FDR Prolonged Depression

Discussion in 'Politics' started by Avery, Dec 30, 2012.

  1. Avery

    Avery Well-Known Member

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    So says UCLA economists:

    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 up 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."

    http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx
  2. Bro

    Bro Re Member Gold

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    No narrative?
  3. stripes

    stripes New Member VIP

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    ya, i remember reading about that in bloomberg few months ago. macroeconomics dictates that you take your fiscal medicine & let natural market forces dictate the recovery. pain will hurt but ya gotta get through it...i think this applies only if the banking system is functioning as its supposed to which really hasnt been the case the past 15 yrs.
  4. MatthewT

    MatthewT Awaiting The Rapture VIP

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    Reagan took a worse economy then obama "inherited" and turned it around so fast and so hard that we coasted on its momentum for 25 years

    and obama did everything exactly the opposite, including bitch, whine and complain more about his predecessor
  5. racerx

    racerx New Member

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    presidents can't control the economy. if they could they would and it would always be good, because they know they get blamed when its bad (and get credit when its good)
    there's no magical bill that fixes it(without raising debt).
    its a liberal concept to even try and fix it anyways.

    i personally think the economy is fine. people just looking for excuses why they aren't doing well.
    anyone could have owned the stock market last year if they had balls
    Last edited: Jan 9, 2013
  6. MatthewT

    MatthewT Awaiting The Rapture VIP

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    yeah, that's right; if Reagan did better than obama, then it didn't happen, doesn't matter, and was incidental to his policies, despite both having democratic legislative branches; if you think otherwise, you're clearly a racist :facepalm:
  7. MatthewT

    MatthewT Awaiting The Rapture VIP

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    for you statists, how is it that you cannot understand the simple concept of laissez faire?
  8. racerx

    racerx New Member

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    i didn't say it didn't happen.
    i didn't say anyone is a racist.
    i'm saying the over-raiding factors that control economies far outweigh anything any president has done.
    if mccain won in 08 we would still be in the same boat as now. i never heard him propose any bill that would fix the economy. and he voted for most of the lame bam stuff
  9. MatthewT

    MatthewT Awaiting The Rapture VIP

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    really? mccain would have introduced an annual $891,000,000,000 pork spending "stimulus"???
  10. MatthewT

    MatthewT Awaiting The Rapture VIP

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    and we would have "McCain Care"???
  11. racerx

    racerx New Member

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    no. he would have introduced more.
    have you ever watched any senate debate?
    i have, he argued to add even more spending to those stimulus packages. the immature dems wouldn't let him though
  12. SiriusDawg

    SiriusDawg New Member

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    Because they are educated? They don't speak 'stupid' like you do.
  13. Bosch76

    Bosch76 Well-Known Member VIP

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    Reagan raised taxes and exploded the deficit. How was he different from Obama?
  14. SiriusDawg

    SiriusDawg New Member

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    Bosch, we aren't allowed to talk about that topic.

    Fox News has made it clear that Reagan never raised taxes, destroyed the deficit, etc....so Republicans are unable to know that today. They can't read so there goes them seeing it in a book.
  15. MatthewT

    MatthewT Awaiting The Rapture VIP

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    you think McCain would have thrown more than $6Trillion onto the debt pile.....

    you're delusional
  16. MatthewT

    MatthewT Awaiting The Rapture VIP

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    what color is the sky in your world?
  17. MatthewT

    MatthewT Awaiting The Rapture VIP

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    statists are now the educated elite? like, Hugo Chavez? Pol Pot? Joseph Stalin? those bright boys?
  18. racerx

    racerx New Member

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    you didn't even watch that senate debate to know what he said. i did.
    he argued for even more stimulus spending. then when they didn't let him, he became against the bill.
    he wasn't against spending, he was against him not being allowed to spend too.


    i won't call you delusional, because i don't think you are being serious.
    Last edited: Jan 9, 2013
  19. MatthewT

    MatthewT Awaiting The Rapture VIP

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    you saw President McCain on television, and you have the courtesy not to call me delusional.

    :tzone:
  20. racerx

    racerx New Member

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    i saw senator mccain on television.
    "you didn't even watch that senate debate to know what he said. i did.
    he argued for even more stimulus spending."

    why do you always pretend i make statements that i don't, in order to avoid addressing the points i make?

    dishonestly is not a christian trait. it's immoral
    you get to disagree with my points or make counter points., you don't get to invent silly strawman like a 5 year old. you should be ashamed.
    why not ever just admit you are wrong(that's a christian trait) or just say you have no interest whatsoever in have an honest discussion.(honestly is a christian trait too)
    i used to always defend you to the others in PM and say yeah you are wrong sometimes, but you do hold honest christian values. but i guess you are right, i was delusional [to think that]


    peace
    Last edited: Jan 9, 2013

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