UCLA Economist: Hoover's Pro-Labor Stance Helped Cause Great Depression

Media-Newswire.com reports that the "pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation’s gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression, a UCLA economist concludes in a new study. 'These findings suggest that the recession was three times worse — at a minimum — than it would otherwise have been, because of Hoover,' said Lee E. Ohanian, a UCLA professor of economics. … After the crash, Hoover met with major leaders of industry and cut a deal with them to either maintain or raise wages and institute job-sharing to keep workers employed, at least to some degree, Ohanian found. In response, General Motors, Ford, U.S. Steel, Dupont, International Harvester and many other large firms fell in line, even publicly underscoring their compliance with Hoover’s program. Designed to placate labor and safeguard workers’ buying power, the step had an unintended effect: As deflation eventually did set in, the inflation-adjusted value of these wages rose over time, effectively giving workers a raise precisely at the time when companies were least in a position to afford such increases and precisely when productivity was beginning to fall. 'The wage freeze effectively raised the cost of labor and, by extension, production,' Ohanian said. 'If you artificially raise the price of production, your costs go way up and you pass them on to the customers, and they buy that much less.'" Tweet