Constant Conservative

From two clear-thinking economists at UCLA back in 2004 comes something of note: Roosevelt was the one who kept the Depression alive after it should have been long gone. How can it be that President “chicken in every pot” Roosevelt actually contributed both the general absence of edible chickens and the exorbitant price of the pot?

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.”

Well, knock me over with feather, why don’t you. Economic relapses are not “likely unless lawmakers gum up a recovery with ill conceived stimulus policies.”

“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.”

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

Is not there a bill in Congress right now which would increase collective bargaining power once again by doing away with the secret ballot process and make it a crime for an employer to increase salaries/wages during the period when the employees are considering the creation of a union? I think it is called the Employee Free Choice Act. Unfortunately it does nothing to make the choice of any employee “free.” Rather, it would allow for unions to know who is preventing a new group from signing up for collective bargaining so pressure can be brought to bear. John McCain is very much opposed to this bill becoming law with Barack Obama firmly in favor.

The article concludes with the following:

Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

So, the conclusion of these economists is precisely the opposite of the common thought which seems to be driving the Federal governments current response: that capitalism works if one just leaves it alone.

Please, read the whole article and then send it to your representatives and senators in DC and let them know that we are not interested in a New Deal, or a Better Deal or any deal which has government further interfering with the markets. Yes, I realize that they’ve already signed the bailout bill. However, that does not mean that government intrusion in markets must continue apace.