From the UCLA Newsroom:

Two UCLA economists say they have 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 policies 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- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

This isn’t news to anyone who has studied Austrian economics or anyone who has read Amity Shlaes excellent history of the Depression, The Forgotten Man.

The worst thing Congress could do right now is enact some hasitly contructed “stimulus” plan. From what I’ve seen so far of the proposal, all the elements will just extend the downturn. Harry Reid’s spokesman had this to say:

In the Senate, Majority Leader Harry Reid of Nevada has announced a post-election session beginning Nov. 17 to consider public lands legislation. His spokesman, Jim Manley, issued a written statement that said “recent developments only reinforce the need for additional action to reinvigorate the economy.” He added, “no decisions have yet been made on how to proceed.”

But when you look at the details of what the various Democrats are proposing, none of them will “stimulate” anything. The proposals include:

1. Extending unemployment benefits

2. Increasing money for food stamps.

3. Another tax rebate.

4. Obama has proposed sending $25 billion to the states to help cover deficits.

5. Obama has also proposed spending $25 billion on roads and bridges.

6. Obama’s proposal also has a tax rebate but it is paid for by imposing a “windfall” profits tax on oil companies.

Now, how will any of those things “stimulate” the economy? Not one of these proposals, with the possible exception of spending on roads and bridges, will do anything to create a job. Even the infrastructure spending really just takes capital from the efficient private sector and gives it to the inefficient public sector. These proposals all sound good, but they do not address the underlying problems facing our economy. To believe this is the path to economic redemption, you must believe that money spent by the government will be spent more wisely than if it is left in private hands. Does anyone really believe that anymore?

Economic growth is not something that can be created by politicians through spending. The only effect they can have on long term economic growth is by constructing a business climate that encourages entrepeneurs to invest and people to work. Nothing they have proposed yet does either of those things.

The Depression became great because of the competition killing policies of FDR and his attempts to keep wages and prices high. He fought deflation tooth and nail when he should have embraced it. If businesses cannot sell goods, isn’t it logical to assume that lowering the price would increase sales? If businesses are unprofitable because wages are too high doesn’t it make sense to let wages fall? Isn’t a job at lower pay better than no job?

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