Government Policies Prolonged Great Depression

Harold Cole and Lee Ohanian, UCLA economists, published a landmark study in 2008 that was ignored by the media.   The two professors concluded after examining the Franklin Roosevelt New Deal policies that the federal government’s programs stifled recovery and extended the depression by 7 years into the 1940’s.     If the government had not interfered with the economy, they calculated that the economy would have recovered by 1936.   This was the same conclusion of a separate study by Nobel Laureate in Economics Robert Lucas.

FDR’s New Deal policies eliminated competition by fixing higher than normal prices, thus reducing production capacity, placing quotas on industrial investment in new plants and allowing unions to bargain for higher than normal wages. The larger-than-normal union wages pushed prices of consumer goods up.  Demand for goods fell because of the higher cost resulting in further job losses.

Despite billions of dollars being spent, the unemployment rate remained significantly high.  New Deal programs made the government the biggest temporary employer in the nation.  To pay for all of the programs, the federal government kept raising taxes which increased the national debt but did not solve the problem of creating permanent jobs.  Unfortunately, the heavy taxes fell on the most productive of the private sector workers, decreasing their take home pay.  This resulted in the workers spending less, resulting in decreased demand which pushed unemployment rates up.

Because of what they learned through their research, both Cole and Ohanian have expressed concern about Obama’s economic policies.  Obama admitted that there are no “shovel ready jobs.”   His stimulus failed.  Unemployment has actually increased and economic growth is lower than normal.   This gives more credence to Cole and Ohanian’s premise that recovery would be better and faster if the Obama Administration had not intervened in the economy.

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About camden41

Retired public school administrator Retired history professor: Taught Western Civilization, American Civil War, United States History, Economic History, Ancient & Medieval Foundations, American History Since 1945
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