as noted above. R&D has a long lead time, which means that the effects of financial disruptions can be persistent.Nabar and Nicholas (2009) observe that there was a drop in R&D activity in the early 1930s due to the depth of the economic collapse and tighter financial constraints.30 But this history also points to the possibility of a more positive outcome. Rather than being depressed as the previous perspective would suggest, TFP growth in the 1930s in the United States was unusually fast. Between 1929 and 1941, TFP growth ran at an annual average compound rate of growth of 2.3%, faster than in the first two decades of the century, faster than in the 1920s, faster than during World War II, and faster than in the second half of the 20th century.31The external effects of capital deepening cannot explain this, as noted: net stocks of both equipment and structures did not rise over the period. The phenomenon was not simply mis-measurement of labor input: while there was probably some tendency for firms to retain their most skilled and productive workers in the downturn, the fact that both 1929 and 1941 were business cycle peaks suggests that the contribution of this factor was limited. Rather, there was a fundamental reorganization of operations in a variety of industries. The example given in Field (2009b) is the railroads, which suffered from severe financial shocks (Schiffman, 2003), a depressed economy, and competition from road (and nascent air) transport. Managers fought back by figuring out how to use their labor and capital more efficiently, through inter alia more efficient scheduling and continuous utilization of freight cars, changes in staffing practices, and so forth.Field refers to this as the adversity effect: to survive in the face of adverse demand conditions, firms have to figure out how to cut costs and raise efficiency. Koenders and Rogerson (2005) present a model that predicts (or rationalizes) this behavior. In their framework, firms invest in internal reorganization at the cost of diverting resources from more immediate uses. In periods of high economic activity, organizations postpone structural changes to take advantage of more immediate opportunities. In periods of low activity, they do the opposite.While Koenders and Rogerson do not apply it to the 1920s and 1930s, their framework has two implications consistent with that historical experience. One is a continued high unemployment rate following the shock: once immediate opportunities dissipate and the firm turns to reorganization, it is less likely to hire because reorganization is less labor intensive than current production. The second is that the effects in question will be stronger following a long expansion like that of the 1920s. The longer the expansion, during which the firm will have focused on production rather than reorganization, the larger will be the backlog of potential structural changes. Looking at post-1964 experience, Koenders and Rogerson show that the longer the preceding expansion, the more jobless but also efficiency enhancing is the subsequent recovery. 19211929 was the longest unbroken expansion in US history up until the expansion of the 19912001 (the case that motivates their