The Great Accretion and the Great Depression
A very old idea, returning with a vengeance: The Second Industrial Revolution sparked a wave of new products and industrial processes, fueling an optimistic Roaring Twenties. But did excitement about technological progress contribute to an over accumulation of investment, despite a slowdown in new product development and satiated demand during the 1920s? And, was this […] The post The Great…
The Second Industrial Revolution marked the beginning of a period of optimism and rapid technological advancement in the early 20th century. The Roaring Twenties were characterized by a surge in new products and industrial processes that fueled economic growth and prosperity. However, as the decade wore on, signs of a potential crisis emerged.
Economic indicators suggest that the excitement surrounding technological progress may have contributed to an over accumulation of investment, despite a slowdown in the development of new products and a saturation of demand.
A recent NBER working paper by Harold L. Cole, Stefano Cravero, and Jeremy Greenwood delves into these questions. The authors propose a macroeconomic model that takes into account both process and product innovation. Through proof-of-concept simulations, the model demonstrates that these factors could indeed have played a role in triggering the Great Depression.
The findings of this research provide a fresh perspective on the complex relationship between technological progress and economic downturns, shedding light on the vulnerabilities that can arise in the wake of rapid industrialization and innovation.
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