Revisiting the Depression: Parallels

Revisiting the work of two UCLA economists who studied FDR's policies to "fix" the Depression is useful in examining today's economic crisis. Harold Cole and Lee Ohanian concluded that FDR's policies prolonged the Depression, which otherwise would have ended in 1936, to 1943.

"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."

(Perhaps like "stimulus" checks that don't stimulate the economy or forcing industries to become green?) What they found is that the National Industrial Recovery Act (NIRA) was the most damaging piece of legislation. The Act helped companies avoid anti-trust violations if they agreed to collective bargaining, i.e. they were "persuaded" to become union-friendly companies. The result was that wages were roughly 25% higher than they otherwise would have been - and in turn, unemployment increased to 25%.

Sound familiar yet? Today Obama's economic advisors need to be asking themselves how not to turn a recession into a depression. And unfortunately, the market is anything but convinced Obama will be willing to do so. He owes the unions. He owes the green lobby. He owes the bar association and his friends at ACORN. Obama's policies will damage the economy and, based on the recent market action, they will damage it pretty badly.