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What Was Bad for General Motors Was Bad for America: The Automobile Industry and the 1937/38 Recession

  • Joshua K. Hausman (a1)

This article shows that there were timing, geographic, and sectoral anomalies in the 1937/38 recession, none of which are easily explained by aggregate shocks. I argue that an auto industry supply shock contributed both to the recession's anomalies and to its severity. Labor-strife-induced wage increases and an increase in raw material costs led auto manufacturers to raise prices in fall 1937. Expectations of these price increases brought auto sales forward. When auto prices finally rose, sales plummeted. This shock likely reduced 1938 auto sales by roughly 600,000 units and 1938 GDP growth by 0.5–1 percentage point.

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I thank J. Bradford De Long, Barry Eichengreen, Christina Romer, two anonymous referees, and the editor, Ann Carlos, for exceptional advice, and I am grateful to Robert Barksy for providing valuable comments as my discussant at the 2015 American Economic Association meetings. I also thank Martha Bailey, David Berger, John Bound, Gabriel Chodorow-Reich, Robert Gordon, Yuriy Gorodnichenko, Catherine Hausman, Daniel Hausman, David Hausman, Maurice Obstfeld, Martha Olney, Daniel Raff, Michael Reich, Paul Rhode, David Romer, Ugo Troiano, Johannes Wieland, and conference and seminar participants at the 2015 American Economic Association meetings, Harvard University, Northwestern University, Rutgers University, UC Berkeley, the University of Arizona, the University of Houston, the University of Michigan, and the All-UC Group Conference on Transport, Institutions, and Economic Performance at UC Irvine for thoughtful suggestions. I am grateful to Warren Whatley for providing me with payroll records from the Ford River Rouge plant and to Martin Kohli for providing me with the 1939 input-output table. Walid Badawi, Chris Boehm, and Matthew Haarer provided superb research assistance. This work was in part supported by an Economic History Association graduate dissertation fellowship.

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