Thursday, February 12, 2009

The Long Tail of FDR Economic Policies

The more independent savvier thinkers in mainstream media are starting to get how bad FDR depression era policies were.

Jia Lynn Yang at Fortune has an article out analyzing some of FDR's programs. Yang correctly points out that

A central culprit [prolonging the depression] was the National Recovery Administration (NRA), from 1933. The goal of the NRA was to lift wages for workers. But to do this, it encouraged industry leaders to meet and establish minimum prices and wages, effectively creating cartels. The result was wholesale prices rising 23 percent in two years.
This is a great understanding of a problem with FDR policies. However, sometimes it is hard to understand just how much long tail havoc FDR policies have caused and will continue to deliver. Yang, for example, writes:

Because the New Deal was so sprawling, there are also programs that historians and economists agree were deeply effective, like establishing the Federal Deposit Insurance Corporation, or FDIC, which stopped the run on banks
Say,what? FDIC may have stopped the bank runs of the Great Depression. But the moral hazard environment the FDIC created resulted in a market where depositors didn't care , and still don't care, what bankers do with their money, since they knew the FDIC is there to back them up. It can be argued this situation played a major role in today's banking crisis as the FDIC guarantee eliminated the depositor check on banker activities.

The dirty little secret about FDR policies is not that they prolonged the Great Depression, they did, but that many of the policies from Social Security to FDIC are continuing to have a negative impact on the economy even now, more than 50 years later.

The long tail of FDR economic policies is likely to continue to sting us very hard even further into the future. Remarkably, as the welts of the FDR long tail sting continue to swell, others continue to try to embrace the body of the FDR policy beast, itself.

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