The More the Government Does, the More Harm it Does

by Doug Bandow on October 26, 2008 · 4 comments

in Bailout Watch, Economy, Politics as Usual

At least, that appears to be the lesson of Franklin Delano Roosevelt’s misnamed New Deal.  New research by two UCLA economists suggests that it was FDR’s counterproductive manipulation of the economy that lengthened the economic crisis.  Reports UCLA:

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole, also a UCLA professor of economics. “So he 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.”

Of course, the obvious lesson for today is that all of the bail-outs and other foolishness is going to make things worse off.  But then, that just makes the politicians even more justification for intervening even further.  It never ends.

JohnR(DC) October 27, 2008 at 11:24 am

My sense is that FDR was throwing everything against the wall and seeing if anything stuck.Those were times when unemployment was unbelievably high, citizens were panicked, and demagogues like Huey Long and Wright Patman were stirring fears of mob rule.So I cut FDR some slack, because of the dangerous times in which he operated. The stuff he tried may upon reflection seem ill-advised, but the citizens in the 1930s saw him acting on their behalf and that apparently was enough to tame any revolutionary tendencies that might otherwise have burst forth on the scene. Better to have tried and failed than not to have tried at all.

Frank Staheli October 29, 2008 at 9:06 am

In my readings (from the John Birch Society, Hayek, Mises, and/or Milton Friedman) I've known for quite some time that FDR was culpable. It's good to know that it's now becoming more public knowledge. It seems as though whenever socialism takes hold it ultimately leads to wealth redistribution UPWARD–from the poor to the rich.

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