Q: Did the New Deal end or extend the Great Depression?

A:  Extend.

That’s the conclusion of Dr. Lee Ohanian, Professor of Economics at UCLA, as explained in his video Did FRD End or Extend the Depression?

 

The primary reason cited by the Professor is artificial increases in prices and wages driven by federal policy, specifically the National Industrial Recovery Act.

Artificially high wages led industry to hire fewer workers and high prices reduced demand for products.

Most of us can see reduced demand and reduced employment are the fully expected results of forcing prices higher than demand supports and driving wages higher than increases in productivity.

However, it was a surprisingly unintended consequence to those who believed they and the rest of government were smarter than everyone else on the planet.

The professor’s conclusion is the economy would have returned to health by 1936 if the New Deal polices had not been forced on the country. Instead, the Depression hung on. In fact, there was another recession in 1937.

(Whether the Depression ended on December 8, 1941 or in 1945/1946 is the topic for another day and another video.)

Check out the video. It’s only 5½ minutes long.

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