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Let me try to put some FDR things into a perspective...


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#1 brndirt1

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Posted 20 July 2011 - 08:52 PM

As to a logical rationale why the Great Depression was extended in the second half of the thirties.

Four years into Franklin Roosevelt's first presidential term, the worst of the Great Depression seemed behind him. Massive jolts of New Deal spending had stopped the economic slide, and the unemployment rate was cut from 22 percent to less than 10 percent.


"People felt that there was momentum," U.S. Senate historian Donald Ritchie tells Guy Raz, host of weekends on All Things Considered. "Finally, there was the light at the end of the tunnel."

So Roosevelt, on the advice of his very fiscally conservative Treasury Secretary Henry Morgenthau, decided to tackle the country's exploding deficits. Over two years, FDR slashed government spending 17 percent. (bold mine)

"All of a sudden," Ritchie says, "after unemployment had been going steadily down, unemployment shot up, the economy stagnated, the stock market crashed again. And now it seemed we'd come out of the Hoover Depression to go into the Roosevelt recession."​ (underline emphasis mine)

Goto:

When A Turn Toward Austerity Turned To Disaster / ideastream - Northeast Ohio Public Radio, Television and Multiple Media

While FDR had balanced the "regular" budget with his cuts and reforms, the new relief initiatives were funded by entirely by deficit spending. Unemployment almost halved during FDR’s first term in office, but in some areas was still at over 14%.

It remained high until war conscription began, despite an average yearly job growth of over 5% during his administration. Income taxes were not increased prior to the war, but additional taxes to cover Social Security were implemented.
(bold mine)

FDR’s second term featured legislation that ended child labor, created a minimum wage and created the Housing Authority. He also pushed more stimulus legislation to counteract the beginnings of another downturn in the economy.

He had several major clashes with the Supreme Court, who ruled that several pieces of New Deal legislation was unconstitutional, due to them overstepping presidential authority.
(his major mis-step politically was trying that "packing" bill [my opinion] )

Goto:

President Franklin Delano Roosevelt

From 1933 to 1937, the United States had been inching its way out of the Depression, but due to a sharp decrease in government money being injected into the economy, the country faced a sharp recession in 1937. Although Roosevelt again presented legislation to Congress that increased government spending, his magical hold over legislators had ended, and his proposed legislation was by and large rejected.

By 1938, the New Deal had lost much of its momentum, and the results showed in the 1938 Congressional elections. Republicans, though still not in the majority, made great cuts in the New Deal Congress's power. By now, however, the President's attention was diverted by foreign affairs, and the Depression continued until the war began.

Goto:

SparkNotes: Franklin D. Roosevelt: The Second Term



Edited by brndirt1, 20 July 2011 - 10:57 PM.

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#2 DogFather

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Posted 20 July 2011 - 11:23 PM

While FDR's New Deal programs did help put people back to work and did help the large numbers of unemployed. FDR also
raised taxes, which hurt the economy. Taxes for Social Security were some of the additional tax burden that slowed economic growth. I don't have the source in front of me, but the tax burden went up 3 fold during FDR's admin. This
counteracted the deficit spending, of the New Deal and is why the US did not get out of the Great Depression until
WW2 started. Social Security and its tax burden, had nothing to do with the economy or unemployment. In short FDR
failed to end the Great Depression, it was WW2 that finally did that.


This is from Wiki:
Tax increases In 1935, Roosevelt called for a tax program called the Wealth Tax Act to redistribute wealth, in which he proposed to increase inheritance tax, a gift tax, a severely graduated income tax, and a corporate income tax scaled according to income. However, Congress watered it down, by dropping the inheritance tax and only mildly increased the corporate tax. (bold mine)

A tax called the Undistributed profits tax was enacted in 1936. The idea was to force businesses to distribute profits in dividend and wages, instead of saving or reinvesting them. Business profits were taxed on a sliding scale; if a company kept 1% of their net income, 10% of that amount would be taxed under the UP Tax. If a company kept 70% of their net income, the company would be taxed at a rate of 73.91% on that amount. Facing widespread and fierce criticism, the tax was reduced to 2½% in 1938 and completely eliminated in 1939
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#3 OpanaPointer

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Posted 20 July 2011 - 11:30 PM

Dogfather, you preach the Republican party line from the 1940s. It's biased, unbalanced and one-sided.
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"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#4 Victor Gomez

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Posted 21 July 2011 - 02:20 AM

In short....the economics of our lives today is digitally electronically fast. Using the Great Depression can teach us many things but almost nothing about our current economic condition. The biggest difference is a real lack of control for global industrial and financial strategies that can undermine the best efforts of any single economy. Our changes happen instantaneously compared to the 1920's and 1930's. Merrily we roll along thinking there are important "things" we should do from a political angle that is the "correct" free enterprise thing to turn loose forces to try to reverse our recession. Note how we change our values.....in the 1930's we learned to fear the monopoly and made laws to prevent companies from domination of a market. Today to stay in the race we allow monopolizing down to two or three major competitors to try to make them "Globally Competitive" whatever that may be. We pass a NAFTA law that exported our jobs even if it meant we had to compete with the slave labor of the societies of the world that have slave labor that produces for them. Now we wonder why our midwest manufacturing area has so few jobs in their vicinity. They themselves did the voting that brought us NAFTA. We must ask ourselves......are we going to be led to more votes like that one for our future laws? It was really good for the Global level of the corporate structure but not so good for our people who lost jobs. Now with our workers competing against the world Global workforce it is bound to lower our standards a great deal but who can complain because we voted for that! Our nation moves more every day to the "moneyed" interests and the "moneyed" lobbyists that get their way with our government. I do believe in the power of the free enterprise system to accomplish great things but it happens with innovation within rules and leadership of men with moral values. What we frequently turn loose is immorality in the driver's seat of our corporate system, when it only has values for more money. Watch out that the Great Depression is not just used to lay another layer of mis-information about what needs to be done because most of those lessons only applied to that era and the nearby era. We need to start understanding things Globally and more important is that we do so with moral values as well. Otherwise, we are moving towards Plutocracy and that is not Free Enterprise with a moral backbone. We always are quick to point out that we did not get out of the Great Depression with the government jobs that were used to stimulate and that is logically true....it was the war that changed things. However don't let it be lost in your logic that a great deal of suffering amongst our people was reduced and gave hope and a mode of survival for some very hungry people that were suffering a great deal in those days. That was a moral choice I admire FDR for making on behalf of our people who were truly suffering. Otherwise, would our government survive that level of suffering? I don't know what a family moving down the road with no job in site is going to be like to deal with today as compared to the migrant moving in the dust bowl days. It is highly likely the mover today is going to be armed and desperate beyond reason.
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#5 Takao

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Posted 21 July 2011 - 03:12 AM

A tax called the Undistributed profits tax was enacted in 1936. The idea was to force businesses to distribute profits in dividend and wages, instead of saving or reinvesting them. Business profits were taxed on a sliding scale; if a company kept 1% of their net income, 10% of that amount would be taxed under the UP Tax. If a company kept 70% of their net income, the company would be taxed at a rate of 73.91% on that amount. Facing widespread and fierce criticism, the tax was reduced to 2½% in 1938 and completely eliminated in 1939


That leaves out quite a bit. The idea behind the Undistributed Profits Tax was to close a tax loophole of gigantic proportions. You see, profits that were put back into the company WERE NOT TAXED. This was done to encourage companies to reinvest some of their profits back into themselves, thus allowing said companies to expand at a much faster rate. However, this had been used as a tax loophole, with companies reinvesting much of their profits back into themselves and not having to pay dime one in taxes. Thus, the rich coporate owners could keep dumping their profits back into the company, thereby increasing their own personal wealth without ever having to pay taxes. It has been estimated that in 1936, the Government lost out on $1.3 billion in taxes on $4.5 billion in undistributed corporate earnings.

An Undistributed Tax was nothing new, it was, IIRC first proposed by Woodrow Wilson's Secretary of the Treasury, David Houston, back in 1920, and It had been kicked around for sometime since then. FDR's Treasury Department had been working on this tax since about 1933.

FDR believed that this tax should be the ONLY tax on coporate income, had it passed as it was, FDR inteded to do away with the corporate income tax, the capital stocks income tax, and the excess-profits tax. The tax was also thought to effect the fewest amount of voters(the rich), but benefit a much larger number(the poor). Well, In a perfect world anyway.

While the bill breezed through the House Ways and Means Committee, it faced a much tougher battle in the more conservative Senate Finance Committee. Of the first 100 witnesses to appear before the Senate Committe, only one spoke in favor of the Bill. The arguments against the Bill were many and varied. The most persuasive was that it had the most detrimental effect on the small & medium business owners(they made up the much of the corporations by a sizeable margin), since it essentially prevented them from reinvesting money to expand their businesses. Thus, while the Bill ws intended to target only the large corporations, it would have a disasterous effect on the more numerous smaller corporations.

In an effort to compromise a watered-down version of the bill was created that pleased no one. The Senate still wanted the tax done away with, the House members saw the proposed watered-down Bill as FDR's administration deserting them after they had passed the Bill the Treasury Depatment wanted, and even FDR's administration was divided on the issue. In the end, the compromise bill was passed, but was so ineefective that it was soon done away with.
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#6 texson66

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Posted 21 July 2011 - 12:01 PM

Dogfather, you preach the Republican party line from the 1940s. It's biased, unbalanced and one-sided.


Like the democratic line is not being unbalanced and unfair???
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#7 OpanaPointer

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Posted 21 July 2011 - 12:13 PM

Like the democratic line is not being unbalanced and unfair???


Sigh. I'm talking about Dogfather's slanted perspective on FDR in the 1930s and '40s. Not modern politics. Can we keep this thread out of the Stump? (If you want to start one there I'll be sure to drop by.)

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#8 DogFather

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Posted 21 July 2011 - 02:14 PM

Dogfather, you preach the Republican party line from the 1940s. It's biased, unbalanced and one-sided.


You may call it the "Republican party line" if you like. But to me it's just common sense. You don't raise taxes and take money out of the economy, during difficult economic times. A smaller amount of money in the economy, was a large part
of what was causing the Depression. People had lost a lot of money, in the stock market, in real estate and even in bank
accounts. The Wealth Tax Act and the severely graduated income tax, were designed to redistribute wealth. This
concept really had nothing to do with the high unemployment of the Great Depression. It was supposed to make things
fair, it did not work and hurt the economy just had it had begun to recover. That is way unemployment increased to 20%
in 1938 and stayed that high until orders from WW2 starting in Europe and the draft, reduced unemployment in 1940.

#9 Slipdigit

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Posted 21 July 2011 - 02:18 PM

This thread started off precariously close to subject for discussion in The Stump. It looks as though it is going to end up there.

To which I ask, was it created here to discuss the lead up to the involvement of the US in the war or to tie into current political events?

Edited by Slipdigit, 21 July 2011 - 02:23 PM.

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#10 OpanaPointer

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Posted 21 July 2011 - 02:27 PM

I'd much rather leave current events to their proper forum.

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#11 OpanaPointer

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Posted 21 July 2011 - 02:28 PM

You may call it the "Republican party line" if you like. But to me it's just common sense. You don't raise taxes and take money out of the economy, during difficult economic times. A smaller amount of money in the economy, was a large part
of what was causing the Depression. People had lost a lot of money, in the stock market, in real estate and even in bank
accounts. The Wealth Tax Act and the severely graduated income tax, were designed to redistribute wealth. This
concept really had nothing to do with the high unemployment of the Great Depression. It was supposed to make things
fair, it did not work and hurt the economy just had it had begun to recover. That is way unemployment increased to 20%
in 1938 and stayed that high until orders from WW2 starting in Europe and the draft, reduced unemployment in 1940.


You simply have to do the reading to get sorted out, Dogfather. Treaties, Declarations, Insturments of Surrender

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#12 texson66

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Posted 21 July 2011 - 02:30 PM

"severely graduated income tax"

yes and today we have this "progressive" tax situation (thanks to FDR and RINOs):

For 2008 Tax year (AGI= Annual Gross Income)

% Ranked by AGI AGI Thresholds on Percentiles Percentage of Federal Personal Income Tax Paid

Top 1% $380,354 38.02

Top 5 % $159,619 58.72

Top 10% $ 113,799 69.94

Top 25% $ 67,280 86.34

Top 50% $ 33,048 97.30

Bottom 50% Less than $ 33,048 2.7


So the evil rich in the top 25% pay 86% of the federal taxes! The top 1 % pay 38%. How is this fair?

The producers are squeezed to redistribute wealth to the the "less fortunate"(Moochers). Meanwhile the poor pay little or no tax and receive all kinds of Federal freebies....free electric wheelchairs, free cell phones, rent subsidies..the list goes on.

The producers of this nation are damn tired of hearing about how the rich must pay their "fair share" for the moochers. They already have paid their fair shareand a lot more too!

</rant off>

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#13 OpanaPointer

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Posted 21 July 2011 - 02:57 PM

Perhaps a split would be a good thing?

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#14 brndirt1

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Posted 21 July 2011 - 03:22 PM

The Revenue Act of 1935, Title I, section 106, individuals with a net income falling between $50,000 and $56,000 had to pay $7,700, and a 31 percent tax on net income between $50,000 and $56,000. Net income refers to income after federal taxes have been taken, so a surtax is an additional tax charged against net income remaining after standard income is taken into account.

The Revenue Act of 1935 became known as the Wealth Tax Act because it contained a provision to tax high-earning Americans, and closed loopholes that were allowing high-earners to legally avoid paying tax. (specifically) The Act imposed surcharges against individuals that the government considered to be high-earners. The surtax was progressive, meaning that the more an individual received in income, the greater the amount of surtax that was charged against each higher band of income. The highest rate of surtax imposed was the 75 percent rate charged against incomes of more than $5 million. This specific bracket had only a single taxpayer: John D. Rockefeller, Jr.

The so called "Rockefeller Bracket", created by the Revenue Act of 1935, applied to income over $5 million, and he was the only one in it. Now that is a very specific tax bracket isn’t it?

This Revenue Act also closed some loop-holes on charitable contributions for corporations, in that a corporation can not deduct an amount of more than 5 percent of its net income, even if its contributions amount to more than that.

If individuals or families create corporations with the intention of avoiding inheritance tax, all benefits conferred on beneficiaries, or used to provide income for beneficiaries, are taxed at a rate of 80 percent, according to Title II, section 202 of the act.


Goto:


The Wealth Tax Act | eHow.com
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#15 texson66

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Posted 21 July 2011 - 05:24 PM

from John Stossel on FDR and the Depression..

Did you know that FDR's New Deal solved the Great Depression?

Actually, it didn't. It's uncertainty, big spending, and regulation that prolonged the Depression. FDR's Treasury Secretary, Henry Morgenthau, admitted: "We have tried spending money. We are spending more than we have ever spent before and it does not work."


Did you know that Herbert Hoover made the Depression worse because as president...he did nothing? The Washington Post believes that. In 2008, the paper claimed GW Bush was "today's Herbert Hoover" because of his "dogged resistance to assisting anybody."

Actually, Hoover increased spending by 53.5% during his presidency. He signed bad big-government bills like the Davis-Bacon Act and the Smoot-Hawley Tariff. He started huge public works projects like the Hoover Dam. Hoover was a big spender -- like Obama.


Read more: Tonight's FBN show: Politically Incorrect History - Stossel's Take Blog - FoxBusiness.com


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#16 OpanaPointer

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Posted 21 July 2011 - 05:32 PM

If we can't keep current events out of this thread you can kiss it good bye, off to the morass of the Stump.

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#17 mcoffee

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Posted 21 July 2011 - 06:42 PM

Four years into Franklin Roosevelt's first presidential term, the worst of the Great Depression seemed behind him. Massive jolts of New Deal spending had stopped the economic slide, and the unemployment rate was cut from 22 percent to less than 10 percent.


FDR's 4th year in office was 1936 and according to the Bureua of Labor Statistics, unemployement was 17.0%. It rebounded to 19.0% in 1938 and did not go below 10% until 1941 (9.9%).
Compensation from before World War I through the Great Depression
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#18 brndirt1

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Posted 21 July 2011 - 10:09 PM

from John Stossel on FDR and the Depression..

Did you know that FDR's New Deal solved the Great Depression?

Actually, it didn't. It's uncertainty, big spending, and regulation that prolonged the Depression. FDR's Treasury Secretary, Henry Morgenthau, admitted: "We have tried spending money. We are spending more than we have ever spent before and it does not work."


Did you know that Herbert Hoover made the Depression worse because as president...he did nothing? The Washington Post believes that. In 2008, the paper claimed GW Bush was "today's Herbert Hoover" because of his "dogged resistance to assisting anybody."

Actually, Hoover increased spending by 53.5% during his presidency. He signed bad big-government bills like the Davis-Bacon Act and the Smoot-Hawley Tariff. He started huge public works projects like the Hoover Dam. Hoover was a big spender -- like Obama.


Read more: Tonight's FBN show: Politically Incorrect History - Stossel's Take Blog - FoxBusiness.com


As an engineer, with that background he started the investigation into the damn on the Colorado, but no funds were appropriated to actually start construction, only evaluation and surveying work were funded.

Don’t hold the Smoot-Hawley Tariff up as a positive here, it might be one of the more driving forces of the Great Depression as it played out.

Following World War I, however, U.S. business was particularly fearful that America would be flooded with the products of cheap European labor. Parts of Europe had been destroyed, nations had huge debts, and unemployment was rampant, thus, it's easy to see how costs could be lower than in the United States.


The cry for protectionism was far and wide, but President Woodrow Wilson vetoed strict tariff legislation in March 1921, weeks before he relinquished the presidency to Warren G. Harding, saying in part:


"If ever there was a time when Americans had anything to fear from foreign competition, that time has passed. If we wish to have Europe settle her debts, governmental or commercial, we must be prepared to buy from her."

And how did the stock market respond initially to passage of the S-M tariff act?


Sat., June 14?Dow Jones 244
Mon., June 16?Dow 230
Tues., June 17?Dow 228
Wed., June 18?Dow 218
Thurs., June 19?Dow 228? yes, no change.

[By June 24, the market did fall to 211, but by July 18 the Dow was back to 240, so the immediate impact was negligible. Of course we were still on our way to a Dow Jones of a mere 41 by July 1932.]

The business reality of Smoot-Hawley was far worse. 1,028 economists had earlier petitioned President Hoover to veto the bill, but with enactment, tariffs hit all-time levels on some 70 agricultural products and 900 manufactured items. The economists had warned that S-H would raise prices to consumers, damage export trade, hurt farmers, promote inefficiency and promote foreign reprisals. As to the issue of increased prices, you saw in a piece I did two weeks ago that consumer prices actually collapsed in the years 1930-32, a point that we will come back to.

As for foreign reprisals, nations were outraged. Historian Richard Hofstadter called the tariff act, "a virtual declaration of economic war on the rest of the world." Within two years, 25 countries had retaliated and U.S. foreign trade took a huge hit. America had exported $5.24 billion in goods in 1929 and by 1932, the total was just $1.6 billion.

In both "Wall Street History" and my "Week in Review" column, from time to time I use the phrase that "bad government can cause depressions." I'm referring to Smoot-Hawley, primarily, but while this particular act was undoubtedly a major contributor to the economic upheavals of the 1930s, to place all blame solely on its passage wouldn't be accurate. Nonetheless, it did play a major role in the Depression and should act as a lesson to those who argue for indiscriminate tariffs of any kind, without examining that which history teaches us.

Sources:

"The New York Times Century of Business," Floyd Norris and Christine Bockelmann
"America," George Brown Tindall and David E. Shi
"A History of the American People," Paul Johnson
"Freedom From Fear," David M. Kennedy
"American Heritage: The Presidents," ed. Michael Beschloss
"The Presidents," ed. Henry F. Graff
"The American Century," ed. Harold Evans
"The Growth of the American Republic," Commager, Morison, Leuchtenburg
"The Great Game," John Steele Gordon
"Irrational Exuberance," Robert Shiller

Brian Trumbore

Goto:

Educate Yourself - Smoot-Hawley

President Herbert Hoover resisted calls for government intervention on behalf of individuals. He reiterated his belief that if left alone the economy would right itself and argued that direct government assistance to individuals would weaken the moral fiber of the American people. Hoover further believed that during hard times the government should adopt austerity measures, that is, cut spending even further.

Forced by Congress to intervene, Hoover did so reluctantly, concerned about both unbalancing the federal budget, and, even more importantly, violating his laissez-faire principles. Hoover's efforts consisted of spending to stabilize the business community, believing that returning prosperity would eventually "trickle down" to the poor majority.

The poor majority proved unwilling to wait. Branded by his many detractors as cold and uncaring, Hoover was easily defeated in the presidential election of 1932 by Democrat Franklin D. Roosevelt.


Goto:


http://iws.collin.edu/kwilkison/Online1302home/20th%20Century/DepressionNewDeal.html

(don't ask me why so much of my second addition ended up blue tinted. I have tried to alter it, but am failing at the task.

Edited by brndirt1, 21 July 2011 - 11:00 PM.

Happy Trails,
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#19 Takao

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Posted 21 July 2011 - 10:40 PM

FDR's 4th year in office was 1936 and according to the Bureua of Labor Statistics, unemployement was 17.0%. It rebounded to 19.0% in 1938 and did not go below 10% until 1941 (9.9%).

Those are the yearly averages. If you check the monthly rates, You will find that NPR is essentially correct in their research. Early 1937 unemployment rates were in and around the 10% ballpark.

#20 syscom3

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Posted 22 July 2011 - 05:24 AM

The nadir of the depression happened under Hoover when the banking system essentially came to a halt. It was FDR who got it working again and began the rehabilitation of a completely discredited yet vital sector of the economy.

As history has proven, it was FDR's actions that saved this country. Hoover waited way to long, often with an indifferent attitude. FDR was spot on when he said action, whether it worked or not was far more important than inaction. The course of actions he took in his first term brought the country away from socialism or communism.

It is pitiful to look at the events of the 30's through the lenses of today, 80 years later. The world was different then and the economic realities and forces are impossible for us to understand.

As for his policies extending the depression? Not likely. When nearly everyone in the country had their savings wiped out and were impoverished, economic growth was going to be painfully slow one way or another.

I find it amusing that only a few economists say the new deal extended the depression. Yeah right. What if the new deal didn't happen? Civil War. Hungry bellies and people with no hope see their salvation at the point of a gun. And those economists simply fail to understand or appreciate the human dimension.

FDR was the greatest president of the 20th century. Try to argue otherwise.

#21 texson66

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Posted 25 July 2011 - 12:05 PM

FDR's policies prolonged Depression by 7 years, UCLA economists calculate By Meg Sullivan August 10, 2004
Category: Research

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."


In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.


"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he 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."


Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.


In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."


The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 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 NIRA.
Cole and Ohanian calculate 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.
Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.


"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"
NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.


"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."


Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.


The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion 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. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.


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, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.


Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.


"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
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#22 texson66

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Posted 25 July 2011 - 12:07 PM

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#23 Victor Gomez

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Posted 25 July 2011 - 01:25 PM

Too bad these UCLA researchers weren't available to FDR in the 1920's so they could assume some things for FDR to provide the background for concluding their study at a relevant time. They would have had to assume that prices were too high and that FDR's moves of avoiding the regulation of Monopolies is the reason prices were high. I doubt that people suffering the economy could have agreed with these two premises in that day, or hardly anyone else in that time. These are the two assumptions necessary in the study cited. Hind sight is usually 20/20 but with these assumptions necessary for producing the data I am still a skeptic.

#24 OpanaPointer

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Posted 25 July 2011 - 04:15 PM

"If you placed all the economists in the world end-to-end they'd still point in all directions."
  • brndirt1 and belasar like this

"One of our King Tigers could take five of your Shermans, but you always had six of them."


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#25 brndirt1

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Posted 25 July 2011 - 04:27 PM

"If you placed all the economists in the world end-to-end they'd still point in all directions."


That is too true OP, thanks for the morning giggle. Here is something I found, and which I think is pretty well balanced in its conclusions. It finds fault with both Hoover and FDR.

Herbert Hoover has been accused of being a do-nothing president who allowed the country to continue to slide into its worst depression ever. Some will grudgingly admit that Hoover did take some action, but that it was too little, too late. But the truth is far more complex. Hoover did intervene after the Stock Market crash, but the acts passed by Congress and signed by Hoover were the worst kind of intervention: they actually exacerbated the problem. The most famous of these interventions was the Smoot-Hawley Tariff Act. Raising tariffs was one of the worst things that could be done. Remember, both free market advocates and Keynesians agree that lowering prices would cure a depression, it's just that the Keynesians believe government intervention is necessary. A tariff does exactly the wrong thing by raising prices. Thus Smoot-Hawley was guaranteed to worsen any depression, not improve it. Other acts passed during Hoover's administration had similar effects of either raising prices or keeping them artificially high when they should have been dropping. Thus, it's not that Hoover was a do-nothing president, it's that he intervened in exactly the wrong way.

FDR

Ironically, FDR, the president who implemented so many government programs himself, was elected on a platform of a balanced budget and economic non-intervention. So what did he do upon getting into office? He promptly expanded on Hoover's programs. Some of these programs, the ones that increased spending, would get approval from Keynesians. Others, however, like the minimum wage and the Davis-Bacon Act, suffered from the same problems that Hoover's programs did: they reduced price flexibility, often setting a minimum and thus continued to exacerbate the Great Depression.

FDR's policies seemed to work at first. The economy began to expand again in 1933 and continued to do so until May of 1937
(when some government spending was reined in). At that point, a second depression began and lasted until June of 1938.

Goto:

America's Great Depression: An Overview

Edited by brndirt1, 25 July 2011 - 04:30 PM.
spacing

Happy Trails,
Clint.




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