The New Deal Prolonged the Great Depression

My CasePricesDuring the New Deal, President Franklin Roosevelt passed the National Industrial Recovery Act and the Agricultural Adjustment Act in 1933. Both laws kept prices high due the limit of competition and ended excess production. According to Mr. Edwards: "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. The Agricultural Adjustment Act of 1933 similarly restricted production to keep prices high. “Excess” output was destroyed or dumped abroad. While millions of Americans were going hungry, the government plowed under 10 million acres of crops, slaughtered 6 million pigs, and left fruit to rot. Production of milk, fruits, and other products was cartelized to boost prices under “marketing orders” begun in 1937." [1]Mr. Higgs argues:"The objective was to raise farm commodity prices until they reached a much higher "parity" level. The millions who could hardly feed and clothe their families can be forgiven for questioning the nobility of a program designed to make food and fiber more expensive. Though this was called an "emergency" measure, no President since has seen fit to declare the emergency over." [2] High WagesDuring the Great Depression, FDR rose the minimum wage which had very difficult effects on the economy. This specifically hurt minorities. According to Mr. Higgs"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." [2] When the NIRA was passed under FDR, wages were forced to dramatically increase, production did not improve at all. Higher wages restricted output and reduced productive capacity. As Mr. Cole and Mr. Ohanian note:"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." [3]In their study: "Our results suggest that New Deal policies are an important contributing factor tothe persistence of the Great Depression. The key depressing element behind these policies firms to collude with paying high wages. Our model indicates that these policies reduced consumption, and investment about 14 percent relative to their competitive balanced growth path levels. Thus, the model accounts for about half of the continuation of the Great Depression between 1934 and 1939." [4]UnemploymentFor all of the 1930s, there was high double-digit unemployment. Instead of a recovery we get another economic downturn in 1938. We should be seeing a stronger gains, but this does not happen because of FDR's policies. Instead, unemployment with nonfarm workers stays way over 20% until the "war economy" brings people back to work. These are not the signs of a healthy recovery at all. The graph shows that. Sadly, I am unable to post images due to a Debate.org glitch. The graph will be in the sources section for people to see. [6]Devaluation of the DollarFDR took the nation off the gold standard in 1933, but this was a mistake. Mr. Higgs notes that:"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." [2]Mr. Cain and Mr. 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 catergories. 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." [5]According to the graph here, we see massive devaluation. [7]High TaxesMr. Edwards shows that: "After his election in 1932, Roosevelt imposed further individual and corporate tax increases. The highest individual rate was increased to 79 percent. State and local governments also increased taxes during the 1930s, with many imposing individual income taxes for the first time. All these tax increases killed incentives for work, investment, and entrepreneurship at a time when they were sorely needed." [1]To prove this, look at the Dow Jones Industrial Average in my graph. You will see -50.3 in growth. [8]Sources1. Edwards, Chris. "The Government and the Great Depression." Cato.org. Cato Institute, 1 Sept. 2005. Web.2. Higgs, Robert. "How FDR Made the Depression Worse." Mises.org. Ludwig Von Mises Institute, Feb. 1995. Web.3. Cole, Harold L., and Lee E. Ohanian. "How Government Prolonged the Depression." Online.WSJ.com. The Wall Street Journal, 2 Feb. 2009.Web.4. Cole, Harold L., and Lee E. Ohanian. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis." Econ.Yale.Edu. Yale Department of Economics, May 2001. Web.5. Cain, Herman and Rich Lowrie. 9-9-9 An Army of Davids. 2012.6. http://www.debate.org...7. http://www.debate.org...8. http://www.debate.org...