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March 18, 2009 - Freedomain Radio - Stefan Molyneux
16:11
1305 True News 25: Lessons from the Great Depression

An article exposing the catastrophes of the last great stimulus package... :o

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Hi everybody, it's Stefan Molyneux from Freedom Aid Radio.
I hope that you're doing very well.
This is an article entitled, FDR's Policies Prolonged the Depression by Seven Years.
Two UCLA economists say they 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 policy 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 10-15 year economic slump, said Ohanian, vice-chair of UCLA's Department of Economics.
We've found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus packages.
I like how this implies that there is a non-ill-conceived way to steal money and hand it out in return for political favors, but we shall continue.
Oh, by the way, this article is from 2004.
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blamed specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.
Quote, President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices...
And by extension, reducing employment and demand for goods and services, said Cole.
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% 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 if 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% higher than they otherwise would have done.
The economy, the economists calculate, but unemployment was also 25% higher than it should have been.
What a shocking correlation in statistics, given gains in productivity.
The shocking correlation is my comment.
Wages, 25% higher because of the use of violence, the threat of violence, and unemployment is 25% higher than it should have been.
Nah, it's just a coincidence, I'm sure.
Meanwhile, prices across 19 industries averaged 23% 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% 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 and 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 policy short-circuited the market's self-correcting forces.
I had a book of great disasters when I was a kid, and even then, I think I was about eight or nine, precocious young tot that I was.
And I remember thinking about, why would unemployment be so high?
I mean, if unemployment is so high, why don't people just accept less money to work?
And now we know why, because they would have been shot if they had.
To continue, 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% of private non-agricultural employment, had entered into the collective bargaining agreement, Cole and Ohanian found.
So this is, of course, a way of buying votes from those who still have jobs, a way of expanding government power by inducing an artificial and absolutely calamitous disaster called the Great Depression and getting the capitalist overlords to go along.
With you by allowing them to openly collude and, of course, the only way that they can openly collude is if you ban foreign imports, right?
You can't collude to raise the price of steel, for instance, if people can buy steel from overseas.
But, of course, one of the things that triggered, I think it was a Smoot-Hawley Act, one of the things that triggered and exacerbated Grossly, the Great Depression was the slapping of massive tariffs and sometimes outright bans on the importing of essential materials, thus allowing domestic producers to jack up the prices in this kind of way.
To continue, Cole and Ohanian calculate that the Nira and its aftermath account for 60% of the weak recovery.
Without the policies, they contend that the Depression would have ended in 1936 instead of the year they believe the slump actually ended in 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?
Nera'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.
Quote, 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.
Can you imagine that a law continues even after the Supreme Court knocks it down?
Fortunately, that's the only time in American history that's ever happened, you know, like the declaration of war from President or without the approval of Congress or without the war being declared by Congress.
Honey and Nicole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NERA continued to engage in price-fixing practices for four more years.
The number of antitrust cases bought by the Department of Justice fell from an average of 12.5 per year during the 1920s to 6.5 per year from 35 to 38.
Collusion had become so widespread that one Department of Interior official...
Complained of receiving identical bids from a protected steel industry on 257 different occasions between mid-1935 and mid-1936.
The bids were not only identical, but also 50% higher than foreign steel prices.
Without competition, wholesale prices remained inflated, averaging 14% higher than they would have been without the troublesome practices, the UCLA economists calculate.
Of course, he doesn't say how it is possible for a bid to be 50% higher than foreign steel prices, but of course the reality is that you would be shot if you attempted to import foreign steel without paying exorbitant protection money to the thugs in the state.
To continue, nearest 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% to 33% above where they should have been based on 1929 figures.
Cole and Ohanian calculate.
Unemployment persisted.
By 1939, the US unemployment rate was 17.2%, down somewhat from its 1933 peak of 24.9%, but still remarkably high.
By comparison, in May 2003, the unemployment rate of 6.1% was the highest in nine years.
And of course, the unemployment rate, they simply changed the calculation, right?
So it's actually closer to 17% at the moment, if they were to calculate it the same way they did in the 70s.
Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly fourfold, and organized laborers suffered a string of setbacks, the economists found.
The fact that the Depression dragged on for years convinced generations of economists and policymakers 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 recovery would have been very rapid had the government not intervened.
So, just a few points to mention about this article, which of course, like almost all articles from free market academics, gets it spectacularly right and spectacularly wrong at the same time.
Capitalism was not responsible for the Great Depression.
And by capitalism, I don't mean the kind of fascistic mercantilist corporatism, which is a government basically playing labor and management against each other through a series of violent dictums called laws, but rather a voluntaristic free market situation.
The fact that the Federal Reserve was in power from 1913 is, of course, something which is overlooked, right?
That the government was producing massive amounts of money throughout the 1920s, resulting in an inevitable stock market boom, just as happened in the 90s, just as happened from 2004 to 2008.
And then, of course, the government in the 1930s massively contracted the money supply, thus starving capital for expansion.
It artificially propped up wages by shooting people who competed in an open market or threatening to.
It banned foreign imports.
It allowed industries to collude.
And of course, the collusion is only possible with government control of competition, particularly through foreign markets.
The Smoot-Hawley Tariff Act, which jacked up between 25% and 40% tariffs on a huge amount of imports, went around the world.
It was literally the gun to the temple of the free market trader heard around the world.
All of the other markets, Europe and Asia, followed suit, and massive protectionist tariffs arose, thus ensuring that this depression, which triggered the Second World War, or at least made it certainly possible for Hitler to come to power in Germany, continued and exacerbated. or at least made it certainly possible for Hitler to
And as is inevitable and grindingly predictable, it is always, of course, voluntarism that is blamed for the disasters of violence.
And so it is considered to be a free market situation that triggered the Great Depression.
And it is considered to be a government which protects us from these kinds of oscillations.
I mean, there was a...
Bernanke was on 60 Minutes recently, the chairman of the Fed, the head...
Glittering intellectual thug of the ruling classes.
And he was saying, well, you see, it's, you know, we need this to protect us from the free market, all this sort of nonsense that's going on.
Oh, God, these pseudo-journalists are just a pathetic brown-nosing set of court-toady embarrassments.
Literally, they went, oh, your house was sold, the house that you grew up in, how do you feel, where did you come from, who was your mama, what did she sing to you when you were a baby?
I mean, it might as well be produced by the Stalin's Ministry of Truth and Information, this sort of stuff.
Any intelligent reporter with even two grains of sand for testicles would have asked the basic question, which needs to be asked the chairman of the Fed, who says openly, well, you see, it was...
The Federal Reserve was put into place in 1913 to ensure market stability and to preserve the value of the currency.
And, of course, any reasonable reporter would ask the basic question, which is, ah, Mr.
a bit of a nanky.
If you could just put down that bald cat and cigar for a moment and answer this question, we would really appreciate it.
If the Fed was put into place to preserve the stability of the economy and the value of the greenback, can you tell me why the economy is so wildly oscillating, cratering and destroying the lives of hundreds of millions of people, and why the value of the greenback, which and why the value of the greenback, which the Fed was created to preserve, has fallen 95%, 95% since its inception.
Can you consider it to be a success as an institution to stabilize the economy And to preserve the value of the greenback.
From the crash of 29 to the depression of 33, to the New Deal from Roosevelt, which was a massive expansion of violence and spending on the part of the government, to the catastrophe of the Second World War, and of course to the catastrophe of the First World War, which was only possible because of centralized banking.
You couldn't do it if you had to rely on gold because you'd run out of money in about three months!
War is only possible because of centralized banking, at least modern warfare of the kind that we see, which is the difference between medieval and renaissance warfare, which was a few thousand inbred fools whacking at each other with swords while the peasantry remained largely undisturbed and may not even know a few miles away that there was actually a war going on.
What is the difference between the wars of antiquity and...
The wars of the medieval world and the Renaissance and the Enlightenment and the wars of the 20th century, well, the productivity of the free market and fiat currency allows for these kinds of disasters and genocides and slaughters of hundreds and hundreds of millions of people to occur.
It's a direct line.
So, the disasters of the First World War, the boom, the bust, the Second World War, the boom of the 50s, the The Franklin Roosevelt's expansion of status policies in the 60s, the bust of the 60s, the stagflation of the 70s, the boom of the 80s, the savings and loan collapse of the 80s, the depression of the early 90s, the boom of the 90s, the crash of the tech sector.
The boom of 04 in housing, which happened again after the boom in housing in the 80s, the wild oscillations of interest rates, the continuing falling value of the dollar, the stagnation of the income of the middle and lower classes, the massive expansion of the income of the upper classes.
How is it possible that the Fed can justify itself as an agent of currency and economic stability when quite the opposite has occurred relative to what occurred before?
The Fed was introduced and created.
Well, of course, it can't answer that and the point of it is not to answer any of that, but simply to keep slipping its invisible fingers into your pockets and taking your money and the futures and the lives and the possibilities and the ambitions and the potential of your children and to blind you with nonsense terms like a stimulus package rather than theft from the unborn, which is a little tougher to sell, as I've mentioned before.
Thank you so much for watching.
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