The Labour Governement

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  • Labour government 1929-1931
  • Ramsay Macdonald became Prime Minister again after the 1929 general election and Sidney Webb, recently created Lord Passfield, was Colonial Secretary in that administration. Sidney wrote about the difficulties faced by the second Labour government:
  • "The constant international complications involved alike in reparations and in armaments, the world-wide industrial depression, the catastrophic collapse of prices, the ever present misery of chronic unemployment, the universal colossal taxation which has failed to avert a recurrence of deficits. The Labour Cabinet of 1929-31 stumbled through its share of these general troubles, aggravated in its own case by the special difficulties inherent in never having a majority in the House of Commons. The Labour Party itself grew more and more restive at its own Parliamentary impotence, section after section breaking out in angry rebellion. Thus the session of 1931 opened with the Parliamentary Labour Party seriously discontented with itself."
  • By the summer of 1931 an economic crisis had split the Labour cabinet. To gain the support of the banks Macdonald wanted to cut unemployment benefit, but a large section of the cabinet opposed him. On the 23 August the government resigned. Much to the surprise of his colleagues, the following day Macdonald announced he would lead a National Government

  • Unemployment in 1930's

The Great Depression began in 1929 when the entire world suffered an enormous drop in output and an unprecedented rise in unemployment. World economic output continued to decline until 1932 when it clinked bottom at 50% of its 1929 level. Unemployment soared, in the United States it peaked at 24.9% in 1933. It remained above 20% for two more years, reluctantly declining to 14.3% by 1937. It then leapt back to 19% before its long-term decline. Since most households had only one income earner the equivalent modern unemployment rates would likely be much higher. Real economic output (real GDP) fell by 29% from 1929 to 1933 and the US stock market lost 89.5% of its value.

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Another unusual aspect of the Great Depression was deflation. Prices fell 25%, 30%, 30%, and 40% in the UK, Germany, the US, and France respectively from 1929 to 1933. These were the four largest economies in the world at that time.

To put the severity of the depression in modern perspective, consider the following. Real US GDP went down 4.4% in the five years that it declined since 1959, all added together! Unemployment has never exceeded 9.7% and we have not had one year of deflation. Maybe you're thinking, "what's wrong with a little price deflation?" Depending ...

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