Regular readers of this forum already know the New Deal did not rescue the American economy from the Great Depression.
If you’re looking for a brief, well-articulated restatement of this theme ? along with a comparison between the economic conditions of 1933 and those of 2009 ? try Robert Murphy‘s Politically Incorrect Guide to the Great Depression and the New Deal.
In fewer than 180 pages, the economist Murphy debunks myths about Hoover, FDR, the Fed, and the role of World War II in reigniting the sluggish American economy. Among Murphy’s observations:
Left to itw own devices, the economy would have gradually recovered from the distortions of the late 1920s boom, as unsustainable lines were shut down and resources transferred to the solvent firms; moreover worker productivity would naturally increase thanks to advances in technology and managerial efficiency. Roosevelt should have let wages find their natural market level. If he had, then unemployment rates would have fallen rapidly in the first few years of his administration. Over time, rising prices, worker productivity and increasing profits would have led to the creation of more jobs and market-related increases in wages.
Unfortunately, FDR did not follow this strategy. Like Hoover before him, FDR thought that the Depression was ultimately due to underconsumption.
Murphy explains that Roosevelt’s errors led to government programs such as the National Industrial Recovery Act and National Labor Relations Act.
Overall, the NIRA and NLRA reduced economic efficiency, because labor and other resources were directed only in part by market price signals, but also in significant part by the vagaries of the political process. The New Deal turned American industries into de factor cartels ? becoming, in essence, domestic versions of OPEC ? and wile that might have had short-term benefits for unionized workers and bosses of big firms in the cartelized industries, it came at the cost of the country as a whole because it resulted in artificially high prices, artificially high unemployment, and politically allocated ? rather than market allocated ? capital and labor. So not only did the New Deal keep workers on the sidelines, but it also ensured that many of those who did have a job worked in the wrong sectors. By preventing wage cuts and impeding the market’s attempts to reshuffle resources after the bust, FDR’s polices worked to freeze the economy in its 1933 condition.