How Progressivism Prolonged the Great Depression

The Great Depression was the most devastating hit to the US Economy (until possibly COVID-19) that we have ever had.  Unemployment reached all time highs and the GDP retracted  30% between 1929 and 1932.  The Great depression began in 1929 and ended in 1939.  Conventional wisdom says that the enormous government spending that Franklin D. Roosevelt, FDR, implemented in the “New Deal” was the saving grace.  This is not the case.

FDR, who was elected in 1933, is thought of as a hero to the US economy, but a UCLA study by Lee Ohanian and Harold Cole shows otherwise.  It is estimated that the Great depression was prolonged 7 years by the extremely progressive policies of FDR.

The “New Deal” is the name given to FDR’s idea on how to fix the Great Depression.  This included a group of programs, public work projects, financial reforms, and regulations.  One of the main acts implemented as part of the New Deal was the National Industrial Recovery Act, or NIRA.

FDR was a huge opponent of competition in the market.  The NIRA was essentially the nationalization of most industry to force the payment of “fair wages.”  Initially businesses had a favorable opinion of the NIRA but after less than a year the tables had turned.  Forcing higher wages drove smaller businesses that were already struggling to the brink of failure by depleting their already low assets.  At the time of these small businesses dropping out of the market FDR promised immunity to companies who then were in violation of the Anti-Trust laws (or anti-monopoly laws) and who where engaging in illegal price fixing (an agreement between business in the same line of work to to sell a product or service for a specific price) in order to pay the higher wages.  According to Ohanian and Cole’s findings this kept real income and output 14% lower than it otherwise would have been.

Just two years after the NIRA was signed into law it was ruled unconstitutional in a unanimous decision by the Supreme Court.

Another atrocity of the New Deal was the Agricultural Adjustment Act, AAA.  This act was designed to raise agricultural prices by reducing supply.  The AAA overtly discouraged farmers from producing the full amount of crops and livestock that they were able to.  This act paid farmers subsidies to not plant on portions of their land.  This lead to farmers firing part of their staff due to lack of need, leading to more people out of the workforce.

Just three years after AAA was signed into law if was found unconstitutional in a 6-3 Supreme Court decision.

While FDR’s progressive policies are championed as the savior of America, when in reality they actually prolonged the Great Depression by almost a decade.

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