FDR Made the Depression Worse

FDR Responsible for Prolonging – Not Ending – Great Depression, Say UCLA Researchers: 1933 recovery package delayed upturn by 7 years,” UCLA, http://www.econ.ucla.edu/whatsbruin/news/FDRarticle.htm.

How FDR Made the Depression Worse,” by Robert Higgs, The Free Market: Misses Institute Monthly, Volume 13 Number 2, http://www.mises.org/freemarket_detail.asp?control=258&sortorder=subject, February 1995.

Bad Deal:How FDR Made Life Worse for African Americans,” by Damon W. Root, Reason, http://www.findarticles.com/p/articles/mi_m1568/is_5_36/ai_n6203221, October 2004.

Tough Questions for Defenders of the New Deal,” by Jim Powell, Wall Street Journal, http://www.lewrockwell.com/orig4/powell-jim1.html, 15 November 2003.

UCLA’s press release opens with a startling revelation

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.”

While in fairness the authors criticize only the short-lived National Recovery Administration…

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.

But it’s quickly apparent the press release was written by a journalism major. It’s just wrong. FDR’s near-complete destruction of the American economy is common knowledge. His actions ranged from Orwellion Patriot Act-like crackdowns on freedom…

Invoking the Trading with the Enemy Act of 1917, Roosevelt declared that “all banking transactions shall be suspended.” Banks were permitted to reopen only after case-by-case inspection and approval by the government, a procedure that dragged on for months. This action heightened the public’s sense of crisis and allowed him to ignore traditional restraints on the power of the central government.

FDR’s actions were made worse by their hypocrtical and larcenous nature.

The day after FDR took the oath of office, he issued a proclamation calling Congress into a special session. Before it met, he proclaimed a national banking holiday–an action he had refused to endorse when Hoover suggested it three days earlier.

In their understanding of the Depression, Roosevelt and his economic advisers had cause and effect reversed. They did not recognize that prices had fallen because of the Depression. They believed that the Depression prevailed because prices had fallen. The obvious remedy, then, was to raise prices, which they decided to do by creating artificial shortages. Hence arose a collection of crackpot policies designed to cure the Depression by cutting back on production. The scheme was so patently self-defeating that it’s hard to believe anyone seriously believed it would work.

The goofiest application of the theory had to do with the price of gold. Starting with the bank holiday and proceeding through a massive gold-buying program, Roosevelt abandoned the gold standard, the bedrock restraint on inflation and government growth. He nationalized the monetary gold stock, forbade the private ownership of gold (except for jewelry, scientific or industrial uses, and foreign payments), and nullified all contractual promises–whether public or private, past or future–to pay in gold.

Besides being theft, gold confiscation didn’t work. The price of gold was increased from $20.67 to $35.00 per ounce, a 69% increase, but the domestic price level increased only 7% between 1933 and 1934, and over rest of the decade it hardly increased at all. FDR’s devaluation provoked retaliation by other countries, further strangling international trade and throwing the world’s economies further into depression.

Just for good measure, FDR screwed the brothers too

It was New Deal labor laws that had the most pernicious impact on African Americans. The National Industrial Recovery Act (NIRA), in effect from June 2933 until a unanimous Supreme Court declared it unconstitutional in May 1933 (in Schechter Poultry Corp. v. United States), was considered the hallmark of the New Deal. In addition to creating the Works Progress Administration, the NIRA authorized the National Recovery Administration (NRA), which organized cartels, fixed wages and prices, and, under section 7(a), established the practice of collective bargaining, whereby a union selected by a majority of employees exclusively represented all employees.

While such compulsory unionism is routinely celebrated as a milestone for the American worker, many African Americans saw things differently. The NAACP’s publication The Crisis, for example, decried the monopoly powers granted to racist unions by the NRA noting in 1934 that “union labor strategy seems to be to obtain the right to bargain with the employees as the sole representative of labor, and then close the union to black workers.” Members of the black press had something of a field day attacking the NRA, rechristening it the “Negro Removal Act,” “Negroes Robbed Again,” “Negro Run Around,” and “No Roosevelt Again.”

NRA codes harmed other poor groups as well. By setting the price of food and goods above market levels, the agency’s price controls made it that much more expensive for the nation’s poor and unemployed to provide for themselves and their families. Struggling entrepreneurs also suffered. Jacob Maged, a 49-year-old immigrant dry cleaner, spent three months in jail in 1934 for charging 35 cents to press a suit, rather than the NRA-mandated 40 cents.

To meet the inflated payrolls required by New Deal minimum wage codes, employers eliminated unskilled and marginal positions, precisely the sort of jobs filled by African Americans and other disadvantaged groups. According to a Labor Department report, between 30,000 and 50,000 workers, primarily African Americans in the South, lost their jobs within just two weeks of the activation of the Fair Labor Standards Act (1938), which set a uniform minimum wage. Not surprisingly, both unions and industrialists in the North favored the minimum wage, since it undercut their competitors in the South.

In 1935 the National Labor Relations Act (or Wagner Act, after its sponsor, Democratic New York Sen. Robert Wagner) revived section 7(a) of the recently defunct NRA and granted monopoly bargaining power to unions selected by a majority of employees. Neither company-sponsored unions nor unions representing a minority of workers were permitted. The act’s original draft contained a clause forbidding discrimination against African Americans by federally recognized unions, but the clause was removed at the behest of the American Federation of Labor; a notoriously racist outfit at the time.

The Wall Street Journal printed a list of ten questions for supporters of President Roosevelt. The first five of them are…

1. Why did FDR triple federal taxes during the Great Depression? Federal tax revenues more than tripled, from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and “excess profits” taxes all went up. FDR introduced an undistributed profits tax. Consumers had less money to spend, and employers had less money for growth and jobs.

2. Why did FDR discourage investors from taking the risks of funding growth and jobs? Frequent tax hikes (1933, 1934, 1935, 1936) created uncertainty that discouraged investment, and FDR further discouraged investors by denouncing them as “economic royalists,” “economic dictators” and “privileged princes,” among other epithets. No surprise that private investment was at historically low levels during the New Deal era.

3. Why did FDR channel government spending away from the poorest people? Little New Deal spending went to the South, the poorest region; most went to political “swing” states in the West and East, where incomes were more than 60% higher. The South was already overwhelmingly on FDR’s side.

4. Why did FDR make it more expensive for employers to hire people? By enforcing above-market wages, introducing excise taxes on payrolls and promoting compulsory unionism, the New Deal increased the costs of employing people about 25% from 1933 to 1940 – a major reason why double-digit private sector unemployment persisted throughout the New Deal era.

5. Why did FDR destroy all that food when millions were hungry? FDR promoted higher food prices by paying farmers to plow under some 10 million acres of crops and slaughter and discard some six million farm animals. The food destruction program mainly benefited big farmers, since they had more food to destroy than small farmers. This policy and subsequent programs to pay farmers for not producing victimized the 100 million Americans who were consumers.

I’ll try get a more statistical criticism criticism of FDR up later, not to mention his insane pre-WWII foreign policy. He was a terrible man, a terrible President, and we would have been better off without him.

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