New Deal Prolonged the Depression

With the recent passage the $700 billion stimulus package, “federal obligations now exceed the collective net worth of all Americans.” What does this mean? It means The United States of America is officially bankrupt. This is according to calculations made by the Peter G. Peterson Foundation, and was published recently in the DCexaminer.com.

As interesting as our huge national debt is, in and of itself, I found it even more enlightening in the context of an article by two UCLA economists. Harold L. Cole and Lee E. Ohanian recently did a study on FDR’s New Deal policies signed into law during the Great Depression. They found that instead of helping, FDR’s New Deal actually thwarted economic recovery and prolonged the Depression by seven 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.

“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.”

– emphasis added. source: UCLA Newsroom, FDR’s policies prolonged Depression by 7 years, UCLA economists calculate

So, Who’s Going to Bail Out the Government?
As mentioned earlier this week in my post on the 2008 recession, we have officially entered economic tough times. But instead of acting responsibly, our government leaders are digging us further and further into debt with “misguided policies” and “ill-conceived stimulus policies.” And just as the UCLA economists predicted, this will do nothing but prolong the recession. I’m afraid that those who fail to learn from history are doomed to repeat it.

2 replies
  1. George Buddy
    George Buddy says:

    I disagree with your statement that the New Deal prolonged the economic depression.

    As far as the national debt is concerned, you conveniently overlook 1) Bush’s tax cuts, 2)The Iraq war which we so lavishly threw money at. and 3) Bush’s decision, with bipartisan support, to spend some $700 billion to keep banks from collapsing.

    However, putting that all aside, what would you do as president to improve the situation, if anything?

    Reply
  2. Jimmy Smith
    Jimmy Smith says:

    Well, it’s not just me who thinks the New Deal prolonged the Great Depression, this is also the conclusion drawn by the two UCLA economists, Harold L. Cole and Lee E. Ohanian.

    To address your points:
    1) Bush’s tax cuts spurred economic growth as tax cuts always do. 2) the Iraq war liberated 25 million people (who’s freedom is of infinite worth), and after six years it still has cost less than the nearly trillion dollar spending bill Obama is ready to pass. 3) As far as the national debt is concerned, both of the major politcal parties are to blame. But at least the Republicans have made a stand (most of them anyway) on this trillion dollar pork bill that is unlikely to do anything except pay off Democrat special interest groups.

    Reply

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