UCLA Economists: Government Intervention Prolonged Great Depression

Those who ignore history are doomed to repeat it.In 2004, economists at the University of California, Los Angeles (UCLA), studied the policies of President Franklin Roosevelt’s New Deal and determined his policies prolonged the Depression by seven years.

Harold L. Cole and Lee E. Ohanian blamed anti-free market measures for the slow recovery in an article published in the August 2004 issue of the Journal of Political Economy.

Cole and Ohanian asserted that Roosevelt thought excessive business competition led to low prices and wages, adding to the severity of the Depression.

“[Roosevelt] 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,” Cole said in a press release dated Aug. 10, 2004.

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The professors paid particular attention to the National Industrial Recovery Act (NIRA) and the effect it had on competition. Passed in June 1933, the NIRA required companies to write industry-wide fair competition codes that fixed prices and wages, established production quotas, and imposed restrictions on companies if they wanted to enter into alliances, according to OurDocuments.gov.

The Supreme Court declared the NIRA unconstitutional two years after it was passed, but Cole and Ohanian said that the act caused enough damage during those two years leading to even more regulation.

Roosevelt pushed on after the NIRA was declared unconstitutional with the 1935 National Relations Act (NRA), which sought to regulate private sector labor and management practices, according to the National Labor Relations Board.

The NRA swelled the strength of Labor unions in 1936 and 1937 and as a result Cole and Ohanian estimated that there were 14 million strike days in 1936 and 28 million in 1937.

But the negative influence of FDR’s policies on the economic crisis of his day has been virtually ignored by the news media – despite hundreds of comparisons to the Great Depression in 2008.

A recent Business & Media Institute report, “The Great Media Depression,” revealed the media compared current economic conditions to the Great Depression more than 70 times in the first six months of 2008. An additional tally found at least 157 more comparisons since July 1, 2008.