The Great Depression as a Recalculation
In an interview, Bruce Greenwald says,
Basically, in the Depression a huge sector of the economy that everyone had always regarded as central, died. And it dies for an almost virtuous reason.
That sector of course is agriculture.
Because productivity in agriculture had been growing faster than demand, we needed to shift resources out of agriculture. The Great Depression did this, rather painfully. I would add that the advent of the internal combustion engine greatly re-organized economic life. Because you could move agricultural produce and other goods around by truck, you did not need central cities surrounded by farms. The farms that used to surround big cities were now converted either to suburbs or wilderness.
How were people re-employed after the Great Depression? Greenwald says,
The reason why World War II got us out of the Depression, and the reason that Argentina suffered because it didn’t participate, is that it is actually industrial policy that gets everybody off the farms.
…One of the great concerns at the end of WWII was that everyone thought we were going to go back to the Great Depression. In Argentina, of course, that happened. In the US and everyplace else, everyone was surprised and relieved. But the reason is that you’ve gotten everyone off the farms and into the cities. It was through both the war industries and in the army.
Greenwald goes on to say that the same thing is happening today in manufacturing–productivity has been growing faster than demand. This is a problem for the United States, but we have a fair amount of the restructuring behind us. Japan, China, and Germany are the most vulnerable economies right now.
He sees these manufacturing countries as dependent on U.S. trade deficits.
The problem from the perspective of the US is that if we are importing 9% more of our GDP than we are exporting, it is very difficult to sustain full employment. You basically have to have a zero saving rate or a bubble in the internet or housing. But you have to have some substitute demand.
…The long-term solution is you have to get people out of manufacturing – and governments have to cooperate in this effort – and get them into industries like health care…
The services people have to buy are lots of health care, custodial services for old people, college education and graduate education, and housing. They are big lumpy expenditures, and the government has to help finance them.
i was with Greenwald until the last sentence. I do not see why a market economy cannot generate demand for those services. The transition would be easier if (a) we did not tell workers in declining industries to expect to get their jobs back and (b) we did not limit access to employment in education and health care through licensing, accreditation, unionization, etc.