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The World’s Most Famous Case of Deflation

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The World's Most Famous Case of Deflation (Part 1 of 2)

The World’s Most Famous Case of Deflation (Part 1 of 2)

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

The Great Depression was the most severe economic depression ever experienced by the Western world.

It was during this troubled time that the world’s most famous case of deflation also happened. The resulting aftermath was so bad that economic policy since has been chiefly designed to prevent deflation at all costs.

Setting the Stage

The transition from wartime to peacetime created a bumpy economic road after World War I.

Growth has hard to come by in the first years after the war, and by 1920-21 the economy fell into a brief deflationary depression. Prices dropped -18%, and unemployment jumped up to 11.7% in 1921.

However, the troubles wouldn’t last. During the “Roaring Twenties”, economic growth picked up as the new technologies like the automobile, household appliances, and other mass-produced products led to a vibrant consumer culture and growth in the economy.

More than half of the automobiles in the nation were sold on credit by the end of the 1920s. Consumer debt more than doubled during the decade.

While GDP growth during this period was extremely strong, the Roaring Twenties also had a dark side. Income inequality during this era was the highest in American history. By 1929, the income of the top 1% had increased by 75%. Income for the rest of people (99%) increased by only 9%.

The Roaring Twenties ended with a bang. On Black Thursday (Oct 24, 1929), the Dow Jones Industrial Average plunged 11% at the open in very heavy volume, precipitating the Wall Street crash of 1929 and the subsequent Great Depression of the 1930s.

The Cause of the Great Depression

Economists continue to debate to this day on the cause of the Great Depression. Here’s perspectives from three different economic schools:

Keynesian:

John Maynard Keynes saw the causes of the Great Depression hinge upon a lack of aggregate demand. This later became the subject of his most influential work, The General Theory of Employment, Interest, and Money, which was published in 1936.

Keynes argued that the solution was to stimulate the economy through some combination of two approaches:
1. A reduction in interest rates (monetary policy), and
2. Government investment in infrastructure (fiscal policy).

“The difficulty lies not so much in developing new ideas as in escaping from old ones.” – John Maynard Keynes

Monetarist:

Monetarists such as Milton Friedman viewed the cause of the Great Depression as a fall in the money supply.

Friedman and Schwartz argue that people wanted to hold more money than the Federal Reserve was supplying. As a result, people hoarded money by consuming less. This caused a contraction in employment and production since prices were not flexible enough to immediately fall.

“The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.” ― Milton Friedman

Austrian:

Austrian economists argue that the Great Depression was the inevitable outcome of the monetary policies of the Federal Reserve during the 1920s.

In their opinion, the central bank’s policy was an “easy credit policy” which led to an unsustainable credit-driven boom.

“Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.” – Murray Rothbard

The Great Depression and Deflation

Between 1929 and 1932, worldwide GDP fell by an estimated 15%.

Deflation hit.

Personal income, tax revenue, profits and prices plunged. International trade fell by more than 50%. Unemployment in the U.S. rose to 25% and in some countries rose as high as 33%.

These statistics were only the tip of the iceberg. Learn about the full effects, the stories, and the recovery from the Great Depression in Part 2.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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The New Rules of Leadership: 5 Forces Shaping Expectations of CEOs

This infographic delves into five major forces reshaping our world and the new rules of leadership that CEOs should follow as a result.

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It’s common knowledge that CEOs assume a long list of roles and responsibilities.

But in today’s world, more and more people rely on them to go beyond their day-to-day responsibilities and advocate for broader social change. In fact, a number of external forces are changing how leaders are now expected to behave.

How can leaders juggle these evolving expectations while successfully leading their companies into the future?

The New Rules of Leadership

This infographic from bestselling author Vince Molinaro explores five drivers reshaping our world that leaders must pay attention to in order to bring about real change.

“the

How is the World Being Reshaped?

Leaders need to constantly stay one step ahead of the transformative forces that impact businesses on a broader scale.

Below we outline five key drivers that are changing what it means to be a leader in today’s world:

1. Transformative Technologies

Over the last number of decades, several technologies have emerged that could either accelerate the disruption of companies, or provide them with new opportunities for growth. According to KPMG, 72% of CEOs believe the next three years will be more critical for their industry than the previous 50 years.

For example, artificial intelligence (AI), can now provide companies with insights into what motivates their employees and how they can help them succeed. IBM’s AI predictive attrition program can even predict when employees are about to quit—saving them roughly $300 million in retention costs.

Leaders must accept that the future will be mediated by technology, and how they respond could determine whether or not their organization survives entirely.

2. Geopolitical Instability

Geopolitical risks—such as trade disputes or civil unrest—can have a catastrophic impact on a business’s bottom line, no matter its industry. Although 52% of CEOs believe the geopolitical landscape is having a significant impact on their companies, only a small portion say they have taken active steps to address these risks.

By being more sensitive to the world around them, leaders can anticipate and potentially mitigate these risks. Extensive research into geopolitical trends and leveraging the appropriate experts could support a geopolitical risk strategy, and alleviate some of the potential repercussions.

3. Revolutionizing the Working Environment

As the future of work looms, leaders are being presented with the opportunity to reimagine the inner workings of their company. But right now, they are fighting against a wide spectrum of predictions around what they should expect, with estimations surrounding the automation risk of jobs ranging from 5% to 61% as a prime example.

While physical, repetitive, or basic cognitive tasks carry a higher risk of automation, the critical work that remains will require human interaction, creativity, and judgment.

Leaders should avoid getting caught up in the hype regarding the future of work, and simply focus on helping their employees navigate the next decade.

By creating an inspiring work environment and investing in retraining and reskilling, leaders can nurture employee well-being and create a sense of connectedness and resilience in the workplace.

4. Delivering Diversity

Diversity and inclusion can serve as a path to engaging employees, and leaders are being asked to step up and deliver like never before. A staggering 77% of people feel that CEOs are responsible for leading change on important social issues like racial inequality.

But while delivering diversity, equity, and inclusion seems to be growing in importance, many companies are struggling to understand the weight of this issue.

An example of this is Noah’s Ark Paradox, which describes the belief that hiring “two of every kind” creates a diverse work environment. In reality, this creates a false sense of inclusion because the voices of these people may never actually be heard.

Modern day leaders must create a place of belonging where everyone—regardless of gender, race, sexual orientation, ability, or age—is listened to.

5. Repurposing Corporations

The drivers listed above ladder up to the fact that society is looking to businesses to help solve important issues, and leaders are the ones being held accountable.

With 84% of people expecting CEOs to inform conversations and policy debates on one or more pressing issues, from job automation to the impact of globalization, CEOs have the potential to transform their organization by galvanizing employees on the topics that matter to them.

For a long time, the purpose of corporations was purely to create value for shareholders. Now, leaders are obligated to follow a set of five commitments:

  1. Deliver value to customers
  2. Invest in employees
  3. Deal fairly and ethically with suppliers
  4. Support communities
  5. Generate long-term value for shareholders

Ultimately, these five commitments build currency for trust, which is critical for sustained growth and building a productive and satisfied workforce.

Lead the Future

If leaders understand the context they operate in, they can identify opportunities that could fuel their organization’s growth, or alternatively, help them pivot in the face of impending threats.

But organizations must invest in the development of their leaders so that they can see the bigger picture—and many are failing to do so.

By recognizing the new rules of leadership, CEOs and managers can successfully lead their organizations, and the world, into a new and uncertain future.

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3D Map: The U.S. Cities With the Highest Economic Output

The total U.S. GDP stands at a whopping $21 trillion, but which metro areas contribute to the most in terms of economic output?

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US Cities by Economic Output

3D Map: The U.S. Cities With the Highest Economic Output

At over $21 trillion, the U.S. holds the title of the world’s largest economy—accounting for almost a quarter of the global GDP total. However, the fact is that a few select cities are responsible for a large share of the country’s total economic output.

This unique 3D map from HowMuch puts into perspective the city corridors which contribute the most to the American economy at large.

Top 10 Metros by Economic Output

The visualization pulls the latest data from the U.S. Bureau of Economic Analysis (BEA, 2018), and ranks the top 10 metro area economies in the country.

One thing is immediately clear—the New York metro area dwarfs all other metro area by a large margin. This cluster, which includes Newark and Jersey City, is bigger than the metro areas surrounding Los Angeles and Chicago combined.

RankMetro AreaState codesGDP (2018)
#1New York-Newark-Jersey CityNY-NJ-PA $1.77T
#2Los Angeles-Long Beach-AnaheimCA$1.05T
#3Chicago-Naperville-ElginIL-IN-WI$0.69T
#4San Francisco-Oakland-BerkeleyCA$0.55T
#5Washington-Arlington-AlexandriaDC-VA-MD-WV$0.54T
#6Dallas-Fort Worth-ArlingtonTX$0.51T
#7Houston-The Woodlands-Sugar LandTX$0.48T
#8Boston-Cambridge-NewtonMA-NH$0.46T
#9Philadelphia-Camden-Wilmington PA-NJ-DE-MD$0.44T
#10Atlanta-Sandy Springs-AlpharettaGA$0.40T
Total GDP$6.90T

Coming in fourth place is San Francisco on the West Coast, with $549 billion in total economic output each year. Meanwhile in the South, the Dallas metroplex brings in $478 billion, placing it sixth in the ranks.

It’s worth noting that using individual metro areas is one way to view things, but geographers also think of urban life in broader terms as well. Given the proximity of cities in the Northeast, places like Boston, NYC, and Washington, D.C. are sometimes grouped into a single megaregion. When viewed this way, the corridor is actually the world’s largest in economic terms.

U.S. States: Sum of Its Parts

Zooming out beyond just these massive cities demonstrates the combined might of the U.S. in another unique way. Tallying all the urban and rural areas, every state economy can be compared to the size of entire countries.

US States and Country Comparison by GDP 2018

According to the American Enterprise Institute, the state of California brings in a GDP that rivals the United Kingdom in its entirety.

By this same measure, Texas competes with Canada in terms of pure economic output, despite a total land area that’s 15 times less that of the Great White North.

With COVID-19 continuing to impact parts of the global economy disproportionately, how will these kinds of economic comparisons hold up in the future?

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