Patterico's Pontifications

9/2/2009

UCLA Study: President’s Pro-Labor Policies Pushed America Into Depression

Filed under: Economics,Obama — DRJ @ 12:45 pm

[Guest post by DRJ]

The UCLA study is based on the policies of President Herbert Hoover:

Pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation’s gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression, a UCLA economist concludes in a new study.

“These findings suggest that the recession was three times worse — at a minimum — than it would otherwise have been, because of Hoover,” said Lee E. Ohanian, a UCLA professor of economics.

“These findings suggest that the recession was three times worse — at a minimum — than it would otherwise have been, because of Hoover,” said Lee E. Ohanian, a UCLA professor of economics.
***
Hoover’s approach is unlikely to be considered today as a means of responding to economic crisis, but it does illustrate the perils of ill-conceived government policies in times of economic upheaval and confusion, says Ohanian, a macroeconomist who specializes in economic crises.

“Hoover’s response illustrates the danger of knee-jerk policy reactions in a time of crisis,” he said. “Almost always when bad policies are adopted, it’s during a period of crisis. The real risk is picking a cure that turns out to be worse than the disease.”

Ohanian’s study is reportedly unlike prior studies because it is based on quantifiable data regarding Hoover’s labor-market distortions. Hopefully President Barack Obama has it high up on his lengthy reading list.

— DRJ

25 Responses to “UCLA Study: President’s Pro-Labor Policies Pushed America Into Depression”

  1. More Astroturf from the teabaggers, obviously./

    Chris (a24890)

  2. He may indeed have it on his reading list, but even if he did, how would we know if he ever read the thing in the first place? The Martha Vineyard’s book list was hilarious – no way could he have gotten through two of those tomes, let alone one.

    I wish Obama would view this in the meantime – a vid where Milton Friedman schools the clueless as usual Lib Donahue in every facet of economic thought:

    http://www.youtube.com/watch?v=RWsx1X8PV_A

    It’s just a short clip – the entire interview is awesome.

    Dmac (a93b13)

  3. Hoover was followed by Roosevelt who did even more. Here is what Roosevelt’s Treasury Secretary had to say in 1939:

    “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong . . . somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot.”

    Henry Morgenthau, Roosevelt’s Treasury Secretary:

    J. Raymond Wright (d83ab3)

  4. the only way Ear Leader will ever read anything is if its on a teleprompter.

    redc1c4 (fb8750)

  5. At least Hoover was a republican, so Obama and the idiot class might be a little more likely to read this for more than a second or two.

    Juan (bd4b30)

  6. Hoover was followed by Roosevelt who did even more.

    Indeed. Five years ago, the same UCLA professor proclaimed: “FDR’s Policies Prolonged Depression by 7 Years.”

    Last October as the U.S. banking crisis worsened, Lee Ohanian counseled:

    What should be done? We should encourage the immigration of prime-age individuals. Beginning in 2007, net immigration fell to half of its level over the previous five years. Increasing immigration would increase the demand for housing and raise home prices. And note that the benefit would be immediate. Home prices — and the value of subprime obligations — would rise in anticipation of a higher population base. The U.S. particularly needs highly skilled workers. These workers not only would purchase homes, but would generate higher living standards for all Americans.

    steve (d2b462)

  7. Is steve playing the standard “look over ther” again?

    I had lunch with a Leftist today, and he was talking about how horrible Hoover was, and I pointed out that if Hoover was bad, FDR was exponentially worse, saddling generations with debt and opening the door to the collectivist mentality, which my buddy simply said had to be done because Hoover had destroyed the country.

    I pointed out to him that the Left continues to use the same logic, or lack thereof, today, railing ahainsy the evil Bush deficits, and then approving of the Obama spending which is orders of magnitude greater. He said if Republicans would quit cutting taxes and bankrupting the country, Dems would not be forced to clean up by spending and creating programs to get out of the financial mess the Republicans left behind.

    I just shook my head.

    JD (eadb47)

  8. I am wholeheartedly in favor of immigration of educated people like the facebook developer who moved to Canada because his PhD wife wasn’t a citizen and couldn’t get a visa. We flood the country with illiterates who are only capable of manual labor and who are out of the work force by age 40, most of them on disability.

    Obama has made the same mistake Hoover did by taking over the auto companies and leaving their UAW contracts in place. had they been allowed to go into bankruptcy where union contracts can be cancelled, they would have a far better chance to survive. Instead, we will be feeding them al la British Leyland for the next decade.

    Mike K (8df289)

  9. “These workers not only would purchase homes, but would generate higher living standards for all Americans.”

    Oh gawd…yeah just get that bubble re-inflated. We can rebuild an economy based on selling houses to each other! That’s the ticket.

    More cargo-cult mentality, courtesy of your university system.

    cassandra in MT (5a5d33)

  10. “FDR was exponentially worse, saddling generations with debt and opening the door to the collectivist mentality”

    How much debt did he saddle us with?

    imdw (603c39)

  11. What Ohanian learned is Hoover negotiated wage freezes with major businesses and manufacturers that resulted in more widespread job losses as those businesses let employees go in order to keep wages for the remaining employees at the same levels. In those businesses, the workers with jobs had their wages artificially maintained and even raised because of deflation, making it even harder for those businesses to recover because they were paying high wages to fewer and fewer employees.

    Meanwhile, other sectors of the economy (like farming) suffered from far lower prices but did not experience as many job losses: Although farmers and their employees were earning far less, most kept their jobs and those economic sectors recovered more quickly than manufacturing/business.

    As a result:

    Overall, the economy suffered, with the GDP falling by 27 percent. In a situation in which wages would have been expected to fall, they remained at about 92 percent of what they had been two years earlier. When adjusted for deflation, they had actually climbed by 10 percent, Ohanian found.

    Interestingly, during the dreaded period of deflation a decade earlier, some manufacturing wages fell 30 percent. GDP, meanwhile, only dropped by 4 percent.

    “The Depression was the first time in the history of the U.S. that wages did not fall during a period of significant deflation,” Ohanian said.

    Hoover illustrates the risks of artificially propping up labor at the expense of the rest of the market. Obama has taken many steps to prop up labor, which is why I hope he reads this study.

    DRJ (3f5471)

  12. “How much debt did he saddle us with?”

    imdw – Do your own work. Look it up yourself.

    daleyrocks (718861)

  13. I’m wondering how much the blame is on FDR vs, say, the war.

    imdw (7c85b9)

  14. I’m wondering if it is stupid, or willfully obtuse. Either way, at best, it is disingenuous.

    JD (f756a6)

  15. I’m wondering whether imsw knows what year FDR took office and what year we entered the war.

    daleyrocks (718861)

  16. Someone ask imdw if that was the same year when FDR addressed the nation on TV during the stock market crash.

    Dmac (a93b13)

  17. Aw, what the hell, I did the work on behalf of imdw. Took me all of six seconds to google “national debt” and find a good reference on the Whitehouse’s website. Here is the answer:

    Between 1931 and 1932, the deficit grew from $462 million to $2.7 billion. Assuming that FDR can only be held responsible for the debt between 1934 and 1941 (giving him a pass on his inauguration year, 1933, and the years following our entry into World War II), the Federal debt grew by $23.6 billion. This is the on-budget debt; the introduction of Social Security, which ran surpluses, lowers the number somewhat though never quite puts us in the black. By the middle of World War II, our annual deficit had climbed up to the $55 billion range.

    JVW (d1215a)

  18. JVW and daley obviously got the not-in-the-least-bit-subtle point I was driving at. Not only did he saddle us with ginormous deficits in the short term, and saddling us with extraordinary ongoing financial ponzi schemes and social welfare spending beyond anyone’s imagination at the time.

    JD (f756a6)

  19. Please don’t conflate debt and deficit – if you’re going to talk about one, stick with it.

    If the LiC needs to read a book about the Great Depression, he could do worse than “The Forgotten Man” which pretty well sums up the errors of both the Hoover and Roosevelt Administrations, and they both had plenty.

    AD - RtR/OS! (2172ef)

  20. The reason why the war ended the Depression was not the spending but the fact that 12 million men were inducted into the military at low wages. The lefties never seem to notice that there was no minimum wage.

    Mike K (2cf494)

  21. “Between 1931 and 1932, the deficit grew from $462 million to $2.7 billion. Assuming that FDR can only be held responsible for the debt between 1934 and 1941 (giving him a pass on his inauguration year, 1933, and the years following our entry into World War II), the Federal debt grew by $23.6 billion. This is the on-budget debt; the introduction of Social Security, which ran surpluses, lowers the number somewhat though never quite puts us in the black. By the middle of World War II, our annual deficit had climbed up to the $55 billion range.”

    So it appears that we he did was very minor compared to the war — and so was the stimulus effect, by the way. And we recovered from that quite well. Debt as a percent of the GDP went down from there.

    “If the LiC needs to read a book about the Great Depression, he could do worse than “The Forgotten Man” which pretty well sums up the errors of both the Hoover and Roosevelt Administrations, and they both had plenty.”

    Maybe read what economists have to say about that book too. Like the problems with gauging economic recovery by baselining the overvalued 1929 Dow.

    imdw (9811a2)

  22. This is vintage imdw.

    JD (274275)

  23. Maybe read what economists have to say about that book too. Like the problems with gauging economic recovery by baselining the overvalued 1929 Dow.

    imdw, do you mean those UCLA economists who say Roosevelt prolonged the Depression ? Is that who you meant ?

    Sheesh !

    Mike K (2cf494)

  24. What imdw does not know about History and Economics would fill the Encyclopedia Brittanica!

    AD - RtR/OS! (2172ef)

  25. Celery soup or moderation for imdw?

    daleyrocks (718861)


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