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How Do We Define the Great Depression?

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  Our current approach to Economic Policy is based on our understanding of the  Great Depression . Google Gemini notes that: I will argue that, as a major Economic System Failure , we have mostly not studied the period from the perspective of Systems Theory , starting with the definition (the graphic above provides a concise summary of our misconceptions). The Great Depression has been studied so much that the definition might seem obvious. Here's Google AI's statement: Hidden in the definition are a number of assumptions about economic performance during the Early 20th Century. I'll dig into these issues in this post. The graphic at the beginning of this post shows US GNP for the period 1900 to 1950. First, imagine that you were standing at the start of the 20th Century before WWI . What would you have predicted? Could you have predicted  WWI ? Here's Google AI's statement: For the moment, assume you could not predict WWI and were using data from 1900-1915. No...
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Shock Theory of Great Depressions

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  I had wanted to study the Great Depression as a graduate student at the University of Wisconsin-Madison in the late 1970's. My pitch was that the Great Depression was a "Systemic Event" and therefore should be studied from the perspective of Systems Theory . I received two responses: (1)  Systems Theory  had a "bad reputation" in the Social Sciences and (2) the    Great Depression  was a topic reserved for elder statesmen in Economics and was not appropriate for a graduate student. I went on to apply  Systems Theory   to Late Nineteenth Century Development in Germany and emphasized the systemic issue of Stability . Today, I am at the end of my career, I'm still interested in the Great Depression and I don't need anyone's approval to study it. What I have found is that there is really no consistent theory of Great Depressions and that Systems Theory in the Social Sciences is, unfortunately, poorly defined (it is clearly defined in Environm...
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World-System (1900-1950) Latin America in the Great Depression

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  The Great Depression in Latin America The Monroe Doctrin e
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Technology Long Waves

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   The  Kondratiev Wave  is an important element of  World-Systems Theory . The graphic above is taken from  Andreas Goldschmidt  and gives historical specifics for technological cycles. Goldschmidt's formulation allows for the idea to be tested (one of the models I always test), is partially consistent with economic Growth theory (particularly if we do not assume a functional form for exogenous disembodied technological change in the  Solow-Swan Model ) and I can present some examples. The Iranian Economy prior to 1979  and associated  Tech Bubble .
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World-System (1900-1950) The USGD Measurement Model

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  Untangling the causes of the Great Depression in the 1930s United States will not be an easy task. There are many assumed causes (see the Notes below) and equally many theories: Monetary ,  Keynesian , Marxist ,  Austrian School , Debt-Deflation , Structural , International ( Gold Standard ), and Policy Failures (see the Summary Tables in the Notes ). What has not been tried is a System Theoretic explanation. To avoid any misunderstanding, if that is possible, what I mean by a "System Theoretic Explanation" is developing a State Space Representation of the US Economy and the World-System in the period (1900-1950) and then experimenting with the model using computer simulation . The difference between a State Space model and an Economic Model (discussed in more detail here ) is that the  State Space Representation  studies attributes of the "System" (attributes such as stability , controllability , mechanization, etc. more information on model propertie...
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About

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  The title of this blog is based on a book by Charles Kindleberger World in Depression (1929-1939) . In the book, Kindleberger argues that (1) Financial markets are prone to contagion ( Economic Bubbles ), (2) the bubbles spread across countries and (3) Hegemonic leadership is important to stabilizing these dynamics. Markets pass through cycles of boom, crash, panic, repulsion and finally depression (sometimes called the Minsky-Kindleberger model ). In this blog, I will present my own state space (statistical) models (see the Boiler Plate ) of the period for as many countries in the World-System as time permits. I have another blog, The Economic Bubble Machine,  where present models of  Economic Bubbles  in other countries and other time periods . To get an idea of my approach, check the post  W orld-System (1900-1950): Did the Smoot-Hawley Tariff Cause the Great Depression?  The Smoot-Haley Tariff is particularly relevant to current Economic Policy in t...
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Boiler Plate

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  State Space Model Estimation The Measurement Matrix for the  state space models  was constructed using  Principal Components Analysis  with  standardized  data from the  World Development Indicators . The statistical analysis was conducted in an extension of the  dse package . The package is currently supported by an online portal ( here ) and can be downloaded, with the R-programming language, for any personal computer  here .  Code for the state space  Dynamic Component models (DCMs)  is available on my Google drive ( here ) and referenced in each post. Atlanta Fed Economy Now My approach to forecasting is similar to the  EconomyNow model used by the Atlanta Federal Reserve . Since the new Republican Administration is signaling that they would like to eliminate the Federal Reserve, the app might well not be available in the future. While the app is still available, there have been some interesting development...
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