A newer deal? Recession to depression.

• Author: Gillespie, Nick
• Position: Citings

IN THE WAKE of last fall's financial-market turbulence, New York Times columnist Patti Krugman's wish was clear. Interviewed by PBS's Charlie Rose on October 23, the newly minted Nobel laureate in economics said he hoped Barack Obama would announce a "new New Deal" for Americans.

But before a new New Deal is passed, it's worth considering the effects of the old one. Franklin Roosevelt's programs ranged from farm subsidies to public works to fixing prices and outputs in a variety of industries. A new study by two UCLA economists, Harold L. Cole and Lee E. Ohanian, argues that far from speeding along recovery, such interventions actually prolonged the Great Depression by about seven years.

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Using data from the Bureau of Labor Statistics and other sources, Cole and Ohanian zero in on the effects of the 1933 National Industrial Recovery Act (NIRA), which exempted industrial sectors from antitrust prosecution if they agreed to collective bargaining agreements that raised workers' wages. Roosevelt believed that "excessive competition" was responsible for economic volatility and that by stabilizing labor costs he could...