The conventional story about the Great Depression says that FDR undertook demand-stimulative policies that boosted growth, then backed away from those policies in 1937 producing a recession-within-a-depression, and then we returned to growth. Cole and Ohanian say they have a chart that calls this story into question:
The figure shows total hours worked per adult for the 1930s. There is little recovery in labor, as hours are about 27 percent down in 1933 relative to 1929, and remain about 21 percent down in 1939. But increasing aggregate demand is supposed to increase output by increasing labor, not by increasing productivity, which is typically considered to be outside the scope of short-run spending/monetary policies.
I’m really uncertain as to what they think they’re seeing in this chart. I see the traditional demand-driven downturn, I see the demand-driven recovery, I see the demand-driven 1937 recession, and I see the demand-driven 1938 recovery. What do Cole and Ohanian see? How is it that the unemployment rate fell from 24.75 in 1933 to 14.18 in 1937 as a result of productivity increases?
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