LOS ANGELES — The Great Depression was the worst economic crisis in American history. It began with the stock market crash of October 1929, and within five years 15 million Americans were unemployed, and half the country’s banks were closed. In PragerU’s newest video, Did FDR End The Great Depression?, Professor of Economics at UCLA and PragerU contributor, Lee Ohanian concludes President Franklin Roosevelt’s federal policies, presumed to have helped lift the country out of the Great Depression, actually prolonged it.
When FDR first introduced his New Deal strategy in June 1933, it seemed to be the logical solution to America’s failing economy. Its cornerstone, the National Industrial Recovery Act (NIRA), was designed to increase the prices of goods in order to generate higher profits and thus, higher wages. The cycle, it was presumed, would make both businesses and workers happy and restore the economy in the process.
Roosevelt had hoped to replicate the economic activity of World War I by applying similar economic policies during peacetime.
“The government, Roosevelt concluded, could much better manage the economy in a time of crisis than private enterprise, which, in his worldview, only considered its own selfish interests,” explains Ohanian. “Therefore, government guidance — not free enterprise — was America’s steadfast ally.”
However, based on Ohanian’s research, FDR failed to foresee that artificially raising wages would also increase labor costs. As a result, businesses hired fewer workers, and higher prices stifled consumer demand.
When NIRA artificially raised prices, it also created monopolies with big businesses, like auto and steel, because it ensured their profits. As a result, it was declared unconstitutional by the Supreme Court in May 1935 for violating constitutional separation of powers. As Ohanian observed, “FDR had meddled in an area — private business — where he had no constitutional right.”
However, the government simply ignored the Supreme Court’s decision and passed the Wagner Act of 1935. This legislation provided unions with new collective bargaining rights. As labor unions grew in size and power, wages rose much faster than expected.
By 1939, the combined policies of NIRA and the Wagner Act increased prices and wages by nearly 20 percent. Ohanian’s research, along with that of other economists, reveals that these artificial increases — initiated by the government — actually impeded economic recovery from the Great Depression.
“[The New Deal] prevented the natural forces of competition from pushing prices down and pushing worker productivity up. Instead, artificially high wages led industry to hire few workers, and high prices reduced demand for products.”
Shockingly, research indicates the economy would have returned to its normal level of employment and output by 1936 if not for FDR’s New Deal.
“In other words, the policies that were supposed to restore prosperity actually prolonged the Depression,” concludes Ohanian.
MEDIA NOTE: PragerU contributor, Lee Ohanian, is available for interview as is PragerU’s Founder, Dennis Prager, and CEO, Marissa Streit. Contact: MediaInquiries@theKcompany.co
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PragerU, founded by Dennis Prager in 2011, is a not-for-profit organization that helps millions understand the values that shaped America and provides millions of Americans and people around the world with the intellectual ammunition they need to advocate for limited government, individual responsibility and economic freedom. In 2016 alone, PragerU’s videos received over 250 million views, a figure that will eclipse 350 million in 2017. PragerU is a resource for all who value liberty. It is a threat to all those who do not.
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