UCLA Economists: Government Intervention Prolonged Great Depression

Sometimes government tries to fix the problem; then it makes the problem worse.

In 2004, economists at the University of California, Los Angeles (UCLA), studied the policies of President Franklin Roosevelt's New Deal and determined it actually prolonged the Depression by seven years.

Harold L. Cole and Lee E. Ohanian blamed anti-free market measures for the slow recovery in an article published in the August 2004 issue of the Journal of Political Economy.

Cole and Ohanian asserted that Roosevelt thought excessive business competition led to low prices and wages, adding to the severity of the Depression.

"[Roosevelt] 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 percent 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," Cole said in a press release dated Aug. 10, 2004.

The professors paid particular attention to the National Industrial Recovery Act (NIRA) and the effect it had on competition. Passed in June 1933, the NIRA required companies to write industry-wide fair competition codes that fixed prices and wages, established production quotas, and imposed restrictions on companies if they wanted to enter into alliances, according to OurDocuments.gov.

The Supreme Court declared the NIRA unconstitutional two years after it was passed, but Cole and Ohanian said that the act caused enough damage during those two years leading to even more regulation.