New Deal Put "Great" in Depression

You can’t say this often enough. The New Deal prolonged the Great Depression. If you want a book-length treatment, a good one is Amity Shlaes readable Forgotten Man, now out in paperback.

And today there’s a good article in the Wall Street Journal by Harold L. Cole and Lee E. Ohanian: “How Government Prolonged the Depression.”

The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR’s policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.

Then the authors talk numbers.

Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Let’s put that in a table, to make it all even more clear.

Total hours worked per adult 1929 1930-32 1933-39 Private and public sectors 100% 82% 77% Private sector only 100% 82% 73%

It’s not very pretty is it? And the reason is pretty simple. In the NRA, the government operated a wage-and-price control program to keep wages and prices up. You may remember the wage-and-price controls of the 1970s. It was different from the NRA in that it intended to keep wages and prices down, not up. The result? Inflation, big time. Not surprisingly, the NRA had the opposite effect. It kept deflation going. Fabulous job, guys.

Cole and Ohanian mention another disaster: the recession within a depression of 1937-38..

The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court’s 1937 decision that upheld the constitutionality of the National Labor Relations Act.

You see, in 1935 the New Dealers passed the Wagner Act that mandated monopoly rights for organized labor. Not suprisingly, workers organized into labor unions in autos and steel racked their wages up substantially. And that impoverished the rest of the country.

This is not rocket science. When the government sets up privileges and monopolies for favored special interests, fixing prices, setting barriers to entry, mucking around with the relations between worker and employer, the people suffer. These special interests could be evil bankers, or they could be honest working stiffs. They could even be hard-working teachers in inner-city schools. The result is still the same. The people suffer.