FDR Made the Depression Great Again

How the blue eagle, symbol of a 1933 law, had its wings clipped

By Jason Taylor. He is an economics professor at Central Michigan University and author of “Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act.” Excerpts:

"The tragedy is that during Roosevelt’s first months in office the U.S. economy made tremendous strides. Between March and July 1933, employment, production and spending all increased sharply. The nation seemed to be on a highway to recovery, largely thanks to Roosevelt’s policies.

But what good policy giveth, bad policy taketh away. In June 1933 Roosevelt signed the National Industrial Recovery Act (NIRA), which required firms to meet with competitors and construct a “code of fair competition.” Over two years, 557 codes were implemented in industries ranging from steel to fishing tackle.

These codes permitted collusive actions that would otherwise violate antitrust law. Businesses that were found violating the codes—say, charging a price below the code-specified one—could face hefty fines and imprisonment. For their membership in government-enforced cartels, firms were forced to raise hourly wages."

"Companies that violated the act’s labor or cartel rules were barred from publicly displaying the Blue Eagle. FDR urged Americans to boycott them."

"Companies responded to forced wage increases by scaling back employment. And colluding firms did what cartels generally do—they restricted output and raised prices."

"While manufacturing output rose an unprecedented 78% between March and July 1933, it fell sharply after the Blue Eagle’s arrival. By November two-thirds of the recovery gains were lost. Output didn’t pick up until a year later, when business owners, irritated by the Blue Eagle, quit “doing their part” and openly violated the codes, overwhelming the enforcement offices.

By the time the Supreme Court ruled the NIRA unconstitutional in May 1935, even Roosevelt had acknowledged privately that this “whole thing is a mess.” After the Blue Eagle’s demise, the nation’s recovery resumed and manufacturing output rose 50% over the next 18 months."