Price Fishback How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s
NBER Working Paper No. 21925
The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact, although the banks were aided when the RFC took ownership stakes.
NBER Working Paper No. 21856
We identify America’s First Great Moderation, a recession-free 16-year period from 1841 until 1856, that represents the longest economic expansion in U.S. history. Occurring in the wake of the debt-deleveraging cycle of the late 1830s, this “take-off” period’s high rates of economic growth and relatively-low volatility enabled the U.S. economy to escape downturns despite the absence of a central bank. Using new high frequency data on industrial production, we show that America’s First Great Moderation was primarily driven by a boom in transportation-goods investment, attributable to both the wider adoption of steam railroads and river boats and the high expected returns for massive wooden clipper ships following the discovery of gold in California. We do not find evidence that agriculture (i.e., cotton), domestic textile production, or British economic conditions played any significant role in this moderation. The First Great Moderation ended with a sharp decline in transportation investment and bank credit during the downturn of 1857-8 and the coming American Civil War. Our empirical analyses indicate that the low-volatility states derived for both annual industrial production and monthly stock prices during the First Great Moderation are similar to those estimated for the Second Great Moderation (1984-2007).
The Decline in the Nutritional Status of the U.S. Antebellum Population at the Onset of Modern Economic Growth
NBER Working Paper No. 21845
The decline in the physical stature of the American population for more than a generation beginning with the birth cohorts of the early 1830s was brought about by a diminution in nutritional intake in spite of robust growth in average incomes. This occurred at the onset of modern economic growth on account of rising inequality and an increase in food prices, which brought about dietary changes through the substitution away from edibles toward non-edibles. In a recent working paper, Bodenhorn, Guinnane, and Mroz question this consensus view, suggesting that a decline in heights in a military sample may not be representative of the population at large. They argue that increasing wages in the civilian labor market may well induce an increased proportion of shorter men to volunteer for military service thereby driving down the mean height of soldiers even if the height of the population remains unchanged. However, they neglected to examine whether labor market conditions did actually improve during the Civil War in such a way as to induce shorter men to enlist. Had they done so they would have found just the opposite: during the course of the war real compensation in the military increased by some 39% to 66% relative to civilian earnings. This should have led to an increase in military heights if the logic of their model were accurate, when in fact they declined. Both the historical evidence and an assessment of the model indicate that failing to consider patriotism as a powerful motive for enlisting was another serious error. A thorough analysis of the Union Army height data, considering recruiting periods as short as 90 days during which labor market conditions could not have changed markedly indicates that there can be no doubt at all that the decline in the height of soldiers beginning with the birth cohorts of the early 1830s is representative of the trend in the physical stature of the male population at large. The implication is that there was a widespread diminution in nutritional status of the population in the antebellum period.
Ellis Tallman and Gary Gorton
How did pre-Fed banking crises end? How did depositors' beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility; that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash (a currency premium) in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero.