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newdealBrad Delong notes that George Will made an aside that "public confidence in markets was at a nadir" in 1938. But that was 3 years into a Democratic regime, so clearly there's something wrong. Delong remarks:
A normal person would not argue that the New Deal prolonged the Great Depression. A normal person would require a case that he or she could point to of a country that (a) relied on market forces alone to generate recovery, and (b) recovered fully from its Great Depression. But George Will is not a normal person.
Well, clearly there have never been any industrialized anarchist states (let alone ones that suffered Great Depressions), so I guess that "proves" the New Deal was a net benefit to Delong. But there have been lots of bad ideas that existed for millennia that everyone did or believed in and we now know don't work (trial by ordeal, bloodletting). Milton Friedman argued that the depth of the Great Depression was mainly from perverse monetary policy that ended in 1933, so the kick back in growth in that view has nothing to do with fiscal policy, or the creation of the SEC or such issues. A 2004 paper at the SSRN by Chari, Kehoe and McGratten argues that increased labor rigidity from the New Deal was primarily responsible for prolonging the Great Depression. Cole and Ohanian wrote a similar piece for the Minneapolis Fed in 1999.

Further, the 1937 recession was most probably due to a tax over-reach by anti-business Democrats. Unemployment rose from 5 million to almost 12 million in early 1938. Manufacturing output fell off by 40% from the 1937 peak; it was back to 1934 levels. What caused the plunge in output was the tax on retained earnings, which seemed like a good idea to economically incompetent Roosevelt because he assumed he was just taxing money, and unused money at that. Plus, taxes on capital are progressive (good), and since supply and demand curves are (perfectly?) inelastic (eg, minimum wage), it's just good old Robin Hood economics. See here for a 1937 rationale, and note it mentions Henry Ford by name.

Unfortunately, retained earnings are key sources of investment funds for companies, and taxing them was like putting rocks in your transmission (new Fed chief Ben Bernanke did a lot of work here). Not that this should have surprised anyone, as Roosevelt was busy trying to change the top marginal tax rate to 100% (he only got it to 90%).

The Great Depression was a calamity and Hoover did his best to raise taxes and decrease money supply to fix it (doh!). Roosevelt benefited from the US leaving the Gold Standard (monetary policy), but his New Deal was a mess, and people knew it. As noted at the Mackinac Center for Public Policy:
But when a nationally representative poll by the American Institute of Public Opinion in the spring of 1939 asked, "Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?" the American people responded "yes" by a margin of more than two-to-one. The business community felt even more strongly so
Delong's assumes that a normal person would not argue the New Deal was counterproductive, the idea being inconceivable to his theory of how the world works. Well, theory is a lens and a blinder, and his theory has some blind spots.
Steve Sailer (guest) meinte am 5. Jan, 10:12:
Thanks, that explains a lot about the 1938 crash that I didn't know. Roosevelt won a huge victory at the polls in 1936 and promptly overreached, most famously with packing the Supreme Court, but your posting explains his more disastrous economic policies.

When it came to economics, FDR didn't know what he was doing, but a lot of Americans appreciated that he was at least trying stuff, unlike Hoover who had frozen up, and so something eventually might work. 
Donald A. Coffin (guest) antwortete am 5. Jan, 18:29:
The usual explanation of the 1937/1938 recession is that the Federal Reserve became concerned about a resurgence of inflation. It attacked this by raising the required reserve ratio, which soaked up excess reserves at a time at which banks wanted to have excess reserves. (I think you'll find this consistent with Freidman and Schwartz A Monetary History of the Univted States, among other references). 
HedgeFundGuy antwortete am 5. Jan, 20:00:
The reserve requirement was clearly a factor too, but the tax on "undistributed profits" is what made it the most pronounced recession in our history in my opinion. That the policy was rescinded so quickly reminds me of the Carter credit controls in 1980 that caused a sharp, quick dive in GDP, quickly reversed and forgotten. 
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