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Did FDR End or Extend the Depression

0 (0 Likes / 0 Dislikes) Did president Franklin Roosevelt's new deal economic policies pull the country out of the great depression my research clue suggests that the answer contrary to popular belief is NO in fact the new deal made matters worse let me explain the centerpiece of roosevelt's new deal plan to fix the economy was the national industrial recovery act or an NIRA which the president announced with great fanfare in june of 1933 FDR believed that he could use the government to artificially raise both prices and wages it would work like this higher prices would raise profits that makes business happy the higher wages would raise income That makes workers happy more profits for business mean more money to hire new workers higher wages for workers means more money to buy consumer goods a virtuous cycle is set in motion an economy improves rapidly but here's what FDR missed artificially raising wages also raises labor costs and whne labor costs go up business hires fewer workers or no workers at all especially in a difficult economic environment meanwhile artificially raising prices reduces demand for the obvious reason people buy less of something when its price goes higher so why did FDR do this? FDR based his new deal policies largely on what happens during world war one which had ended only fifteen years earlier in 1918 during that war the government established planning boards to set wages and prices and economic activity increased It it worked during wartime, FDR reasoned. It should work during peacetime the roosevelt confused increase economic activity that was actually the result of inflated war demands as being due to government planning the government, Roosevelt concluded, could much better manage the economy in the time of crisis then private enterprise, which in his world view only considered his own selfish interests therefore government guidance not free enterprise was a citizen's steadfast ally contrary to what you might think big business including autos and steel were happy to go along with FDR's plan at least at first if the government was going to ensure their profits - who were they to complain? so instead of prohibiting monopolies, something the government is actually supposed to do the and NIRA created monopolies on the condition that these favored industries immediately raised wages significantly and bargain collectively with labor not surprisingly the supreme court declared the NIRA unconstitutional in may 1935 stating the FDR violated constitutional separation of powers He meddled in an area private business where he had no constitutional right but the decision had little practical effect because the government simply ignored it meanwhile the wage side of the equation rose faster than expected because of the passage of another new deal law in 1935 wagner act the wagner act provided unions with new collective bargaining rights and as the labor unions grew in size and power so do workers' wages the result was that between nineteen thirty three nineteen thirty-nine these government policies he and NIRA and the wagner act increased prices and wages by about twenty percent these artificial price a wage increases impeded which should have been a strong recovery from the depression they prevented the natural forces of competition from pushing prices down and pushing worker productivity up instead artificially high wages led industry to hire fewer workers And high prices reduced demand for products if these policies have not been adopted my research as well as research by other economists indicates the economy would have returned to its normal level of employment an output by nineteen thirty six in other words the policies that were supposed to restore prosperity actually prolonged the depression after several years of slow recovery even FDR acknowledged that his policies had failed and in nineteen thirty eight the department of justice began pursuing anti-trust that is anti-monopoly lawsuits It took awhile for these losses to take affect but by the time world war 2 began the economy was improving labor policies also change for the better during the war FDR met with unions and ask them not to strike and unions agreed provided that they could continue to bargain collectively when in 1942 FDR's national war labor board refused to approve a large wage increase between Bethlehem steel has workers unions complained FDR but FDR took no action he had finally come to repudiate both his price increase in wage increase policies by the end of the war wages and productivity were back in alignment an economy rebounded but only after many new deal policies were abandoned I am Lee Ohanian Professor of Economics at UCLA for Prager University

Video Details

Duration: 5 minutes and 39 seconds
Country: United States
Language: English
Views: 593
Posted by: on Apr 23, 2013

Did FDR End or Extend the Depression

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