1933  The New Deal

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As 1933 began the United States reached perhaps the nadir of its history. About 25 percent were out of work, industrial production had halved, millions were homeless, and the banks in many states were closed. Even the Federal Reserve Bank of New York closed its doors in the days before Franklin D. Roosevelt was inaugurated as 32nd President of the United States on March 4.

In the famous First 100 Days that followed, Roosevelt rammed through Congress an Emergency Banking Relief Act to take the United States off the Gold Standard and reopen the banks, a Civilian Conservation Corps to give jobs to the unemployed, an Agricultural Adjustment Act to subsidize farmers, a Tennessee Valley Authority Act to build federal dams and electric generating plants, a Securities Act to establish the Securities and Exchange Commission, a Home Owners' Loan Corporation, the Glass-Steagall Act to separate deposit banking and investment banking, and a National Industrial Recovery Act (NIRA) that established a National Recovery Administration to promote economic recovery through price fixing, detailed business regulation, and labor regulation. The NIRA included $3.3 billion of spending stimulus through the Public Works Administration. Congress also repealed Prohibition, the eighteenth amendment to the Constitution.

The National Industrial Recovery Act

The National Industrial Recovery Act was an early New Deal program to end the Depression and restore the economy. It sought to end the downward spiral of wages and prices by fixing them and, the in the words of President Roosevelt, “put people back to work.” It attempted to achieve this by imposing its “codes” on American business and labor. These codes would establish various price codes and regulatory standards on business. On labor the codes included included minimum wage rules, child labor, and maximum hour rules. In other words it sought to bring the vagaries of the market economy under detailed administrative direction from government agencies and their political directors.
Intention: By keeping prices up and by following NRA codes the “purchasing power” of business and workers would be maintained instead of being drained away by destructive competition. Thend recovery could begin.Liberal Line: The NRA was a well-intentioned effort to right the economy and correct the failures of unregulated business. Although it was overturned by a conservative Supreme Court in 1935 the NRA had probably overstayed its usefulness by then.
Outcome: Administrative price and wage fixing conspire to prevent economic actors from doing what they need to do: respond to the millions of the economic signals of the consumers transmitted every day through the price system. It prevents businessmen from doing what they do best, which is to create products and services to meet the demand of the consumers, and it prevents workers from competing freely in the labor market. It is always best to respond to changes in the market sooner rather than later.Conservative Line: Wage and price controls, by whatever name, never work. Never have, never will. Administrative regulatory agencies always end being captured by the interest they are supposed to regulate.

1929-1939: “A Decade that will live — in stupidity.”

Why Stuck on Stupid?

Seventy years ago the leaders of both US political parties turned away from the policies that had created an economic powerhouse we call the Roaring Twenties. For ten long years Americans suffered through wrenching economic dislocations: deflation, inflation, a four-year economic contraction, endless unemployment, mindless political experiments, and ruthless attacks on businessmen for political gain as their leaders stayed Stuck on Stupid.

Today, after a twenty-five year economic boom, Americans are once more faced with a political elite that wants to monkey with success. It wants to raise tax rates. It wants to restrict trade. It wants to increase government power.

It’s time to look back and remind ourselves how it came to be, starting in 1929, that America got itself Stuck on Stupid. Otherwise it could happen again.

 — Christopher Chantrill



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presented by Christopher Chantrill