The Roaring Thirties
By David Henderson
That’s the title of my review, in the latest issue of Policy Review, of Alexander J. Field’s A Great Leap Forward: 1930s Depression and U.S. Economic Growth. Here’s an excerpt of my review:
The decade that took the biggest strides in technology is the one you would be least likely to guess: the 1930s, the same decade during which the United States experienced the Great Depression.
If you think that’s counterintuitive, well, so did I. But now, having read A Great Leap Forward, I’m convinced. Santa Clara University economist Alexander J. Field’s book on the decade of the 1930s will probably be one of the most important technical economics books of this decade.
What’s Field’s evidence? The big-picture evidence is that in 1941 about as many people were working and about as much capital was employed as in 1929, the last boom year before the Great Depression. Yet real output was 33 to 40 percent higher in 1941 than in 1929. (The range from 33 to 40, rather than a specific number, is due to the fact that there are various methods to compare output over time; the bigger number comes from a computational method called the chain index method.) This implies a growth in the productivity of labor and capital averaging 2.3 to 2.8 percent annually over those twelve years.
In no other twelve-year period during the 20th century did the United States have such a high average growth of productivity. Of course, there were periods of higher economic growth: After all, as noted, the 1930s was the decade of the Great Depression. But that growth came from an increase in the amount of labor and capital as well as an increase in productivity. As noted above, the amount of capital and labor being used in 1941 was pretty much the same as in 1929.
Field bolsters his case by going beyond economy-wide numbers on productivity to see what were the major technological improvements of the 1930s. In instance after instance, he had this reader saying, “I didn’t know that.” New chemical processes were introduced that “increased the percentage of sugar extracted from beets during refining” and comparable innovations occurred in mining. “Topping” techniques in electricity generation — using exhaust steam from high-pressure boilers to heat lower-pressure boilers — raised capacity by 40 to 90 percent with virtually no increase in the cost of fuel or labor. New treatments increased the life of railroad ties “from eight to twenty years.” With new paints, the time for paint to dry on cars fell from three weeks (!) to a few hours. Adding heft to his innovation story, Field notes that total r&d employment in 1940 was 27,777, up from 10,918 in 1933.
Field also, as I wrote, “drives a truck” through the argument that technological improvements in World War II were responsible for much of the improvement in the U.S. economy’s productivity.
One other myth Field dispels about World War II, probably one of the most widely-believed myths, even by economists, is that World War II ended the Great Depression. Field notes that unemployment was falling rapidly in 1941 and that the unemployment rate for the last quarter of 1941 (the government did not collect monthly data back then) was down to 6.3 percent.
Field goes off the rails a bit when he gets outside his expertise. He claims, for instance, that the United States was lucky to have Ben Bernanke and Christina Romer in office during the financial crisis. He doesn’t really back it up. And he claims, against the evidence, that the Bush tax cuts gave disproportionately high tax reductions to upper-income households.