Skip to comments.FDR's Policies Prolonged The Great Depression By 7 Years
Posted on 08/22/2011 8:44:06 AM PDT by To-Whose-Benefit?
Government Bailouts, Pump Priming, Interference, Whatever you want to call it, it Doesn't Work, & the numbers have already been crunched, & documented.
By Meg Sullivan August 10, 2004
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.
"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."
Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.
Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.
"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"
NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.
"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."
Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.
The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.
NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.
Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
Just when the economy was about to recover in 1936 FDR’s policies put a Depression within a Depression.
Teddy Roosevelt proclaimed: the new nationalism rightly maintains that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it.
Not exactly a new idea, but always welcome to see it mentioned.
This article is 7 years old - the media has managed to keep it on the top shelf at the back of the closet all this time. How sad.
The Democrat response to this is to blame the Republican resurgence (?) in 1936-37 for the Depression within a Depression instead of the Wagner act.
You never hear of Saul ALinsky these days... WHY? Its obvious that Barry Half-White made various moves TO CAUSE A DEPRESSION... He hired an entire White House and filled the Executive Branch with people (the exact same kind of people) that ALL KNEW WHO SAUL ALINSKY WAS..
You know this starting to sound like a friggen CONSPIRACY!!!
Now there's a sobering thought...
while approximately 60 years later, Clintoon would do a number of things that were terrible for the economy, and his aides would do a good job of spinning them to the gullible public. One of those principal aides - Harold McEwen Ickes. Never guess who's son he was.
Fooled ya twice America!
The RinoCracy is too purblind....but the way out is here..
Warren Harding figured it out in 1920...
Congress and the Executive Branch have lots to do.
So far theyre not doin it right..
Its been done before..
Harding cut the governments budget nearly in half between 1920 and 1922. The rest of Hardings approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserves activity, moreover, was hardly noticeable. As one economic historian puts it, Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction. 2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.
BTW..ole Warren ALSO fixed immigration...
Mr. Harding signed into law the Emergency Quota Act which sought to control immigration following World War I and preserve the distinctive American culture by ensuring the majority of immigrants came from the historically compatible cultures of Northern Europe. This law aimed to bring wages of hard working Americans under control by limiting immigration to 3% of the 1910 census. It was followed on by a similar act in 1924, after Mr. Hardings death.
A Warren Harding prescription...if filled ...would ignite the afterburners on the US job machine and the economy. However DC would have to yield on a tremendous amount of power. Our job as We the People...is to persuade them of the utility ..shall we say..of doing so. In all probability the same minds that made the mess...arent capable of the solution however.
BTW any takers that Bammy couldnt even tell you that Warren Harding was one of his predecessors in office?
Even more telling about what our betters in the RinoCracy think of a Constitutional President..
What they did not say was that Hoover’s response to the crash of 1929 was the initial cause of the depression. Big government stimulus, heavier regulation, and the Smoot-Hawley tariff act.
FDR was an economic incompetent. He had no idea where money came from except to ask Mummy for some. He resented people who actually knew how to make money.
As a politician, he surrounded himself not with compentent business people with lifetimes of practical experience, but with knot-headed academics who were bound and determined to force the world to function according to their pet theories, which were decidedly leftist.
When their theories resulted in a decade of disaster they spun the self-justifying myth that but for their interventions things would have been much worse.
Modern interpretation of events has it that WWII saved us from Depression. Yes and no. Not in the Keynesian way most people understand of massive gov’t spending and hiring. What worked was FDR’s desperate need to push his lefty theorists out of the way in favor of people who could actually make the war machine work. This, along with his death, lifted the pall of economic fear from off the marketplace, encouraging businesses to put idled capital back to work with the reasonable hope that the gov’t wouldn’t be seizing, taxing or regulating success away.
We are now living through the same script, being read and implemented by the same sort of fools who gave us the first round. Having believed the FDR myth they are following the same course. It is inevitable that the results will be the same - disaster.
Keynes was Evil Incarnate.
While WWII was in full swing, Keynes was the Director of the British Eugenics Society 1937-1944.
This thieving, suck up gave Govt thieves the cloak of psuedo-scientific economics to pillage and murder. First, Steal them Blind, and then blame their poverty on defective genetics so that they could be disposed of in Concentration Camps across the Channel.
Without a control group, arguments for and against FDR’s program is nothing but a set of assumptions in support of a desired outcome.
Harding and Coolidge had to repair the damage done by Woody.
Eisenhower (and to give credit where it is due Truman, in some part, after the war) repaired much of the damage done by FDR. Reagan repaired much of the damage done by Carter.
The Socialist Left tries to destroy American economic freedom and the Right has to fix what they break.
The problem is they are far better at breaking things than anyone is at fixing them.
What we need is a means of removing the power they have to destroy and expand the power of the free market to heal the economy.
I don't see anyone out there right now that has a workable plan to do that.
those who have read atlas shrugged, need to study the great depression and the policies of fdr. You see, the book is not based upon some future scenario, but based upon the past, namely the policies of fdr. My favorite??? story is of the man who pressed a pair of pants for 40 cents, when the fdr administration set the price at 30 cents. The tailor was arrested and sentenced to 10 years....a year per penny over the legally set limit..
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