The macroeconomic impact of the New Deal

Authored by: Lee E. Ohanian

Routledge Handbook of Major Events in Economic History

Print publication date:  January  2013
Online publication date:  February  2013

Print ISBN: 9780415677035
eBook ISBN: 9780203067871
Adobe ISBN: 9781135080808


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The New Deal was a collection of policies adopted in response to the Great Depression that were designed to alleviate economic hardship and promote economic recovery. This chapter analyzes the contribution of New Deal recovery policies to macroeconomic activity. The focus is on the centerpiece of President Roosevelt's New Deal, which were the policies that were aimed at fostering industrial recovery and expanding private sector employment. This includes the National Industrial Recovery Act (NIRA) and the National Labor Relations Act (NLRA), which are among the most significant government interventions in the private economy. The chapter evaluates the impact of these policies on aggregate output, labor, consumption and investment. The evidence indicates that these policies significantly retarded economic recovery by suppressing competition in some product and labor markets which in turn raised relative prices and real wages, thereby depressing employment and output. This suggests that New Deal industrial and labor policies not only failed to promote recovery, but instead delayed recovery by several years.

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