The New Deal Prolonged the Great Depression

IndustryPresident Franklin Roosevelt passed the National Industrial Recovery Act of 1933, which acted as his main centerpiece for the New Deal. The plan of the act was to artificially raise wages and prices. The high wages were meant to allow people to have enough income to spend money. With more money, they could afford the higher prices and businesses would receive more capital that they could then use to expand their industries and higher more workers. This would decrease unemployment. Immediately, several problems rose with the act. Higher wages increases labor costs and stops businesses from expanding. At the same time, higher prices discourages demand and less people were able to afford goods and services. The New Deal was a disaster. Not all businesses were able to achieve the NIRA requirements and this damaged the economy:"The centerpiece of the New Deal was the National Industrial Recovery Act of 1933. It created “codes” or cartels in more than 500 industries in order to limit competition. Businesses were told to cut output and maintain high prices and wages. Businessmen who cut prices were cajoled, fined, and sometimes arrested. Fortunately, NIRA was struck down by the Supreme Court in 1935. " [1]While it may have been struck down, that does not mean it still created major problems for the economy. The elimination of business was one problem. Businessmen were very concerned about expanding as Woods explains:"Businessmen and investors, unsure of what the federal government would do next and what additional punitive members would be imposed on them, simply stopped investing. .. .. long-term investment was particularly hard hit in the 1930s. " [2]On wages, Higgs explains:"Minimum-wage laws proved a stumbling block to efforts by blacks to secure jobs. These laws prevented employers from undercutting unions by offering lower wages to nonunion members. Since blacks faced exclusion from many of the powerful unions, they were in effect frozen out. " [3] And further from Cole and Ohanian:"We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth. " [4]For example, with utilities and FDR's Tennessee Valley Authority (TVA) as Shlaes noted:"Washington sucked up much of the available capital by selling bonds and collecting taxes to pay for the TVA or municipal power plants in towns. In order to justify their own claim that public utilities was necessary, New Dealers also undermined private ulities directly, through laws - not only the TVA law but also the infamous Public Utility Holding Company, which legislated many companies out of existence. "[5]AgricultureThe NIRA version for agriculture was the Agricultural Adjustment Act. Under the AAA, farmers had to dump their surpluses of food in order to raise prices. The main problem of the government's intervention into the economy was that it was trying to solve a macroeconomic problem in a microeconomic format. The reason the AAA failed was because many farmers were finding it difficult to kill their main source of revenue. As Shlaes brings up:"To larger farmers, the new AAA payments were welcome. Food and cash from another New Deal agency, the Federal Emergency Relief Administration, reached many of the poorest farmers. Small-farm owners, however, found the AAA regimen challenging. And tenant farmers were stunned. Landowners had historically hired sharecroppers because they themselves made profits from their share of the crop that the tenants planted and harvested. That relationship had become more tenuous as crop prices came down, and there was less for landlord and tenant to share. " [5]Worse, it did not really do what it needed to. Prices still failed to go up and the country was left with major deflation. That's not all. Think about all the starving people during the Great Depression. Farmers were ordered to kill millions of crops and livestock while poor people starved and were not aided. Over six million pigs were killed as an example. A study was released on just how bad the policy was and how it ruined the American diet:"Shortly after the Agricultural Adjustment Act (AAA) was passed, the Department of Agriculture released the findings of its study of the American diet during these difficult years. .. .. .It found that America was not producing enough food to sustain its population at the minimum (subsistence) diet. It took a special kind of mind to conclude that the best approach to this disaster would be to make more food expensive. " [2]Gold StandardFDR also confiscated as much gold as possible at the time in order to raise it and once again create inflation. Just like with the NIRA and AAA, this was to know avail. Higgs writes:"Besides being theft, gold confiscation didn't work. The price of gold was increased from $20.67 to $35.00 per ounce, a 69% increase, but the domestic price level increased only 7% between 1933 and 1934, and over rest of the decade it hardly increased at all. FDR's devaluation provoked retaliation by other countries, further strangling international trade and throwing the world's economies further into depression. " [3]Cain and Lowrie note that:"The United States went off the gold in 1933, and that year came in as badly as the Depression's trough year of 1932 in all the major economic categories. In 1934, the United States resumed the gold standard (if at a higher price), and the recovery got going. It was a mediocre recovery, in that going off gold and the dollar devaluation against gold had introduced a lack of clarity in the system. " [6]JobsUnemployment remained between 20% and 10% for most of the 1930s. The recovery was made worse by a second depression in 1937. The Great Depression included a series of smaller recessions and depression within it and FDR's policies were not able to fix the problem. Another program in FDR's "alphabet soup" was the Works Progress Administration or WPA. The job of the WPA was to hire people and give them jobs at public works, but it actually served to mainly Roosevelt's political benefit in order to get reelected. The adminsitration was riddled with corruption:"A number of scholars, noting the rather curious preponderance of the WPA projects in western states where FDR's electioral margin had been thin in 1932, believe political considerations played an important role in how these projects were distributed. " [2]Even more specifically, if we look at the Federal Writers' Project (part of the WPA):"Among the hires were 150 jobless newspapermen, whose new jobs had a circular aspect: they were to chornical the advances of the WPA. Hopkins picked Hallie Flanagan to create a theaer that would air plays about the social conditions in the country - and again, spotlight New Deal progress. " [5]It was clear that Roosevelt and Hopkins (head of the WPA) were strategically doing this to control the media of the country in order to create New Deal propaganda. That is why he won three elections, not because he was so loved. World War 2Finally, to prove the New Deal did not work, I will briefly go into FDR's policies during World War 2. It is generally believed today that the war ended the Depression. This is false. FDR continued his big government programs and interfered at a higher rate during it than during the Great Depression. Private investment collapsed completely while government investment increased: "An economy can’t prosper when markets are being overruled by command-and-control rationing. During the war, companies found it easier and more profitable to produce for government than to produce for consumers. Even companies such as Eastman Kodak, the film and camera company, began manufacturing rifle scopes and hand grenades for the military. GM stopped making cars for civilians and made military vehicles instead. Tires, gasoline, shoes, beef, sugar, coffee and much else were rationed. The standard of living in the U. S. during the war collapsed; conditions for consumers were much worse than in the ‘30s. Remember that the best definition of a depression is: A period of time when most people’s standard of living falls significantly. " [7]In the case of a war economy, we do not look at standard economic terms like unemployment (clearly declining due to the draft) and real GDP (clearly rising due to war production). We look at how well the private economy is doing specifically with investments and expansion. They were further killed with high taxes rates at 79% and higher. Sources1. Edwards, Chris. "The Government and the Great Depression. " Cato. org. Cato Institute, 1 Sept. 2005. Web.2. Woods, Thomas E. , Jr. The Politically Incorrect Guide to American History. Washington, D. C. : Regnery Pub. , 2004. Print.3. Higgs, Robert. "How FDR Made the Depression Worse. " Mises. org. Ludwig Von Mises Institute, Feb. 1995. Web.4. Cole, Harold L. , and Lee E. Ohanian. "How Government Prolonged the Depression. " Online. WSJ. com. The Wall Street Journal, 2 Feb. 2009. Web.5. Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins Publishers, 2007. Print.6. Cain, Herman, and Rich Lowrie. 9-9-9: An Army of Davids. Herndon, VA: Velocity; Mascot, 2012. Print.7. Casey, Doug. "Escaping the Great Depression - and Extending the Greater Depression. " CaseyResearch. com. The Casey Report, n. d. Web.