A new study released by UCLA economists has brought extremely convincing evidence to historians that FDR's New Deal policies prolonged the depression by seven years. If you are interested in all their painstaking calculations please read the article. The two UCLA economists studied the effects of the National Industrial Recovery Act (NIRA), which was a large part of FDR's New Deal, on the American economy. They found that the loosening of anti-trust laws in return for higher wages seen in the NIRA led to wages that were 25% larger than they otherwise would have been with the projected productivity. With far less competition due to the NIRA consumer prices rose massively however, causing demand to stall and dropping productivity even further. As put by one of the professors in the article, "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The article went on to look at how despite the Supreme Court ruled the NIRA unconstitutional and it was repealed, FDR's administration continued to look the other way. Ohanian and Cole (the UCLA professors) discovered that the number of anti-trust lawsuits decreased from 12.5 cases a year to 6.5 cases a year. Through these series of policies, the degree of suffering and high unemployment was way greater than it could have been if FDR had followed free-market policies and allowed the market to naturally recover.
Now this article and its well-researched argument brings up strong ties to today's crisis, where the government is passing massive pieces of legislation and bailout funding for a falling economy and high unemployment rate. Obama's policies seem rather similar to FDR's with plans such as creating millions of jobs to create alternative energy being similar to the massive amount of public work projects that did nothing to increase american productivity but cost taxpayers millions. Other Obama policies are clear government-interventionism (although McCain is not far off). Are these the kind of policies and actions we need right now in the current economic crisis?
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression...
UCLA economists may have spent long hours and days on this, but can a market truly recover on its own? I would think that without some kind of New Deal stimulus, the economy would have just wavered for years.