Great Myths of the Great Depression

0:00Thanks everyone for showing up. I sincerely appreciate it. I know people probably don't normally think we're all out of bed on a Saturday morning and say, I think I want to listen to an economist for three hours today. So I appreciate you all coming out. I am actually from Rochester. I don't know if some of you know that. I grew up in Rochester up by the Grease Mall. I was within walking distance of them. I try to explain to people that every year I was in high school, the Bills lost the Super Bowl. And so that really affected of my Life, I think is why I hang out with the losing teams, like the Austrians, underdogs. What we're going to do in terms of the format of this thing, it's going to be fairly informal, if you have to go to the bathroom or something, go ahead, if you're dozing off, you've got to go get more coffee, feel free to do that.

0:45I'm going to try to stick to this schedule just to keep us on track. The format, I have obviously these PowerPoints, so I'll go through them and then at the end The End of each of these three lectures or whatever you want to call them, I'll leave time at the end for questions. So if I'm saying something and you don't understand what I mean, go ahead and stop me, but I'm going to build in time at the end to try to, you know, field Q&A because I think that'll be easier if I do the regular presentation than we do the Q&A at the end. So why don't we go ahead and get started here. So this is just the outline which is consistent with what you've got in front of you. I wasn't James talked a little bit, but just to make sure you know who I am. I have a PhD in economics from NYU. I taught for three years at Hillsdale.

1:33Many of you may know that the reason for going to Hillsdale was they have Mises' personal library there, where this ended up. up. And so I thought I was going to be a college professor for my career. I ended up in the financial sector working as an analyst with actually Arthur Laffer of Laffer Curve fame and that's what took me down to Nashville, where I currently live. And of course, a lot of what I do right now is I'm a lecturer with the Mises Institute. I know most of you here I don't know what the institute is, but some people are here because of just they know me personally and then some of you may have been brought here by your spouse against your will, so let me just make sure you understand. The institute is, as James mentioned, it's a non-profit, it's in Auburn, Alabama, and it's named after this guy Ludwig von Mises, who I'll be talking about periodically throughout these lectures.

2:30He's an Austrian economist, which means he was from the country Austria, and then the school of thought that he attached himself to just, the name stuck as Austrian. Okay, so if you hear people nowadays, Ron Paul is one of the, probably the most publicly visible figure referring to Austrian economics, that's what it's talking about. As we go through, that's the school of thought that's going to be informing my remarks today. And then I also am putting out a newsletter with a businessman in Nashville that's consistent with the Austrian viewpoint, so I'm sort of a consultant at this point. Okay, so the first talk for today is The Great Misses of the Great Depression. And I think it's really important, in general this was an important topic, but lately with all the comparisons between what happened with the financial crisis and how, you know, You know, uh-oh, this is like the Great Depression, not since the 1930s has the government done such and such.

3:25You see these comparisons made, so obviously it's really important to understand the stuff we've learned. And I learned this in grade school too, all these myths I'm going to go through. I learned most of these things from my teachers. If those aren't true, well then we're applying the wrong lessons. So that's why it's important to go through these. So the first one is that the stock market crash of 1929 was the fault of unregulated capitalists. Capitalism. I'm sure many of you have heard that. People say, oh, you know, there was no SEC back then. People could borrow, buy stocks on margin, and that's laissez-faire capitalism for you. Anything goes. So the stock market was just out of control. Now, from the Austrian perspective, if you just think about it, why was the Federal Reserve created? The Central Bank of the United States, it was in 1913. And if you go read, again, these standard American history textbooks, what was the point of that? They'll say, oh,

4:18In 1907 there was this financial panic and so people realized back then you can't have a free market in the banking system and in Wall Street you need to have a central bank to regulate these crazy guys or these capitalists who unrestrained will crash the system like they did in 1907. So the Federal Reserve was created in 1913 and so it's a bit odd to explain the creation of the Fed to end these excesses of pure unregulated capitalism, the financial markets and then And still 16 years later, we're blaming the crash there on the Federal Reserve. And specifically, well let me just show you this. Now unfortunately, you guys can't see the dates at the bottom here. But right there, that is 1923, here's 1923, so that starts rising, and then this is the peak in 29, and then it crashes.

5:10So this is the Dow Jones. So from the Austrian perspective, and I'm going to in the next lecture, not this one, but the next one, I'm going to go through the Austrian view of business cycles a little bit more carefully. But I just want to point out here that from the Austrian point of view, the question's not why was everything going along and then all of a sudden in 1929, the bottom fell out and you had this crash. The problem is, what pushed the market way up and then it came crashing down? That's really the issue. So it's not that there was just this normal status quo and then all of a sudden something awful happened in 1929. Rather the Austrians say, what was it that pushed the market way up in the first place? Why did this bubble develop? And there they point the finger at the Federal Reserve.

5:59In 1927, the Fed decided to start buying government securities and lower interest rates and it was called one of the most costly errors committed by any banking system in the last 75 years and who said that, it was this member of the Federal Reserve Board, A.C. Miller, to the Senate in 1931. Okay, so what happened again, market crashes in 29, obviously the government, everybody's wondering what the heck just happened, and they call in, you know, typical government thing, two years later they're looking into it, and in 1931 they have a committee set up and they have this guy testifying and they're asking him, in your opinion, what the heck happened, and he is saying, well, in 1927, the Fed lowered interest rates, and you know, in my depression book here, I document this a lot more if you're interested and want to to see more about this episode.

6:50Okay, but it was the same kind of thing, it was analogous to what you hear today, that back then there was a mild downturn in economic activity and so the Fed in 1927 lowered interest rates through buying government securities and in particular they targeted the loan rate on margin loans so when people wanted to, it was called a call loan, so when people wanted to borrow money to go buy stocks with it, the Federal Reserve consciously in 1927 This is going to be consistent with the more elaborate story I'm going to tell you in the next lecture about the Austrian view of why do you have these booms and busts in the market economy. But in any event, the point here is this was not just wild-cat unregulated free market.

7:39This was the central bank intentionally shoving new credit into the financial sector. Just another example of the Austrian view. This is the housing price index for Nevada in our time, so you can see the timeline on this one, fortunately. So you see, from the Austrian perspective, the question's not, man, how come all of a sudden in 2006, 2007, just out of nowhere, the housing market collapses? Why did it do that? The Austrians would say, well, no. What happened is there was this huge bubble that got blown up for some reason and then it fell. But you see, if this were just the normal trend, home prices in 2009, 2010 really weren't that much lower than you would have expected. Back in 1997, if you were projecting out, you might have thought they'd be a little bit higher.

8:29But obviously, from our perspective, lots of people are underwater. I'm underwater on my house. Maybe some of you are, too, if you bought one recently. But again, the issue for the Austrians is what causes huge bubble to develop and I'm going to again give you more empirical backing for this statement but the Austrian viewpoint is that right here 2000-2001 Alan Greenspan cut interest rates pretty low after the dot com crash thinking he was going to provide a soft landing to the economy and people were calling him the maestro for pushing up home prices in the midst of that recession. And then the Austrian Back to the Great Depression. So another myth is that, okay, you had the stock market crash, allegedly because of wildcat unregulated capitalism, and then they say, okay, but then why did that turn into this 10-year depression? And the typical explanation that I was taught, I'm sure many of you have heard, is that, oh, it's because Herbert Hoover was this do-nothing reactionary, this

9:36and I had a blog who believed in laissez-faire capitalism and he just sat back in the White House saying, oh, let's just let this thing work itself out. And that's why the Great Depression developed and it took FDR to come in and save the day. That's what we've been taught. I'm sure a lot of you have read op-eds and things referring to Hoover economics. And what does Hoover economics mean in the current context? It would mean somebody who refused to do anything or who cut the government spending in light of an economic downturn. But before I get into some more specifics, let's just stop and think about that for a minute. It's not as if the stock market crash in 29 was the first time there was some financial disruption in the US. There were earlier depressions with a small d, and they often called them panics.

10:23That's kind of ironic that actually the term depression was a euphemism that the government introduced during the Great Depression. They're saying, no, no, it's not a panic. It's just a depression. Whereas now they got rid of depressions. Now they call them recessions. And I'm sure subsequent ones will just call it the great chafe or something like that, not even call it a recession anymore. So they had these things earlier on. And so if the explanation, if the reason the stock market crash in 29 turned into what was obviously the worst calamity in US economic history Because Herbert Hoover did nothing, well then, why didn't that same thing happen under his predecessors? Because it's not as if there was a huge federal government under Warren Harding and then Herbert Hoover slashed it in half.

11:10The worst that Hoover could have done was the same thing that his predecessors did in terms of government growing over time. That over time presidents would introduce more and more things that were unprecedented and so that we get to the point where we are now where the government can do all sorts of things. Okay, so again, the point is just, even without looking at the history books, just your vague knowledge of how the government grew over time, it doesn't really make sense to say the reason it was so bad under Hoover was that he did nothing because his predecessors in the same situation also did nothing, relatively speaking. Right? So that's, it's just a little bit odd. Now what would make sense, if you're trying to understand why did the Great Depression happen on Hoover's watch, is that he actually did things differently from what his predecessors did. And that's actually what did happen. And so when you're asking me, why did it turn into a Great Depression that has lasted for years and years when that sort of thing hadn't happened before, where yeah, there were calamities in U.S. history earlier than this, but they would blow themselves out within a year or two. So yeah, there were bad recessions. They called them depressions with a small d. But they would be over 18 months, basically. You'd be on the road to recovery. But why was it that the Great Depression just lingered for year after year in unemployment?

12:54So Hoover was, but he was more interventionist than any president in U.S. history in terms of going into the economy and regulating it. So Hoover was actually, at his time, the most interventionist in peacetime. So Woodrow Wilson took more control of the economy during World War I than Hoover did. But in terms of a president just trying to help the economy that was on the ropes, Hoover did far more than any of his predecessors. Alright, so things like propping up wages and farm prices. In particular, let me just focus on these wages issue. The single worst mistake I think that Herbert Hoover made was after the 29 crash, he called a conference of all these business leaders into Washington and he said, I don't want you guys cutting wage rates. He said because, you know, people are panicked now, your sales are going to drop, prices are going to start dropping, But don't you feed the panic by in turn laying people off and cutting their wage rates

13:50because Hoover was subscribing to the mentality that sort of like a pre-Keynesian view because this was before Keynes' book came out that there needs to be enough purchasing power in the economy. The slogan that Henry Ford used was you have to pay the worker enough to buy back the product. And so it just seemed obvious to Hoover there's going to be a vicious cycle that we encourage. The guy said, because your sales are down, if you cut your wage rates, well then your employees, now they don't have any money, so then they can't go out and buy stuff, and that's just going to keep going down and down into depression. So he thought, let's nip it in the bud. Right now, you know, don't look at your narrow bottom line, look at the big picture. If you all can just agree we're not cutting wage rates, then we'll get through this thing. And it won't be nearly as bad as it would have been if we just followed the traditional dog-eat-dog capitalist approach.

14:41The problem with doing that is that, and this was exacerbated back then because of the way the banking system was set up. Just give you the quick version. Remember, we have a fractional reserve banking system. So I don't want to shock anybody, but if you go into a bank and put $1,000 in, they don't go put it in a drawer with your name on it. They only put, let's say, $100 aside, and they lend out the rest of it. So at any given time, if you add up all the checking account balances of all the customers of all the banks in the country, that's going to be a big number. In a sense, that's going to be one form of the money supply, because your people are out writing checks, buying stuff from stores, and that helps determine what the price level of goods and services is going to be in general. Now, if people are panicked and banks start failing, as they were in the early 30s, and this was before there was FDIC insurance,

15:33What do people do? They start hearing that their bank is in trouble. They, of course, line up to get their money out. So there are all those banking runs that I'm sure you've heard about. So in addition to just scaring people and making them hunker down and hoard money, that, because of the fractional reserve banking system, is people were taking their money out of the banks in a sense that was destroying money, right? So if there were a bank, just making up numbers here, if there were a bank that had a million dollars in outstanding checking account balances, right? So if you added up what every customer of the bank thought he had in the bank, let's say it was a million dollars, but really there was only $100,000 in paper currency, green pieces of paper in the bank vault. So everyone shows up to take their money out because they heard a rumor that the bank was in trouble. What can the bank do?

16:17It can pay out the $100,000 and then close its doors and be out of business. So in a sense $900,000 just disappeared from the economy, right, because those customers all thought they had money and then boop, it's gone and only 10% of it got out in the The Money Supply actually shrank by a third over a few year period there. So those two forces together meant prices were just collapsing because people didn't

17:28The product that guy's making, its price drops in half, you still have to keep paying him the same amount in his paycheck per hour. So what was happening over time, as prices in general kept falling, but wage rates were stuck at the pre-crisis level, it meant workers kept getting more and more expensive compared to everything else. And so if you're a business and your profits are down and the economy's awful, You're not going to be inclined to hire more workers when all of a sudden they just keep getting more and more expensive compared to everything else, right? So, that's labor economists looking at this period say that's one of the main reasons unemployment went up so much. It actually reached 25% at the worst part under the Hoover administration. Not because Hoover refused to do anything, but because he made workers artificially more expensive as time wore on.

18:20Okay, tax hikes and deficits. Again, that may be surprising to some of you. You may have heard that Herbert Hoover was this real austere budget cutter. I'm going to show you the chart in a minute. That's just not true. In terms of the tax hikes, Hoover, I believe, has the single worst tax hike in U.S. history in terms of what the rates were in one year going to the next year. Just to give you an example, the top marginal rate, so the people in the top income tax bracket, in 1931 the rate was 25%. In 1932 the rate was 63%. So I'm not saying a 63% increase, I'm saying the rate, you look up the tax code, oh gee, what do I owe, if you're in the top tax bracket, the year before it was 25% was what your liability was, the next year it went up to 63%. So that's a one year increase. And he did it, he put it into law Law in 1932. And so it's not a surprise that that was just about the worst year in US economic

19:22history when they put this through that kind of massive tax hike on businesses and individuals when things were already awful. And then also public works that they did a bunch. I don't have the quote for you here. I think I have it in the book. One of FDR's undersecretaries, I forget which department in 1938 or 1939 said to a journalist, of course we wouldn't have admitted it at the time, but when we put the new deal in, when FDR first came into office, he said all we really did was elaborate all the stuff that Hoover had done. That it wasn't this qualitatively different thing, it's just we took all the various initiatives Herbert Hoover had started and we just upped the ante. So it wasn't like there was this qualitative difference between the two.

20:08One example, the Reconstruction Finance Corporation was this thing that was formed and dispersed two billion dollars in order to bail out banks and other businesses that were in trouble. That sounds like, oh, that must have been it. And it was called the RFC. They said, oh, that was under the New Deal, right? Because it's this acronym and this thing was throwing money around. No, that was under Herbert Hoover. And he actually got in trouble because there was a lot of corruption involved and who it gave the loans to. So here's just an example of what I mean. So this is federal spending by fiscal year. So you see, it went up every single year for the first, this is actually the first three years under Hoover. Like I was showing you what it was originally and it went up. Now he did, where this idea comes in that Herbert Hoover tried to balance the budget in the midst of the depression. And here also you see the deficit of share of GDP. So it really

21:06at a huge deficit, the last year Hoover was in office. Where it comes into play is, it's true, the very last year that Hoover was in office, he cut the budget by something like 30 million dollars. It was like less than 2 percent. And he raised taxes. So he thought he was going to reduce the deficit, but it turned out it didn't work. The deficit actually went up as a share of the economy because his tax hikes were so devastating, the economy and Money Shrink. In other words, they thought they were going to get all this revenue, in other words, they were more than doubling tax rates on various stuff, but revenue just went up a tiny little bit because the tax base got destroyed so much that even at the higher rates, the total amount of revenue they brought in was just a little bit more.

21:51Does anyone recognize that picture? Hoover Dam. I tell some people that Hoover had all these big public works programs, they think I'm making stuff up. And I say, well, you know the Hoover Dam? Well, that's one example. So that was, that thing had been in works before then. It wasn't like they just started building it in 1930 and came up with the idea off the top of their head. The thing had been in works, in the works beforehand, but that's just an example. That Hoover did subscribe to the idea that, well, one thing the federal government can do in a time like this is to spend more on roads and bridges and things like that and dams to help get spending into of the Economy and Give People Employment. So again, it was not this sharp contrast between the views of Hoover and FDR.

22:37It was just a matter of degree. Let's see how we're doing on time here. OK, I'm going to pick up the pace to give you time for questions. Let me just give you this quote when I tell some crowds what Hoover was doing in terms of propping up wage rates. They think, well, OK, maybe he made some speeches or whatever. The President's Conference has given industrial leaders a new sense of their responsibilities, never before have they been called upon to act together. And that wasn't some Republican booster, it was an editorial in a labor union publication in the early, in the beginning of 1930. So again, they thought at the time that Herbert Hoover was a compassionate Republican, if you will, and that he was really behaving differently in this downturn than other people would have done.

23:36Another myth is that the New Deal got us out of the Depression. Hear that a lot. Reality is that the recovery under FDR was the most sluggish in U.S. history. So here's just the official unemployment rates. So it's true, if you want to view it this way, so 1933 you could attribute, so the election was in 32, FDR against, Hoover was running in the second term, so he lost in the fall of 32 to FDR, he got blown out of the water. Back then they swore people in in March, right, so they had their inaugurations in March. So this one, you could fairly attribute this average annual unemployment to Hoover more than FDR. and you can see how yeah it did start coming down but again three years into it i mean you still had 17 percent unemployment so far that's that's not a great record it's not like somebody four years in office is going to say hey everyone unemployment is only 14.3 percent i'm doing a great job

24:29and then it spiked back up in 38 all right so the point is look at how long FDR had been in office this many years you know seven years basically and unemployment in the whole time there had had never gotten below 14.3% in terms of the annual average. So that is just an awful, awful record. And just to make sure you understand the context, again, there had been recessions before this and after this in US history where unemployment didn't get up to that high. But they had gotten up pretty high. And then it would be coming back to normal within about two years. So this is unusual, the fact that it just lingers so long.

25:14That's not a good thing. So put it in other words, what could FDR have done so that people would think his policies prolonged the depression? What would the numbers have to look like for historians to say maybe something was wrong with a new deal? And I would think that that's a pretty good example of what the numbers might look like if what FDR's policies did just prolonged the agony. Another thing I don't have it here to show you, but I have it in the book, is I entertain the notion. I said, well, wait, maybe someone could just argue, well, look, it was so awful, that hole that was dug by Hoover's policies that he handed over to FDR was just so awful that it took him a while to dig out of that. And so it's not fair to say earlier depressions, the economy was back to normal within two to three years tops, and then look at this record because no other president had came

26:04into office with this to deal with. When I compared the U.S. and Canadian unemployment rates during these same years, Canada bounced back much more quickly. So in other words, if you looked at the gap between U.S. and Canada's unemployment in this time period, the gap got bigger under FDR. So in other words, yeah, there was this very anemic recovery in the sense that the numbers came down a little bit, but they came down much more quickly in Canada. And it wasn't because Canada had a bigger spender than FDR was or that the Canadian The last myth is that World War II got us out of the Depression. The reality is that war is very destructive.

26:52It doesn't make us richer to take our most productive men and ship them across the ocean and have them get shot at. The Theory of Money and Credit

28:00It wasn't the FDR spending money on roads and bridges that got us out, it was FDR spending money on tanks and bombers. So again, maybe it's true, but people who think that big government spending isn't the way to fix an economy, but then at the same time say it was World War II, that's what you're saying. You're saying it's big government spending that rescues the economy. And in fact, Paul Krugman uses this very example, when people say to him, give me an example of a Big Government Stimulus Package, Pulling an Economy out of Depression, they'll look at World War II and say, there you go. So it's ironic when conservative Republicans use that explanation, because they think that they're attacking FDR, but actually they're justifying the whole thing. So let me just go over two issues here, because there is this prima facie case that it does look on paper as if World War II got us out of the Depression.

28:55Let me just deal with two of these issues. So if you look at the unemployment rate, and I'm sorry if you can't see these years down here, but this unemployment rate zooms way up, 31, 32, it comes down a little bit, jumps back up in 38, then it comes way down, this low point here is 43 and 44. So it certainly does look like, even though it doesn't make much sense why would going to war help things, it looks like it fixed the unemployment problem. Well, I think there the answer is So it's pretty simple, it's that unemployment really isn't a proxy for a good economy. Unemployment just means how many people don't have work that are trying to find it. And so if FDR starts drafting millions of people, put them on ships and send them across the ocean, well yeah, there's fewer unemployed people standing around, that's true.

29:44But you know, tomorrow if Obama drafted three million unemployed people and sent them across the ocean to go fight terrorists, and then all of a sudden the unemployment rate dropped

30:53The way the GDP is calculated, the way economists do that, is they add up spending in the economy, because for every transaction, if someone's producing something and selling it to somebody, on the other side of that transaction, someone's buying it. So it's easier statistically to keep track of how much people are spending on stuff. That's the way you measure it, if you want to measure national output. The way GDP is figured is they look at private consumption, private investment by business, and then a huge component of it is what's government spending. They just add that in there so that $1,000 spent by the government measures $1,000 of output, just like if you bought a $1,000 car back then, that that would be $1,000 in output. They didn't distinguish between government and private spending.

31:40and Spending. So if you look at what happened for these years, government spending was a small fraction of the overall economy. And then in the war years, it just got huge. And so remember, this blue line is actually the private sector output. So you can see this right here is 1942. Going into the height of World War II, the blue lines were actually were lower here than they were even back in the 1932-1933, so that was ten years later, the economy in terms of what private citizens were getting out of the economy in terms of nylon, stockings and meat and gasoline for your own car, was basically where it was ten years earlier. I mean there had been no economic progress at all over the course of a decade and of course the population was bigger here too, so that means actually per capita people had The Theory of Money and Credit The Theory of Money and Credit

32:58The same thing is if all of us collectively spent $30 million on cars, because the Pentagon's not as careful spending money as we are in our own private household, right, so that $30 million of output really isn't the same if it's $30 million spent by the government versus private sector, because the government's not nearly as careful what they spend their money on. So already you see that's a little bit misleading, but then it's even more so when you consider this factor, and this is the last point and I'll turn over to some of your questions. So this is what's called the monetary base. We don't need to get into the strict definition. It's one measurement of how much money the Federal Reserve is pumping into the credit system. So you can see, 1920, 25, 30, it's pretty low. It went down a little bit, came back up, came up a little bit in the 30s, but then it just absolutely took off.

33:51The Federal Reserve greatly expanded the money supply during the war years. The way you would normally catch that is what would happen if the Fed just really increases the money supply. What would happen is prices would go up. So it's true. If you looked at how much people were spending on stuff, those numbers would go up. And so people might say, oh, GDP is going through the roof because people are spending more. But then they would also, in a sense, divide by the price level. So just to give you an idea, let's say the Fed doubles the money supply and the amount World War II

35:09The reason, part of the reason that was so much higher than like it had been over here, was because they pumped in all this extra money, but the reason that's not being picked up by the conventional statistics is because the government just made it illegal for prices to go up, okay, so it's a very odd arrangement whereby it looked like they boosted total spending without prices going up, okay, so it's a very odd arrangement whereby it looked like they boosted total spending without prices going up, is going up, so it looks like, no, that's really real output. There's more physical stuff being produced because there's all this extra spending and prices aren't going up, so it's not inflation, right? But it's because inflation was illegal, that they had strict things about how much milk and eggs and so forth could get more expensive over time during the war years. All right, so again, those official statistics by which economists try to show, look at World War II got us out of the depression, there's a lot wrong with those

36:05numbers and again just using your common sense. It doesn't make sense that having stuff get blown up is a way to prosperity. Again, maybe it was necessary to fight the war but the point is it was very costly and you shouldn't confuse your benefits with your costs. Alright, I guess why don't I, we're a little bit over time here, why don't I just turn it over for like five minutes of questions and then we'll take a break. So any questions on this stuff? Yes sir. The chart before, the FHR chart, is real GDP, is that correct? Right. And is that a new book? Yes. I'm a little confused because you're showing real GDP here, and on the next slide you're showing nominal quote for money supply. Wouldn't the real GDP numbers kind of back to where they were?

36:53They would if the prices in this period were the real market prices. All right, so the way you figure real GDP is you look at nominal GDP, like how much actual dollars were spent, and then you would adjust for prices. So normally, so you'd say something like, okay, well, let's, you know, if total spending went from a trillion dollars to two trillion dollars, you'd say, oh, the economy's twice as big. You'd say, oh, wait, no, because prices went up by 80%. So you'd say, oh, so real output only went up by 20% because of that doubling of how much total was spent, 80% of it was just because prices went up.

37:56One of the arguments that I've heard about for Keynesian is that in the 1930s, specifically in 1937, that the feds started increasing interest rates, they changed policy, and then also Congress started cutting spending, and that turned the economy down in 1937. Any comments in terms of their actions? What actions did they do and how do you analyze the results?

38:51Comps explained that spike as they're going to say yet, FDR's advisors here told him you've got to get the deficit under control because the Republicans are going to kill you the next election. They're going to be campaigning on a balanced budget and saying you're a socialist and all that kind of stuff. So he cut spending a little bit. They raised taxes. And another thing that happened is the Federal Reserve changed its policies. It increased the proportion of their deposits that banks needed to keep in reserve. So they increased the reserve ratio, if you know what that terminology means. Okay, so there was a lot of stuff going on. There was another big thing. There was a major court decision right around this time that made it a lot easier for labor unions. It gave a lot of power to labor unions, and it was a surprise decision because the Supreme Court had been knocking down The New Deal stuff, saying it was unconstitutional, and as many of you may remember, FDR threatened

39:47to pack the court. He was going to say, well, the constitution doesn't say how many people can be on the Supreme Court, so I'm just going to start putting my people on there until I get a majority. And then the Supreme Court presumed, I mean, we can't get inside their heads, but after he did that, they sort of backed off, and the Supreme Court started approving New Deal stuff, and he didn't pack the court. And so it looks logical to assume the Supreme Court thought, we can't just have him do that because then we'll be impotent for the rest of U.S. history, so why don't we save face and start agreeing with him and maybe he'll back off and we'll avoid this constitutional crisis. So that's another, if you look at wage rates in unionized industries, they shot up a lot in this period. So again, in terms of trying to explain why did unemployment go up, there's lots of stuff going on there. One is there's a big tax increase. Another one was

40:32that unions got a lot more powerful and raised wage rates, making workers more expensive. But yeah, you're also right that there's a, the government did, I don't know if they actually

41:11The difference in this period versus this period of the size of the deficit as a share of gross domestic product is like 45 basis points or something like that. So it's not like Hoover had these really timid deficits and FDR had these humongous ones. It's like Hoover had a deficit of 4.5% of the economy and FDR had it like 5.3%. And they're saying that's the difference between the worst unemployment in U.S. history and the sharp recovery, as they call it. So, if you want to see the numbers, I would point to that thing where it's, I just show that to explain these huge zigs and zags by looking at the deficit as a share of the economy really doesn't make much sense.