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Exports and the Depression of 1920-21

Commenting on this post, Jeffrey Edelman offers Paul Krugman’s claim that (in Krugman’s words) “Historically, [in] the aftermath [of large] financial crises countries recover by having a huge exchange-rate depreciation, which then leads to an export boom.”

I infer that Mr. Edelman believes that Krugman’s claim constitutes a strong case for Uncle Sam to push Beijing to increase the value of the renminbi – which, of course, would depreciate the value of the dollar relative to the renminbi, thus (allegedly) sparking U.S. exports.

Alas, though, Krugman’s history is weak.

One of the steepest financial crises and depressions in U.S. history began in January 1920 and lasted for 19 months.  During that depression, Americans each month exported, on average, $583.6 million worth of goods.  During the 19 months immediately following that depression, Americans each month exported, on average, a mere $321.0 million worth of goods.  That is, exports during this period immediately after the depression were only 55 percent of what they were during the depression.

And not until October 1941 was there a single month following the depression of 1920-21 in which American exports again reached the level of their 1920-21-depression monthly average.

Clearly, this depression was not ended by any “export boom.”