[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

INDUSTRIAL PRODUCTION (1929 = 100)
180
160
140
120
100
80
60
40
0
1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
Figure 21.2 The Great Depression was not limited to the United States. All industrial economies suffered
declines in economic activity and production in the 1930s. The index of industrial
INDUSTRIAL PRODUCTION
production for each country is scaled so that all the indexes equal 100 for the year 1929.
Japan
Sweden
U.K.
Germany
U.S.
France
SOURCES: League of Nations, World Production and Prices (Geneva: League of Nations, 1936), Appendix
II, p. 142; and World Production and Prices (Geneva: League of Nations, 1938), Table 1, p. 44.
revert to the conditions of the Great Depression. The late 1940s saw strong growth
in economic activity, in part fueled by household spending as Americans moved to
the suburbs, built homes, and had children. During the war years, few consumer
goods had been available, purchases of some goods had been rationed, and households
had been urged to save by buying war bonds to help finance the war effort. Americans
wanted to enjoy the return of peace and prosperity by using the incomes they had
earned during the war to buy new cars, homes, and appliances.
The shift from wartime production and the demands for military goods to peacetime
production and the demands for civilian goods represented a tremendous
change in what the economy produced. Assembly lines that had been making tanks
for the government shifted to making automobiles for consumers. Construction
boomed as it met the demand for new homes. Resources—workers and capital—
had to be shifted from what they had been producing to meet the new needs and
desires of Americans. Jobs had to be created for the millions of soldiers returning
from the war.
The end of the war also saw the government accepting responsibility for preventing
a recurrence of the Great Depression, an acceptance formalized when the
U.S. Congress passed the Employment Act in 1946. Among its provisions was the
establishment of the president’s Council of Economic Advisors, a three-member
committee of economists who advise the president. 2 While economists have debated
how much power the government actually has to influence macroeconomic developments,
the voting public often shows that it expects the president to ensure
continued economic growth, low inflation, and low unemployment.
2 Professor Stiglitz was chair of President Clinton’s Council of Economic Advisors from 1995 to 1996.
476 ∂ CHAPTER 21 MACROECONOMICS AND THE ECONOMIC PERSPECTIVE