—for example, by Ron Johnson, Republican senator from Wisconsin—in the current healthcare debate

Japan World Markets

Most of us are pretty cautious when it comes to spending our money. The amount of money we have is pretty small—and the global economic, financial, and political landscape is pretty shaky right now.

And even if we’re not cautious, if we’re not prudent savers, then no harm done. Spending everything we have may be a personal risk but it doesn’t do any social harm.

It’s different, however, for the global rich. The individual decisions they make do, in fact, have social ramifications. That’s why, back in 2011, I suggested we switch our focus from the “culture of poverty” to the pathologies of the rich.

Consider, for example, the BBC [ht: ja] report on the findings of UBS Wealth Management’s survey of more than 2,800 millionaires in seven countries.

Some 82 percent of those surveyed said this is the most unpredictable period in history. More than a quarter are reviewing their investments and almost half said they intend to but haven’t yet done so.

But more than three quarters (77 pct) believe they can “accurately assess financial risk arising from uncertain events”, while 51 percent expect their finances to improve over the coming year compared with 13 percent who expect them to deteriorate.

More than half (57 pct) are optimistic about achieving their long-term goals, compared with 11 percent who are pessimistic. And an overwhelming 86 percent trust their own instincts when making important decisions.

“Most millionaires seem to be confident they can steer their way through the turbulence without so much as a dent in their finances,” UBS WM said.

Most of us can’t afford that kind of arrogance in the face of risk. But the world’s millionaires can. Just as they did during the lead-up to the crashes of 1929 and of 2008.

They trusted their instincts—and everyone else paid the consequences.

Greg Kahn

I am quite willing to admit that, based on last Friday’s job report, the Second Great Depression is now over.

As regular readers know, I have been using the analogy to the Great Depression of the 1930s to characterize the situation in the United States since late 2007. Then as now, it was not a recession but, instead, a depression.

As I explain to my students in A Tale of Two Depressions, the National Bureau of Economic Research doesn’t have any official criteria for distinguishing an economic depression from a recession. What I offer them as an alternative are two criteria: (a) being down (as against going down) and (b) the normal rules are suspended (as, e.g., in the case of the “zero lower bound” and the election of Donald Trump).

By those criteria, the United States experienced a second Great Depression starting in December 2007 and continuing through April 2017. That’s almost a decade of being down and suspending the normal rules!

Now, with the official unemployment rate having fallen to 4.4 percent, equal to the low it had reached in May 2007, we can safely say the Second Great Depression has come to an end.

However, that doesn’t mean we’re out of the woods, or that we can forget about the effects of the most recent depression on American workers.*


For example, while Gross Domestic Product per capita in the United States is higher now than it was at the end of 2007 ($51,860 versus $49,586, in chained 2009 dollars, or 4.6 percent), it is still much lower than it would have been had the previous trend continued (which can be seen in the chart above, where I extend the 2000-2007 trend line forward to 2017). All that lost output—not to mention the accompanying jobs, homes, communities, and so on—represents one of the lingering effects of the Second Great Depression.

HS  college

And we can’t forget that young workers face elevated rates of underemployment—11.9 percent for young college graduates and much higher, 30.9 percent, for young high-school graduates. As the Economic Policy Institute observes,

This suggests that young graduates face less desirable employment options than they used to in response to the recent labor market weakness for young workers.

income  wealth

Finally, the previous trend of growing inequality—in terms of both income and wealth—has continued during the Second Great Depression. And there are no indications from the economy or economic policy that suggest that trend will be reversed anytime soon.

So, here we are at the end of the Second Great Depression—no longer down and with the normal rules back in place—and yet the effects from the longest and most severe downturn since the 1930s will be felt for generations to come.


*As if often the case, readers’ comments on newspaper articles tell a different story from the articles themselves. Here are two, on the New York Times article about the latest employment data:

John Schmidt—

Any discussion about “full employment”, when there are so many people who’ve essentially given up looking for work or who’re working in low-skill or unskilled labor positions, seems like the fiscal equivalent of rearranging deck chairs on the Titanic. Based on data from the Fed and the World Bank, GDP per capita has doubled since 1993, while median household income has risen ~10%. Most of the newly-generated wealth and gains from productivity increases are being funneled upward, such that the average worker very rarely sees any sort of pay increase. Are we expected to believe that this will change now that we’ve [arguably] passed some arbitrary threshold? Why should we pat ourselves on the back for reaching “full employment”? Shouldn’t we be seeking *fulfilling* employment for everyone, instead, at least inasmuch as that’s possible? Shouldn’t we care that the relentless drive for profit at the expense of everything else is creating a toxic environment where the only way to ensure a raise is to hop from job to job, eroding any sense of two-way loyalty between companies and their employees?

I’m not sure what the solution is, but I know enough to see there’s a problem. Inequality of this sort is not sustainable, and it’s not going to magically disappear without some serious policy changes.

David Dennis—

There is a critical parameter missing from full employment data. very critical. Here in Pontiac, Michigan before the collapse of American manufacturing, full employment meant 10, 000 jobs working at GM factories and Pontiac Motors making above the mean wages with excellent health insurance as well as retirement pensions. You can not compare full employment at McDonalds and Walmart with the jobs that preceded them. The full employment measure doesn’t mean much if it isn’t correlated with a index that compares that employment with a standard of living as it relates to a set basket of goods, services, and benefits.


This semester, we’re teaching A Tale of Two Depressions, a course designed as a comparison of the first and second Great Depressions in the United States. And one of the themes of the course is that, in considering the conditions and consequences of the two depressions, we’re talking about a tale of two countries.

As it turns out, the tale of two countries may be even more true in the case of the most recent crises of capitalism. That’s because the two countries were growing apart in the decades leading up to the crash—and the gap has continued growing afterward.

It seems we learned even less than we thought about the first Great Depression. Or maybe those at the top learned even more.

As Thomas Piketty, Emmanuel Saez, and Gabriel Zucman remind us,

Because the pre-tax incomes of the bottom 50% stagnated while average national income per adult grew, the share of national income earned by the bottom 50% collapsed from 20% in 1980 to 12.5% in 2014. Over the same period, the share of incomes going to the top 1% surged from 10.7% in 1980 to 20.2% in 2014.

What is clear from the data illustrated in the chart at the top of the post, these two income groups basically switched their income shares, with about 8 points of national income transferred from the bottom 50 percent to the top 1 percent.


The consequence is that the bottom half of the income distribution in the United States has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61 percent in the United States, yet the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation, which barely registers on the chart above. In contrast, income skyrocketed at the top of the income distribution, rising 205 percent for the top 1%, 321 percent for the top 0.01%, and 636 percent for the top 0.001%.

Clearly, “an economy that fails to deliver growth for half of its people for an entire generation”—and, I would add, distributes the growth that has occurred to a tiny group at the top—”is bound to generate discontent with the status quo and a rejection of establishment politics.”

Lest we think the current fascination with and support for benevolent dictatorship are a new phenomenon (or, for that matter, that the Second Great Depression never occurred or its effects safely confined and superseded by the current economic recovery), Thomas Doherty [ht: ja] reminds us of the “dictator craze” of the early 1930s.

The “hankering for supermen” was represented by a series of films on the worlds of business and politics, including The Power and the Glory, Employees’ EntranceGabriel Over the White House, and, finally, Mussolini Speaks.

Men Waiting Outside Al Capone Soup Kitchen JNS.FoodGiveaway2

One of the courses I’m offering this semester is A Tale of Two Depressions, cotaught with one of my colleagues, Ben Giamo, from American Studies. It’s a comparison of the conditions and consequences of the two major crises of capitalism during the past hundred years, the 1930s and the period after the crash of 2007-08.*

It just so happens the Guardian is also right now revisiting the 1930s. Readers will find lots of interesting material, from some evocative street photography from the period (including bread lines, hunger marches, and various protests) to classics of political theater (from Bertolt Brecht and Federico García Lorca to John Dos Passos and Clifford Odets).

I’ve been writing about the Second Great Depression, in mostly economic terms, since 2010. For the Guardian, the idea is that the situation then, in the 1930s, offers lessons for us today—partly for economic reasons but, increasingly, given the victory of Donald Trump and the growth of other right-wing populist-nationalist movements in Europe, in political terms.

Larry Elliott focuses on the economics. Unfortunately, he makes the mistake many commit, by starting with the stock-market crash of 1929—which, as it turns out, was the trigger, but not the cause, of the First Great Depression. He does a much better job examining the different responses to the two precipitating crashes (yes, there were lessons were learned, especially in the United States, with the quick bailout of Wall Street), including identifying those who were left out of the post-2009 recovery.

Wage increases have been hard to come by, and the strong desire of governments to reduce budget deficits has resulted in unpopular austerity measures. Not all the lessons of the 1930s have been well learned , and the over-hasty tightening of fiscal policy has slowed growth and caused political alienation among those who feel they are being punished for a crisis they did not create, while the real villains get away scot-free . A familiar refrain in both the referendum on Brexit and the 2016 US presidential election was: there might be a recovery going on, but it’s not happening around here. . .

The winners from the liberal economic system that emerged at the end of the cold war have, like their forebears in the 20s, failed to look out for the losers. A rising tide has not lifted all boats, and those who do not consider themselves the beneficiaries of globalisation have grown weary of hearing how marvellous it is.

The 30s are proof that nothing in economics is inevitable. There was eventually a backlash against the economic orthodoxies and Skidelsky can see why there is another backlash happening today. “Globalisation enables capital to escape national and union control. I am much more sympathetic since the start of the crisis to the Marxist way of analysing things.

And then, of course, there’s the political backlash, the topic of the most recent piece in the series. Jonathan Freedland begins by noting the differences between the two periods: the fact that ultra-nationalist and fascist movements managed to seize power in Germany, Italy, and Spain in the 1930s, which has not (yet) happened in the more recent period. Trump, for example, has criticized the media but has not (yet) closed any sites down. Nor has he suggested Muslims wear identifying symbols.

These are crumbs of comfort; they are not intended to minimise the real danger Trump represents to the fundamental norms that underpin liberal democracy. Rather, the point is that we have not reached the 1930s yet. Those sounding the alarm are suggesting only that we may be travelling in that direction – which is bad enough.

There are other warning signs, which suggest closer parallels between the 1930s and today: the shattering of the faith in globalization’s ability to spread the wealth, the growing hostility to those deemed outsiders, and a growing impatience with the rule of law and with democracy. Then, as now, capitalism faces a profound crisis of legitimacy.

In the end, Freedland takes comfort in our having a memory of the 1930s: “We can learn the period’s lessons and avoid its mistakes.” What he fails to acknowledge, however, is that economic and political elites in the 1930s also had vivid memories—of the great crashes of 1873 and 1893 and, of course, the horrors of the “war to end all wars.” But those events were forgotten amidst more short-run memories, including their joining to put down workers’ actions, including the widespread attacks after the 1926 general strike led by the Trades Union Congress in England and the anti-union “American Plan” during the 1920s on the other side of the Atlantic.

The more or less inevitable result in both countries was growing inequality, as large corporations and a tiny group of wealthy individuals at the top managed to capture a larger and larger share of national income—thus creating a financial bubble that eventually crashed, in 1929 just as in 2007-08.


The memory of the 1929 crash certainly didn’t prevent the most recent one, nor did it create a recovery that has benefited the majority of the population. In fact, it seems the only lesson learned was how it might be possible, in recent years, for those at the top to recovery more quickly than they managed to do after the First Great Depression what they had lost.

It’s that rush to return to business as usual, characterized by obscene levels of inequality, and not the lack of memory of the 1930s, that has created the conditions for the growth and strengthening of populist, right-wing movements in the United States and Europe.


*As is my custom, the syllabus is publicly available on the course web site. Readers might find the large collection of additional materials—music, charts, videos, and so on—of interest. They can be found by following the News link.


René Magritte, “La clef des champs” (1936)

Plenty of illusions are being shattered these days, such as the idea that a successful recovery from the worst economic downturn since the Great Depression would keep the incumbents in power. A combination of lost jobs, stagnant wages, and soaring inequality put an end to that illusion. Much the same has happened to American Exceptionalism.

Noah Smith has just discovered another shattered illusion: the independence of supply and demand.


Mainstream economists generally think about the world in terms of supply and demand—at both the micro and macro levels: supply and demand in the market for oranges or labor (which determine the equilibrium price and quantity), as well as aggregate supply and demand for the economy as a whole (which determine the equilibrium level of prices and output). Perhaps even more important, they think about supply and demand as acting independently of one another: a shift in supply or demand in individual markets (which lead to changes in equilibrium prices and quantities) as well as “shocks” to aggregate supply or demand in macro models (which determine changes in the equilibrium level of prices and output). The presumption is that a shift in demand (at the level of individual markets or the economy as a whole) does not cause a shift in supply (at either level), or vice versa.*


As it turns out, the independence of supply and demand is just an illusion.

As I wrote back in 2009, it’s quite possible that at the micro level—for example, in the case of the labor market—both supply and demand are determined by something else, such as the accumulation of capital.

Thus. . .if the accumulation of capital leads to rightward shifts in both the demand for and supply of labor, wages may not increase (and quite possibly will decrease).

Therefore, supply and demand in individual markets aren’t necessarily independent.

And then, in 2013, I discussed the illusion of the independence of aggregate supply and demand.

In terms of the mainstream model, the collapse of aggregate demand leading to the crash of 2007-08 has also affected the aggregate supply of the economy—thereby shattering the illusion of the independence of the two sides of the macroeconomy. As the authors put it, “a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand—contrary to the conventional view that policymakers must simply accommodate themselves to aggregate supply conditions.”

Not only does the destruction of a significant portion of the future growth potential of the U.S. economy challenge the model mainstream economists use to analyze the macroeconomy and to formulate policy; it also forces us to question the rationality of a set of economic arrangements in which trillions of dollars of potential wealth (which might then be used to improve lives for the majority of the population) are sacrificed at the altar of keeping things pretty much as they are.

It represents the indictment both of an academic discipline and of economic system.

So, Smith is right: the shattering of the illusion of the independence of supply and demand means the way mainstream economists teach basic economics is fundamentally wrong.

What he forgets to mention, however, is that an economic system that is governed by supply and demand that are not independent of one another—and thus is subject to considerable instability on a regular basis, with the costs being shouldered by those who can least afford it—is also open to question.

Perhaps Tuesday’s results will serve notice that the time for challenging mainstream economics and the economic and social system celebrated by mainstream economists has finally arrived.


*There can, of course, be simultaneous shifts in supply and demand but the shifts themselves are considered independent of one another.