A study by two UCLA economists argues that FDR’s policies prolonged the Great Depression by 7 years.
This should come as no surprise to those who understand some of the basic principles of economics, as articulated in books like Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell or Free to Choose by Milton Friedman or Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry Hazlitt.
Also, a recent book called FDR’s Folly delves into the Great Depression in detail and shows very specifically how FDR’s policies prolonged and deepened the Great Depression. What is unique about this particular study is how it also seeks to quantify that impact specifically.
Here are some very helpful excerpts:
“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.”
….
“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.”
….
“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 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.” [emphasis added]
(HT: Justin Taylor)