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FDR Responsible for Prolonging - Not Ending - Great Depression, Say UCLA Researchers
economics department at ucla ^ | ? | Harold L. Cole and Lee E. Ohanian

Posted on 03/17/2005 8:05:25 AM PST by ken21

FDR Responsible for Prolonging - Not Ending - Great Depression, Say UCLA Researchers

1933 recovery package delayed upturn by 7 years

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 UCLAs 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.”


TOPICS: Business/Economy; Government; News/Current Events; US: California
KEYWORDS: economics; fdr; govwatch; greatdepression
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1 posted on 03/17/2005 8:05:26 AM PST by ken21
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To: ken21

UCLA admits this???

Who has that pic of the "Hell" sign covered in ice???


2 posted on 03/17/2005 8:07:33 AM PST by RockinRight (Electing Hillary president would be akin to giving a drunken teenage boy keys to the Porsche)
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To: RockinRight

http://woodrow.mpls.frb.fed.us/research/qr/qr2311.pdf#search='Harold%20L.%20Cole%20and%20Lee%20E.%20Ohanian'


3 posted on 03/17/2005 8:10:25 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21
"FDR Responsible for Prolonging Great Depression"

DOH!


4 posted on 03/17/2005 8:10:28 AM PST by Enterprise (President George W. Bush - the leading insurgent detergent.)
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To: ken21
“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.”

The DIMS are now going to claim revisionist history...Sucks being them...

5 posted on 03/17/2005 8:11:04 AM PST by frogjerk
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To: ken21

This has been known for years. He did nothing to end the Depression. He tried, but all his policies and programs were socialistic and unsuccessful.


6 posted on 03/17/2005 8:11:57 AM PST by cotton1706
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To: ken21


here's a good source of one faculty member's ideas;


http://ideas.repec.org/e/pco70.html


7 posted on 03/17/2005 8:12:12 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: cotton1706

you and i know that.

but many people do not.

so, posting and talking about this is educational.

education be a prime directive of free republic!

si.


8 posted on 03/17/2005 8:13:30 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21
FDR's Folly documents this at length. A great read. Avaialble at Amazon.

Learn all about the best minds (and they acutally were smart) and alphabet soup of laws that FDR enlisted for the new deal.

Fascinating (like a train wreck) stuff.

9 posted on 03/17/2005 8:14:06 AM PST by Rate_Determining_Step (US Military - Draining the Swamp of Terrorism since 2001!)
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To: ken21

Robert Higgs' work is the benchmark text of this school of thought.

http://independent.org/publications/tir/article.asp?issueID=34&articleID=430

It's a PDF file.


10 posted on 03/17/2005 8:14:25 AM PST by headsonpikes (Spirit of '76 bttt!)
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To: Enterprise
Other news from the "No Duh" desk:


11 posted on 03/17/2005 8:14:44 AM PST by RockinRight (Electing Hillary president would be akin to giving a drunken teenage boy keys to the Porsche)
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To: ken21

My Grandfather switched parties and became a staunch Republican farmer because of FDR. If he were alive today, he would be smiling from ear to ear and saying "I Told You So!" after reading this article. He abhored the Farmer's Union, FDR, and any Democrat on the ballot from the day he switched parties after FDR's first 90 days.

My Dad was the same way when it came to FDR and Democrats -- he blamed FDR for Pearl Harbor but he immediately enlisted in the Army to go fight after December 7th.

Grew up in an anti-FDR family on both sides -- never thought I would be seeing the day an article like this came out of UCLA -- never ever!


12 posted on 03/17/2005 8:15:11 AM PST by PhiKapMom (AOII Mom -- Increase Republicans in Congress in 2006!)
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To: ken21
A very excellent book on this subject: FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression by JIM POWELL
13 posted on 03/17/2005 8:15:25 AM PST by Maceman (Too nuanced for a bumper sticker)
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To: ken21
This confirms what Nobel prize winner Friedman has said for many years. It is a big boost for libertarian economic policies.

A very significant piece of research, if it holds up.

The fact that it confirms Friedman's work shows that it is not just a flash in the pan, so to speak, but part of a growing body of work.

14 posted on 03/17/2005 8:16:00 AM PST by marktwain
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To: ken21

European economists have been saying this for decades.


15 posted on 03/17/2005 8:17:00 AM PST by Doctor Stochastic (Vegetabilisch = chaotisch is der Charakter der Modernen. - Friedrich Schlegel)
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To: ken21

So add FDR to Jackson and Lincoln as the Presidents who ignored the US Supreme Court.


16 posted on 03/17/2005 8:17:10 AM PST by <1/1,000,000th%
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To: Rate_Determining_Step

gracias.

i put it on my wish list at amazon so i don't forget it, but i'll get it at the library.

(i had to print off my amazon wish list! it got too long--about $12,000 of books.)


17 posted on 03/17/2005 8:17:46 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21

That would explain why we had a stock market crash a few years ago that was as bad as 1929, but didn't plunge into a depression.


18 posted on 03/17/2005 8:17:54 AM PST by js1138
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To: RockinRight

19 posted on 03/17/2005 8:17:57 AM PST by Libertarian444
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To: Maceman

thanks.

Rate_Determining_Step beat you to it!


20 posted on 03/17/2005 8:18:50 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: RockinRight

21 posted on 03/17/2005 8:19:18 AM PST by hellinahandcart
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To: robertpaulsen

ping


22 posted on 03/17/2005 8:19:51 AM PST by tacticalogic ("Oh, bother!" said Pooh, as he chambered his last round.)
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To: cotton1706

That 3rd dip in '37 should have been a clue.


23 posted on 03/17/2005 8:20:14 AM PST by weezel
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To: headsonpikes

thanks.


24 posted on 03/17/2005 8:21:14 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21; snopercod; joanie-f

Bump.


25 posted on 03/17/2005 8:22:14 AM PST by First_Salute (May God save our democratic-republican government, from a government by judiciary.)
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To: RockinRight

Another hero of the liberals bites the dust.

Well, they still have Castro.

And that fake India with the Jack Nicholson complex.


26 posted on 03/17/2005 8:22:56 AM PST by Duke Nukum (King had to write, to sing the song of Gan. And I had to read. How else could Roland find the Tower?)
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To: ken21

27 posted on 03/17/2005 8:23:31 AM PST by Petronski (If 'Judge' Greer can kill Terri, who will be next?)
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To: ken21

I've been saying this for years.

Add to that FDR's public stance as a pacifist while doing all he could th get us into WWII and we begin to see why we never want another one like him

In fact - get FDR's smug mug off the dime and put Reagan on!


28 posted on 03/17/2005 8:23:59 AM PST by BenLurkin (O beautiful for patriot dream - that sees beyond the years)
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To: marktwain
It is a big boost for libertarian economic policies.

Should be. It'll be buried and ignored though. Too many people on both sides of the political isle are making big bank and grabbing lots of power with the way things are though.

The hell with us, the consumer. The producer. We "little" people. We don't COUNT anymore in their grand scheme of things.

29 posted on 03/17/2005 8:24:25 AM PST by Dead Corpse (Sooner or later, you have to stand your ground. Whether anyone else does or not. - Michael Badnarik)
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To: ken21

I pity these guys.
Can you imagine the reception they'll receive at the UCLA Faculty Club after publishing heresy like this?


30 posted on 03/17/2005 8:24:59 AM PST by quadrant
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To: cotton1706
FDR's Folly is a great book on the subject. Details just why and where his policies failed, and how some continue to do so (Social Security, I'm looking in Your Direction).
31 posted on 03/17/2005 8:25:38 AM PST by timtoews5292004
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To: ken21
Paul Johnson does a good job of documenting this in his book MODERN TIMES, a review of the 20th century:

I'm glad to see this point of view is becoming more accepted.

32 posted on 03/17/2005 8:25:50 AM PST by DoctorMichael (The Fourth Estate is a Fifth Column!!!!!!!!!!!!!!!!!!!)
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To: quadrant

every once in a while, after people get tenure, they do and say what they want.


33 posted on 03/17/2005 8:26:16 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: weezel

Well he was safely reelected at that point, and then he gave us that "don't change horses" crap when the war arrived. In the meantime, his administration was breeding communists.


34 posted on 03/17/2005 8:26:35 AM PST by cotton1706
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To: ken21

Better not say this kind of thing around elderly yellow-dog democrats unless you want to lose your head! I have older relatives who think FDR could (and did) walk on water.


35 posted on 03/17/2005 8:26:50 AM PST by Maria S (Some church members who sing "Standing on the Promises" are just sitting on the premises.)
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To: DoctorMichael

that's a good book. fast pace, bird's eye view.


36 posted on 03/17/2005 8:27:20 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21

I agree. By prolonging the purging of bad debt, his actions prolonged the slow down. Witness, more recently, the case of Japan.


37 posted on 03/17/2005 8:29:03 AM PST by GOP_1900AD (Stomping on "PC," destroying the Left, and smoking out faux "conservatives" - Take Back The GOP!)
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To: Maria S

my best friend's mo-in-law is one of them!

wow! she has me pegged as evil.

seriously.

for bad-mouthing fdr.

another liberal who believes her oppressor is her liberator!


38 posted on 03/17/2005 8:29:43 AM PST by ken21 ( today's luxury development. tomorrow's slum.)
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To: ken21

And here all this time, I thought it was Bush's 'er Hoover's fault! (sarcasm)


39 posted on 03/17/2005 8:31:31 AM PST by Polyxene (For where God built a church, there the Devil would also build a chapel - Martin Luther)
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To: ken21

^


40 posted on 03/17/2005 8:31:31 AM PST by prognostigaator
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To: ken21

Good post/thread bump


41 posted on 03/17/2005 8:32:06 AM PST by pt17
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To: ken21
Roosevelt’s role in lifting the nation out of the Great Depression has been so revered

Only by left-wing socialist nutcakes. What finally ended the Great Depression was World War II and its attendant production boom, in spite of rather than in concert with FDR's idiotic New Deal programs.

Socialists are so stupid.

42 posted on 03/17/2005 8:32:13 AM PST by Marauder (I drink to make other people more interesting.)
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To: Rate_Determining_Step
great book
43 posted on 03/17/2005 8:32:17 AM PST by Capitalism2003
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To: SittinYonder

Look, they're talking about your favorite president (not).


44 posted on 03/17/2005 8:33:23 AM PST by eyespysomething (It starts off as a drum circle, next thing you know you've got a college.)
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bookmark


45 posted on 03/17/2005 8:33:44 AM PST by AnOldCowhand (The west is dead. You may lose a sweetheart, but you will never forget her - Charles Russell)
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To: Dead Corpse
Too many people on both sides of the political isle are making big bank and grabbing lots of power with the way things are though.

We've got a supposedly conservative Republican administration, and they've got their lawyers in front of the USSC defending Wickard v Filburn now.

46 posted on 03/17/2005 8:35:39 AM PST by tacticalogic ("Oh, bother!" said Pooh, as he chambered his last round.)
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To: DoctorMichael

Indeed, he completely blasted the Keynesian tactics used (badly) in that book.


47 posted on 03/17/2005 8:35:56 AM PST by GOP_1900AD (Stomping on "PC," destroying the Left, and smoking out faux "conservatives" - Take Back The GOP!)
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To: ken21

John Flynn spelled this out in detail in 1948, so it isn't revisionist history, and you can read his book for free:
The Roosevelt Myth
http://www.rooseveltmyth.com/book/hbzfrm.htm


48 posted on 03/17/2005 8:36:05 AM PST by Undecided
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To: BenLurkin

Right. World War II was optional, the US could have sat it out. I bet you believe in the Easter Bunny too.


49 posted on 03/17/2005 8:38:52 AM PST by Big Digger (I)
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To: Maria S
Well it is accurate to say that FDR could walk on water just as easily as he could walk on dry land.

Worst president ever.

50 posted on 03/17/2005 8:39:09 AM PST by wideawake (God bless our brave soldiers and their Commander in Chief)
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