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).
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.