Lots and lots of people have probably written and are probably continuing to write letters addressed to the North Pole swearing to Santa that they will be good little–or big–boys and girls if only Barack Obama gets elected President and gives them the New New Deal they have lusted for ever since the Old New Deal ran its course.
To which, Santa should reply “FORGET IT!”
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.
I don’t know why the author of the article believes that Roosevelt was “previously thought to be beyond reproach.” A lot of people have written about Roosevelt’s New Deal and its disastrous effects on the American economy. I realize that it has been difficult to pierce The Myth of Roosevelt and His New Deal but it hasn’t been for lack of trying (Amity Shlaes’s book–which I swear I will review, having read it some time ago–is superb at pointing out the many ways in which the New Deal was deficient in addressing America’s economic challenges during the 1930s).
But of course, more efforts to lay waste to the myth of New Deal effectiveness are welcome and Professors Cole and Ohanian are to be commended for having brought their research to the fore and having shown that neither the Old New Deal, nor a New New Deal should be celebrated or longed for by policymakers. I can’t resist excerpting the end of the article–let’s hope that policymakers of note and significance somehow stumble upon it:
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.”