Comment of the Week, 2003-08-27
By Arnold Kling
On the topic of the economic impact of the New Deal, Patrick Sullivan pointed to an interesting article by Cole and Ohanian. They make two points. One is that the recovery from the downturn of 1929-1933 was unusually weak. The second point is that the New Deal discouraged the normal forces of competition from operating.
In particular, the NIRA of 1933 allowed much of the U.S. economy to cartelize. For over 500 sectors, including manufacturing, antitrust law was suspended and incumbent business leaders, in conjunction with government and labor representatives in each sector, drew up codes of fair competition. Many of these codes provided for minimum prices, output quotas, and open price systems in which all firms had to report current prices to the code authority and any price cut had to be filed in advance with the authority, who then notified other producers. Firms that attempted to cut prices were pressured by other industry members and publicly berated by the head of the NIRA as “cut-throat chiselers.” In return for government-sanctioned collusion, firms gave incumbent workers large pay increases.
To continue the discussion, return to the original thread.