American Productivity Growth during the Great Depression

The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.

Alexander Field (2003) described the 1930s as the “most technologically progressive decade” of the 20th century for the US. He argued that total factor productivity (TFP) growth peaked at that time and was spread widely across the US economy. In making these observations, Field relied primarily on the classic study by Kendrick (1961), but took the 1930s to comprise the years 1929 to 1941, to cover fully both downturn and recovery.

Field’s conclusions may strike today’s economists as surprising. Everyone knows that the US experienced a massive banking crisis during the 1930s and most also remember that Alvin Hansen (1939) famously diagnosed ‘secular stagnation’ as the prognosis for the US economy largely on the basis of pessimism about technological progress. Recently, and in a similar vein, Robert Gordon (2016) has claimed that WWII saved the US from secular stagnation and that in the absence of the war, US growth prospects would have been dismal at best…

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AUTHORS: Gerben Bakker, Nicholas Crafts and Pieter Woltjer