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UCLA: FDR Prolonged Depression 7 Years

Started by dsnope, 10/31/2008 06:32AM
Posted 10/31/2008 06:32AM Opening Post
Actually I'm not sure why they are just figuring this out. I'm pretty sure that Milton Friedman told us this a generation ago. But UCLA puts a number on it.

Now it's up to you to figure out which presidential candidate most closely plans to follow FDR's actions and drive this bus over the cliff to the next great depression.

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

FDR's policies prolonged Depression by 7 years, UCLA economists calculate
By
Meg Sullivan
| 8/10/2004 12:23:12 PM

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."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
Posted 10/31/2008 06:52AM #1
Interesting that all us academics are clueless elitists who hate the world and the common man, UNTIL you find some off-the-wall horse excrement from an elitist academic that lines up with your twisted hate filled view of the world and then suddenly we are no longer clueless elitist but fonts of wisdom. Grow up
Posted 10/31/2008 06:54AM #2
Dave Snope said:

Actually I'm not sure why they are just figuring this out. I'm pretty sure that Milton Friedman told us this a generation ago. But UCLA puts a number on it.

Now it's up to you to figure out which presidential candidate most closely plans to follow FDR's actions and drive this bus over the cliff to the next great depression.

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

FDR's policies prolonged Depression by 7 years, UCLA economists calculate
By
Meg Sullivan
| 8/10/2004 12:23:12 PM


Way to stay up on current events Dave. Who do you think is best for the economy? I suppose you want to just stay the course? That's been effective. :S
Posted 10/31/2008 06:59AM #3
We already know what has already pushed the bus over the cliff, now we need to push the Bush economic policies over the cliff.


There are only 10 kinds of people who understand binary - those that do and those that don't
Posted 10/31/2008 07:52AM #4
Like various sun cycles, which at times positively or negatively reinforce each other, there are the various economic cycles, which at times 'hit top' or 'hit bottom' about the same time.

http://en.wikipedia.org/wiki/Economic_cycles

Given the reality of the cycles, it doesn't necessarily make sense to have a revolution and change everything just because a couple of cycles bottom out about the same time. It would be like sacrificing virgins to the sun god every time the sunspot count goes low.

The USA has resorted to 'about the same' responses to economic dips for 200 years, and then when the cycle 'comes back', everybody congratulates themselves that the intervention worked. Like knowing that the sun god sacrifice worked, after the sunspots come back.

http://en.wikipedia.org/wiki/Panic_of_1819

>Proposed remedies included:
>
>increase of tariffs (largely proposed by Northern manufacturing interests).
>reduction of tariffs (largely proposed by Southerners, who believed free trade would stimulate the economy and increase demand).
>monetary expansion; i.e., restriction or suspension of specie payment.
>rigid enforcement of specie payment.
>restriction of bank credit.
>direct relief of debtors.
>public works proposals.
>stricter enforcement of anti-usury laws.

===

The quoted economists are not the first to suggest that the deep 1930's dip was a natural 3 year deep dip which was artificially stretched by 'well-intentioned but incorrect' world political intervention. I recall hearing the same ideas in economics courses back in the 1960s/1970s.

Trade war policies are often applied in response to economic dips, including the 1930's dip. Such policies historically seem counter-productive, but they feel so good to do. This emotionally appeals to me because I'm a complete isolationist, but just because it is appealing, doesn't mean it is a good idea. I expect new trade war policies regardless who wins, and more extreme versions if Obama is elected.