Wednesday, January 7, 2009

The Great Depression Debate in One Picture

The debate on whether the New Deal ended or prolonged the Great Depression of the 1930s continues with the latest installments coming from David Sirota of Slate and Jason Bean of The Beacon (hat tip Alex Tabarrok). This debate has been an ongoing one in the blogosphere with notable discussions in the past coming from Brad DeLong, James Hamilton, and Arnold Kling. Lately, though, this debate has taken on an increased intensity as many observers have been using the Great Depression experience to make sense of the current economic downturn. Among others, recent contributors to this debate include Paul Krugman, Alex Tabarrok, Eric Rauchway, Robert Higgs, and Amity Shlaes. With apologies to the contributors for oversimplifying, here is my attempt to summarize and capture the essence of this debate in one picture (click on figure to enlarge):


  1. As usual, a math graph which obscured and distorts and misrepresents as much as it reveals -- what economists call "science".

  2. PrestoPundit:

    The point of the graph was to summarize the debate into one graph, which required some simplification. My goal was not to distort or misrepresent.

  3. Amity Shlaes, not Shales.

  4. Anonymous:

    Thanks for the correct spelling. I have made the changes to the post.

  5. David,
    I recently was reading a discussion by Austrian economists regarding GDP. Their argument is the way we currently measure GDP is flawed when it includes Government spending as part of GDP. The primary argument centers around the fact that goverment GDP is either 1) taxed from the real economy, 2) borrowed from the future economy, or 3) created with a printing press and thus taxed from the real economy.
    Whats your view on this argument? Can government output really be measured as part of GDP? As a military guy I can readily understand the argument from my standpoint. The submarines I work on are really not additions to an economy per se, we are merely here to prevent "the barbarians" from destroying all the real GDP in the economy, but we cant be really counted as an addition to real wealth.....
    LCDR Neil Colston
    Texas State 1997

  6. David Beckworth said...

    "The point of the graph was to summarize the debate into one graph, which required some simplification. My goal was not to distort or misrepresent."

    It did; it presents Krugman, et al as people who don't think or worry about how policies might cause recessions. From that graph, one woudn't connect Prof. Krugman with the book 'The Return of Depression Economics'.