Great Duration

RobertHiggs name for the Great Depression, positing that recovery didn't begin until after the end of World War II.

• how how FDR's policies extended the depression (the "GreatDuration", not just the Roosevelt Recession). During the Second New Deal (1935-38), the President, cheered on by a coterie of enthusiastically anti-capitalist advisers, frequently lashed out at businessmen and investors, demonizing them as "economic royalists" and blaming them for sabotaging the economy's recovery. "Roosevelt's opinions at this moment," wrote John T. Flynn, "were generally that big business was immoral, that the poor were not getting a fair break and that the depression was the result of the sins of business and that business must be punished for these sins." Pushing such collectivist measures as the Social Security Act and the National Labor Relations Act, the administration embraced what Flynn characterized as "that easy, comfortable potpourri of socialism and capitalism called the Planned Economy which provided its devotees with a wide area in which they might rattle around without being called Red." Although this strategy proved successful politically--FDR was reelected by a landslide in 1936--it had a disastrous effect on the recovery: by creating heightened fears about the security of private Property Rights, it caused investors to refrain from making enough long-term investments to propel the economy back to full prosperity. For the 11-year period from 1930 through 1940, net private investment totaled minus $3.1 billion, and only in 1941 did annual net investment finally exceed the 1929 amount. No economy can prosper when it goes more than ten years without adding to its capital stock, and the failure of private investment to recover accounts in great part for the Great Duration.

• on the "Great Escape": With regard to the Great Escape, economists have also reached substantial agreement, but unfortunately they have come to agree on an interpretation that is almost completely wrong. It is wrong factually because it places the Great Escape in the early 1940s, around the time the United States became a declared belligerent in World War II, whereas the economy did not return to what we may properly describe as prosperity until after the war. Economists have misconstrued the specious "wartime prosperity" as the real thing, but diverting nearly 40 percent of the total labor force into military-related employment and producing mountains of guns and ammunition do not create genuine, sustainable prosperity, as people would discover if they tried to operate an economy on this basis for more than a brief period. The true Great Escape did not occur until 1946... While consumers were financing their postwar spending binge simply by reducing their saving rate, which had risen to extraordinary heights during the war, businesses financed their postwar investment surge by selling government securities acquired during the war; by retaining more of their current earnings, in part because business taxes were reduced substantially after 1945; and by entering the capital markets, where stocks and bonds could be sold on very attractive terms. Even greater business expansion was prevented mainly by lack of materials, rather than by lack of desire to invest or lack of financial resources--to the great astonishment of the elite Keynesian economists, who had forecast that a severe postwar depression would occur when the government reduced its purchases of war-related goods and services.

Dec'2013: 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... The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from Anti-Trust 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... 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.