Intentional federal policies extended Great Depression by seven years

Hunger sculpture at FRR Memorial in Washington DC. How much earlier could hunger have ended with different policies? Photo courtesy of DollarPhotoClub.com.

Hunger sculpture at FDR Memorial in Washington DC. A monument to the man whose policies added extra years to the Depression yet who rarely gets credit for the unnecessary suffering. Photo courtesy of DollarPhotoClub.com.

An extra seven years.

That is the conclusion two economists published back in 2004: intentional policies from FDR added seven years of suffering for the country.

Yes, that analysis was published back in 2004. Sometimes it takes me a while to catch up on the news.

On 8/10/04 the UCLA Newsroom published FDR’s policies prolonged Depression by seven years, UCLA economists calculate.  Update: The analysis is from Professors Harold L. Cole and Lee E. Ohanian

Cause

The cause of extending the Great Depression, according to the economists, was the National Industrial Recovery Act (NIRA) which protected industries from antitrust prosecution in return for adopting collective bargaining agreements. The result was unions drove up wages beyond where the market would have set them, companies were intentionally not prosecuted for collusion, thus companies cooperated in setting prices, which in turn drove up prices to consumers. As a result consumers had much more difficulty affording stuff and therefore actually bought less stuff, which further contracted the economy.

The NIRA was ruled unconstitutional in two years, but the damage continued when the FDR administration radically reducing antitrust enforcement, thus allowing the already known collusion in setting prices to continue.

The National Relations Act in 1935 radically increased union power which had the expected consequence of doubling the number of strike days from 1936 to 1937. The economists calculated that wages in various industries were 24% to 33% higher than what they would have been without the protection.

Unintended results of intended policies?

Overall wages in about a dozen industries were running 25% higher than would have been without the federal policies. Prices in about 20 industries were 23% higher than they would have been otherwise.

The unintended consequences of deliberate federal policies were that demand for goods and services dropped because of the artificially high prices and the GNP was 27% below where it would have been without those policies.

Employment was 25% higher than it would have been otherwise.

Summarizing the result of deliberate policies: wages were artificially high, prices were artificially high, demand for products was artificially low, and unemployment was  intentionally driven higher and therefore lasted longer than it should have.

How much longer did the Depression last as a result of intentional policies?

The two economists calculate the Great Depression would have ended on its own in 1936. Instead they calculate the great depression ended in 1943. Remember there was another recession in 1937. Thus FDR gets credit for a seven-year extension of the Great Depression. Update: Plus another recession inside the depression.

From what I’ve read elsewhere I think they don’t give FDR enough credit for the suffering. Severe rationing and shortages of consumer products is not exactly good times. I think it would be more accurate to say the Great Depression ended in about 1946 and 1947. The point stands – FDR extended suffering of the Great Depression. Only question is whether he gets credit for an extra 7 years or 11 years.

P.S. Oh yeah, could someone explain to me how those policies can possibly be considered moral?

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