Short and sharp ?

Writing in the Oz, Alan Moran begins a case for wage cuts as a response to recession with the claim

Until the 1930s, recessions tended to be short and sharp, and financial ruin was largely confined to the speculators whose exuberance had diverted capital into ventures where it was less than productive.

Much the same assumption appears to underlie the thinking of those who propose a return to the macroeconomic policies of the 19th century, such as the gold standard. Economic statistics for this period aren’t exactly comparable to those available today, but, such as they are, they don’t support the claim. In the US, for example, the longest-ever recession, according to the National Bureau of Economic Research was that of the 1870s (following the Panic of 1873, which in turn followed the US shift from bimetallism to a gold standard). As the NBER data shows, 19th century recessions commonly lasted for more than a year.

In Australia, the long and deep depression of the 1890s, and the substantial wage cuts imposed during that depression (with employers getting the full backing of governments) were a major factor in the formation of the Labor Party and the shift to a parliamentary, as opposed to a purely industrial strategy, for the labour movement.

151 thoughts on “Short and sharp ?

  1. Nick @66 there is a huge difference between nominal wage cuts and falling real wages. To the best of my knowledge there hasn’t been a cut in nominal wages in this country since 1931 or 32, whereas real wages have fallen on numerous occasions and most recently as last year.

    I’m glad you have acknowledged the difference, unlike some earlier commenters on this post who by use of the term wage cuts seem to be advocating cuts in nominal wages. This, in the absence of sustained deflation, would only exacerbate a downturn.

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