American Elephants

FDR’s Policies Prolonged the Great Depression by Seven Long Unnecessary Years! by The Elephant's Child

Back in 2004, two UCLA economists announced that they had figured out why the Great Depression of the 1930s dragged on for almost 15 years, and they directly blame President Franklin Delano Roosevelt. I have known this, but it has not become general knowledge, and Democrats continue to regard FDR generally as the equivalent of a God.

When Roosevelt was inaugurated in 1933, he had no idea why we were having a depression nor any idea what to do  about it. He could have taken a clue from Calvin Coolidge, but Coolidge was of the other party, and that wouldn’t do. In any case, Roosevelt embarked on a series of vast experiments—essentially throwing a lot of stuff at the wall to see what stuck.

The economists were Harold L Cole and Lee E. Ohanian, and they believe that the reason that the Great Depression lasted so long was a great mystery, and since no one knew the reason, we have always worried that we would have another 10 to 15 year slump.

In an article in the August 2004 issue of the Journal of Political Economy, Ohanian and Cole blamed specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.  A little history that you should know.

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.

High wages and high prices in an economic slump run contrary to everything we know about market forces in a slump said Ohanian. The market has self-correcting forces. By artificially inflating wages and prices, the New Deal cancelled those self-correcting forces.  Most of the mischief was contained in the National Industrial Recovery Act (NIRA) which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining  agreements that raised wages. That protection meant that prices would go up, but a wide range of businesses took the bait.

Ohanian and Cole believed that NIRA and its effects accounted for to percent of the weak recovery. Without that policy, they believed the Depression would have ended in 1936 instead of the year they believe it actually ended — 1943.

Roosevelt’s role in ending the Great Depression and saving the nation has been his crowning achievement, and he has been so revered  (by Democrats) that Time magazine readers  named him the 20th Century’s second most influential figure. I’m not sure who was the first. This is really important research, as you can tell from President Obama’s  s-l- o-w    7    y-e-a-r   l- o-n-g   r-e-c-o-v-e-r-y.

NIRA’s role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared it unconstitutional within two years of its passage, but the damage was done.

Good work by economists doesn’t always make the front pages, and unless there’s a lot of hoopla nobody knows.  There’s a famous line about ‘Unless you learn history, You’re doomed to repeat it. ‘ credited to Santayana.

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