"... regarding the Great Depression: You're right, we [the Government, especially the Federal Reserve and the Congress' Smoot-Hawley Act] did it."-- what Federal Reserve Board Governor (now Chairman) Ben Bernanke finally admitted to Nobel Laureate Dr. Milton Friedman, at Milton's 90th birthday celebration, meaning that, indeed,  the Great Depression WAS caused by, AND prolonged by, THE GOVERNMENT, as Friedman had always said.. [Financial Review, 12-9-2002]  Also see Rethinking the Great Depression HERE, America's Great Depression HERE,The Roosevelt Myth HERE, Forgotten Lessons HERE, Essays on the Great Depression HERE, The Forgotten Man: A New History of the Great Depressionby Amity Shlaes HERE,and FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression by Jim Powell HERE.  Also check out the Burton Folsom speech on the Great Depression HERE and  the audio lecture, The Cause and Consequence of the Great Depression (CD) HERE. "Scratch the surface of an endemic problem -- famine, illness, poverty -- and you invariably find a politician at the source."--  Simon Carr, in his review of The Mystery of Capital  by Hernando de Soto

HERE

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

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."

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"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.

Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.

"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."

Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.

The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.

NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.

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."

"Congressman Frank and Senator Dodd wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default. "The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously." -- Dr. Thomas Sowell, Professor Emeritus, Economics, Stanford University, HERE "Many politicians and pundits claim that the credit crunch and high mortgage foreclosure rate is an example of market failure and want government to step in to bail out creditors and borrowers at the expense of taxpayers who prudently managed their affairs. These financial problems are not market failures but government failure. ... The credit crunch and foreclosure problems are failures of government policy." -- Stubborn Ignorance: The Financial Crisis is a Failure of Government Policy by Dr. Walter E. Williams See: "But while capitalism may be a convenient scapegoat, it did not cause any of these problems. Indeed, whatever one wishes to call the unruly mixture of freedom and government controls that made up our economic and political system during the last three decades, one cannot call it capitalism." -- Stop Blaming Capitalism for Government Failures, HERE "Free enterprise capitalism exists only when people in the private sector are free to pursue their own interests without direction from government.  When politicians start passing laws to tell them what to do, or bureaucrats start issuing edicts to tell them what to do, it is no longer capitalism; it's fascism." -- Rick Gaber

"The Woods Fund report makes it clear Obama was fully aware of the intimidation tactics used by ACORN's Madeline Talbott in her pioneering ["community organizer"] efforts to force banks to suspend their usual credit standards. Yet he supported Talbott in every conceivable way. He trained her personal staff and other aspiring ACORN leaders, he consulted with her extensively, and he arranged a major boost in foundation funding [via CAC and Woods Fund] for her efforts." -- Stanley Kurtz, HERE

Meanwhile, guess who were the top four recipients of campaign contributions from Fannie and Freddie between 1988 and 2008?

Senators Chris Dodd, John Kerry, Hillary Clinton, and -- still ready? -- Barack Obama.

A coincidence, I tell you -- just a coincidence.

More mere coincidences: Franklin Raines -- a former Carter- and Clinton-administration official and former head of Fannie Mae, now under investigation for cooking its books -- had a lot of powerful people in Congressss beholden to his agency. Here is a list of his campaign-contribution recipients. Meanwhile, Democratic honcho Jim Johnson, another former Fannie Mae CEO, has been an economic adviser to and major fundraiser for Barack Obama, and even ran his vice-presidential search committee until growing scandals over his Fannie management forced him to step down in July.
-- Robert Bidinotto, here: http://bidinotto.journalspace.com/?entryid=783

"Bad and discredited ideas, it seems, never die.  Neither do they fade away.  Instead, they keep turning up, like bad pennies or Godzilla in the old Japanese  movies." -- Murray N. Rothbard

   "The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us noble and plausible, have been tested before, not once but many times and in innumerable guises; and discovered to be, at great human cost, wholly false." -- Celebrated Historian Paul Johnson

   "There is no error so monstrous that it fails to find defenders among the ablest men." -- Prof. John E. E. D. Acton
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   "Those who cannot remember the past are condemned to repeat it." ~ George Santayana, The Life of Reason, 1906

"Any stray mediocrity rushes into print with plans to control the production of mankind -- and ... no one questions his right to enforce his plans by means of a gun." -- Ayn Rand, Atlas Shrugged

"When plunder becomes a way of life for a group of men together in a society, they create for themselves in the course of time, a legal system that authorizes it and a moral code that glorifies it." -- Frédéric Bastiat

"Socialism is an ideology. Capitalism is a natural phenomenon." -- Michael Rothschild

"...the myth of socialism is far stronger than the reality of capitalism. That is because capitalism is not really an ism at all. It is what people do if you leave them alone." -- Arnold Beichmen, Hoover Institute Fellow

"There is no better anti-poverty program anywhere than capitalism." -- Neal Boortz

"Cuba's poverty is caused by the crackpot Marxist doctrines imposed by its sociopathic ruler and promoted by half the liberal arts professors on American faculties." -- David Horowitz

"The belief that all wealth comes from stealing is popular in prisons and at Harvard." -- George Gilder

"Wealth is based on productivity, and productivity is expandable.  In fact, productivity is fabulously expandable." -- P.J. O'Rourke in Eat the Rich

"The government is good at one thing...it knows how to break your legs, and then hand you a crutch and say, 'See, if it weren't for the government you wouldn't be able to walk'." -- Harry Browne

"Demagoguery beats data in making public policy." -- Dick Armey