In this article, Lee Ohanian, a UCLA economics professor, and Harold Cole, an UPenn economics professor, argue that FDR’s New Deal actually prolonged the depression. In class we discussed how adherence to the Gold Standard prolonged the depression for a number of reasons. Once it was abandoned, and exchange rates functioned as a float based on supply and demand, poising the economy for a recovery. We then then learned how FDR’s New Deal helped speed the recovery by including a social safety net through Social Security and stabilizing the financial system through FDIC and the SEC. On the other hand, Ohanian argues that other aspects of the New Deal actually “violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels.” For example, it was anti-free market legislation like the National Industrial Recovery Act (NIRA) that was designed to eliminate “excessive competition.” The resulting codes, however, called for an artificial increase in prices and wages that restricted output and reduced productive capacity. Although those that had a job benefited by the 25% surplus in wages, the codes “significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.” Many other statistics are given in the article, offering a cohesive counterargument to the popular support for the success of the New Deal.
No comments:
Post a Comment