Did FDR End the Great Depression? | 5 Minute Video

Did FDR help end the Great Depression? Did his New Deal improve an otherwise hopeless economy? Lee Ohanian, Professor of Economics at UCLA and consultant to the Federal Reserve Bank of Minneapolis, explains.

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Script:

Did President Franklin Roosevelt’s New Deal economic policies pull the country out of the Great Depression? My research clearly suggests that the answer, contrary to popular belief, is no. In fact, the New Deal made matters worse.

Let me explain.

The centerpiece of Roosevelt’s New Deal plan to fix the economy was the National Industrial Recovery Act, or NIRA, which the President announced with great fanfare in June of 1933.

FDR believed that he could use the government to artificially raise both prices and wages. It would work like this: higher prices would raise profits—that makes business happy; and higher wages would raise income—that makes workers happy.

More profits for business means more money to hire new workers. Higher wages for workers means more money to buy consumer goods. A virtuous cycle is set into motion and the economy improves rapidly.

But here’s what FDR missed: Artificially raising wages also raises labor costs. And when labor costs go up, business hires fewer workers or no workers at all, especially in a difficult economic environment. Meanwhile, artificially raising prices reduces demand for the obvious reason that people buy less of something when its price goes higher.

So, why did FDR do this?

FDR based his New Deal policy largely on what happened during World War I, which had ended only 15 years earlier, in 1918. During that war, the government established planning boards to set wages and prices, and economic activity increased. If it worked during wartime, FDR reasoned, it should work during peacetime. But Roosevelt confused the economic activity that was actually the result of inflated war demands as being due to government planning.

The government, Roosevelt concluded, could much better manage the economy in a time of crisis than private enterprise, which, in his worldview, only considered its own selfish interests. Therefore, government guidance—not free enterprise—was Americans’ steadfast ally.

Contrary to what you might think, big business, including autos and steel, were happy to go along with FDR’s plan—at least, at first. If the government was going to ensure their profits, who were they to complain? So, instead of prohibiting monopolies—something the government is actually supposed to do—the NIRA created monopolies on the condition that these favored industries immediately raised wages significantly and bargained collectively with labor.

[tommybuttz]

My grandfather had a small business during the 30s and 40s he always referred to the "new deal" as the "RAW DEAL".

[ZhenrenZHOU]

Yep, even in my political science classes multiple places in the books said the unemployment rate remained around 25% until World War II dragged America into it.. And it was World War II that ended the great depression.

[chickenofthecave]

Anyone who understands the new deal knows that it extended the depression. The only way we got out was WWII.

[deadalivemaniac]

I think I understand why the 2008 recession was so bad now...

[c.w.winger]

I am very impressed at the attention to graphic details. Correct time period flags, correct roundels on the aircraft, this is something most graphic designers fail at!

[edwardcollier]

FDR did end the Great Depression, not with the New Deal, but with American involvement in the Second World War. However, I do believe government involvement in the economy is necessary to soften the blow of economic disaster. But that is my opinion, as long as you respect it, I will respect yours.


Nothing is black and white, but grey.

[guitarwhelp]

Very true. As I student I remember learning how FDR was this great savior of the economy and it was validated in my standardized testing. Then when I became a teacher and had to do research for my lesson planning, I saw that the numbers throughout the depression years just didn't add up or show signs of a recovery.

[babadook]

"The only problem with government is government" RR

[carloshasanopinion]

Government intervention almost always makes things worse, and not better. Why won't people learn?

[francescop]

So do you mean to say that SOCIALISM DOESN'T WORK?

[verios]

Wow a Professor from UCLA, glad to see there are some intelligent professors left in Cali.

[jakekramer]

In my history class my teacher asked us to rank presidential platforms such as the new deal, great society, rugged individualism, Etc I was the only one in the class to say that the new deal was the worst, some people just can’t think on there own.

[factsverse]

Rule of thumb for the government: Don't mess around with the economy. Ever.

[Chidoski]

Government intervention seldom resolves issues, all they do is overspend and propose more regulations.

[hugh-johnfleming]

It's what the Japanese call 'shorteyes.' When you need to let things just happen don't meddle to make it seem better now.

[industrialfansettolow]

I'm just going to say this before the video starts. The New Deal was crap, and the biggest thing that got us out of the depression was WW2. It's a sad truth that War = Money. So war technically isn't all bad.

Edit: Yup I was right

[terrifiedtyphlosion]

Wot, this guy teaches at my university? I gotta meet him!

[AA-tjwt]

To think AOC idolizes FDR but fails to acknowledge that his policies actually prolonged the great depression.

[sabre]

Congratulations on over 1 million subs

[fizzled]

FDR's central planning schemes all comes from the macro economist John Maynard Keyes. You should probably do a video on him to tie this all together.