History Lesson From the 'Twenties (how government policies caused the Great Depression)

Barron's ^ | November 2, 2009 | Thomas. G. Donlan

[reaganaut1]

...

The Great Depression was caused by misguided government policies adopted to avoid the "unsatisfactory conditions" signaled by the crash. The run-of-the-mill recession that ought to have followed the crash was magnified by the policies of the federal government during the administration of Herbert Hoover.

In a paper for the National Bureau of Economic Research published last August, Lee E. Ohanian examines a continuing mistake during the Hoover administration that helped transform difficulty into calamity. An economics professor at UCLA, Ohanian has written numerous papers on the Depression. In one earlier paper, he pinned the persistence of high unemployment on New Deal policies, "which raised real wages substantially above market-clearing levels, which in turn kept employment and output low."

...

In November 1929, Hoover took an active role in protecting the economy. He met with industrialists and union leaders and pushed them into a deal: Industry would not cut wages. Unions would not strike. If there wasn't enough work, jobs would be shared rather than prompting layoffs.

Hoover believed high wages were the key to prosperity. For employers, he created policies that allowed firms to cooperate in order to avoid "cut-throat competition" for labor.

On the labor side, Hoover signed the Davis-Bacon Act forcing local governments to pay union wages on public works and the Norris-LaGuardia Act outlawing injunctions against strikes and picketing.

Hoover's policies did what they were supposed to do: By late 1931, real hourly earnings in manufacturing had increased by more than 10% (adjusted for deflation of prices). Yet manufacturing hours worked had declined by more than 40%, even more than total output, which fell about 20%. By the end of 1931, the general unemployment rate was 15.9%, and it would get still worse for two more years.

[reaganaut1]

The minimum wage increased about 10% this summer, and an employer health insurance mandate or penalty will also drive up labor costs. That's why unemployment is headed above 10%.

[Bon mots]

The best book on the subject is available for FREE online here:

http://mises.org/rothbard/agd.pdf

The title: “America’s Great Depression”
by Murray Rothbard.

[crescen7]

Thanks for the link to Rothbard. This is great, last week someone posted a link to Hazlitt’s “Economics in One Lesson”

http://www.suu.edu/faculty/lewis_t/acct3350/pdf/hazlitt.pdf

(Actually it appears to be available in several places)

If we could get schools to teach the Hazlitt, and Rothbard, text (which are free) instead of how promoting social agendas, the US economy would flourish.

[conservatism_IS_compassion]

The Great Depression was caused by misguided government policies adopted to avoid the "unsatisfactory conditions" signaled by the crash. The run-of-the-mill recession that ought to have followed the crash was magnified by the policies of the federal government during the administration of Herbert Hoover.

In a paper for the National Bureau of Economic Research published last August, Lee E. Ohanian examines a continuing mistake during the Hoover administration that helped transform difficulty into calamity. An economics professor at UCLA, Ohanian has written numerous papers on the Depression. In one earlier paper, he pinned the persistence of high unemployment on New Deal policies, "which raised real wages substantially above market-clearing levels, which in turn kept employment and output low."

IOW, Hoover messed up big time - and FDR continued the policies of Hoover for almost another decade, all the while blaming Hoover for the results of policies FDR himself perpetuated. A perfect example of Einstein's definition of insanity.

There wasn't a dime's worth of difference between Hoover's policies and FDR's - the two parties in 1932 offered no real choice. Just like in 2008, when GWB had no clue, Obama acted inscrutable, and John McCain plainly stated that he didn't understand economics. We were given no real choice - and then when in office, Obama suddenly starts acting like we had all voted to forget about the Constitution and the founding principles of our nation, grant him extraordinary powers, and make him president for life.

Conservatives, from Rush Limbaugh on down, used the thought of Sarah Palin as a clothespin on our nose and supported the Republican ticket in '08. And now McCain would like in '12 to prevent the Republican Party from nominating anyone else who knows anything at all about economics. We demand, and we will have, a choice in 2012. As the centenary looms of the last time the party failed not only to win but even to place, so too looms the issue of whether we find a choice, or merely an echo, on the Republican ticket in 2012.

[muir_redwoods]

We blame FDR but he did nothing categorically different from the policies Hover began. Hoover was an engineer and a good one. He certainly felt problems needed solutions. Unfortunately, we would all have been better off if he had taken a few economics courses as well. His misguided attempts to fix things worsened them and FDR was happy, very happy to try to destroy capitalism

[Rumplemeyer]

SAVE and read later

[SunkenCiv]

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