I don\’t like this macro stuff


It is instructive to look at the pattern of the great depression. The level of Britain\’s gross domestic product in 1930 was not reached again until 1934. The annual unemployment rate of 1929, 8.2%, was lower than in every year during the 1930s, reaching a high of 17.6% in 1932.

That\’s Danny Blanchflower and he goes on to say that of course we\’ve got to borrow more, spend more, to get out of the slump.

But, but….how can anyone at all write about the Depression in the UK (and marginally about it in the US) without mentioning the most salient point about it? There\’s a hint above there, the UK came out of it by 1934….the US in 1943.

What was it? Anyone? Bueller?

Yes, the UK abandoned the gold standard in September 1931. The currency fell. Unemployment (with the inevitable lags) peaked and then fell and we were back to previous output levels within a couple of years.

Really rather similar to what happened in 1991/92 actually. And, umm, really rather similar to what has been happening just recently. We\’ve a floating currency, the pound has fallen substantially against the major currencies and we\’ve had, through that, a large amount of the stimulus that we need.

It simply boggles the mind that people, even senior and well respected economists, will potter around this subject without mentioning something so blindingly obvious.

12 thoughts on “I don\’t like this macro stuff”

  1. So we’ll want to watch the Eurozone like a hawk – the real question for us all is what would have happened if we were in the Euro when all this happened.

  2. This theory holds true so long and you ignore the 1920s. Britain didn’t enjoy the boom/bubble that occurred in the US and so the bust was far less severe. Also, during the 1930s fiscal and industrial policy was not as bonkers as in the US which prolonged the depression there.

  3. I believe that Money represents the time exchanged in the economy.

    When you have a gold standard it works in that the money supply is harder to expand (although new technology has “fixed” that) i.e. it’s harder for the state to inflate.

    However in deflation, the volume of gold stays the same even if the economy isn’t exchanging that much time, and thus doesn’t need it.

    This IMHO is the problem for “god=real money” people.

  4. The theory Tim is proposing is merchantilism by means of money.

    If Tim supports merchantilism in the instance why doesn’t he support it generally?

  5. I believe that Money represents the time exchanged in the economy.

    AC1’s a Marxist. Blimey, didn’t expect that.

    @ Current – no, it’s not mercantilism: we’re letting the pound fall to the rate that the markets believe is appropriate. That’s equivalent to simply “not having export taxes or subsidies”, which isn’t a mercantilist policy at all. If the government were deliberately devaluing the pound, which they aren’t (it’d be kind of the opposite of what Lamont did in 1992, I suppose) then it’d be a different story.

  6. John B: “it’s not mercantilism: we’re letting the pound fall to the rate that the markets believe is appropriate”

    The government is using quantitive easing, it is not “letting the pound fall” it is causing it to do so by printing more pounds.

    Whether you’re against it or for it it is certainly merchantilism.

  7. 1) there’s no ‘h’ in mercantilism.

    2) QE is about avoiding deflation; it’s not about deliberately rigging the system to favour exporters and disadvantage importers.

  8. QE may be about “avoiding deflation”, though I am skeptical.

    My point is though that importers are harmed and exporters benefit by the devaluation of currency. So, it is a form of back-door mercantilism. This has been known since the 19th century.

  9. Britain came out of it in 1934?
    I remember uncles and the like that said poverty was around till the war saved them
    People has trouble buying boots for lack of cash

  10. I think I agree with current. It’s hard to see a huge difference in outcome of a 20% devaluation and a 20% subsidy to exports funded by a tax on imports.

    That it’s the market rate doesn’t, I would suggest, mean that the government – which after all is a monopoly supplier of the good in question – plays no role in that rate.

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