When I turn on the news I see the same thing. People hoping that the government will find a way out of the mess we are in. The economy looking more and more like it may enter a recession and the stock markets around the world crashing. So what's taking them so long?
Well, we should take a quick look at history to give us some insight to what government officials are thinking.
In reviewing the Great Depression and FDR's policies, many economist around the world have believed that the policy's enacted by President Roosevelt may have caused the Great Depression to go on for longer than it should.
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian, from UCLA, 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.
FDR believed that there was too much competition and that competition was responsible for the Depression by reducing prices and wages.
So President Roosevelt came up with a recovery package, one that would be unimaginable today, allowing 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.
More than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under National Industrial Recovery Act (NIRA) by 1934.
Cole and Ohanian figure that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
The policies caused companies to stop bidding against each other, infact it had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Eliminating competition between companies, wholesale prices stayed inflated.
NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures.
Once the Department of Justice dramatically stepped up enforcement of antitrust cases nearly four-fold, organized labor suffered a string of setbacks, and more "fixed" wages started to move back to "market" wages.
In looking back the events of the Great Depression, we can see that this is like removing a band aid. Take the pain at once, or try to slowly remove the band aid -which ends up hurting more in the end. - 15224
Well, we should take a quick look at history to give us some insight to what government officials are thinking.
In reviewing the Great Depression and FDR's policies, many economist around the world have believed that the policy's enacted by President Roosevelt may have caused the Great Depression to go on for longer than it should.
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian, from UCLA, 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.
FDR believed that there was too much competition and that competition was responsible for the Depression by reducing prices and wages.
So President Roosevelt came up with a recovery package, one that would be unimaginable today, allowing 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.
More than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under National Industrial Recovery Act (NIRA) by 1934.
Cole and Ohanian figure that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
The policies caused companies to stop bidding against each other, infact it had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Eliminating competition between companies, wholesale prices stayed inflated.
NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures.
Once the Department of Justice dramatically stepped up enforcement of antitrust cases nearly four-fold, organized labor suffered a string of setbacks, and more "fixed" wages started to move back to "market" wages.
In looking back the events of the Great Depression, we can see that this is like removing a band aid. Take the pain at once, or try to slowly remove the band aid -which ends up hurting more in the end. - 15224
About the Author:
John Rothe is President and Chief Investment Office of the Rothe Financial Group in McLean VA. We build and manage customized portfolios for clients who are looking for an absoulte return strategy in a bear market cycle. Those focused on retirement planning should read our research report at www.absoluteFOLIOS.com
