The New Deal Was a Failed Policy

Recently, the government has been pursuing the so-called “Korean New Deal” as a job-creation measure. The plan is to invest a total of 160 trillion won by 2025 to create a large number of jobs and achieve a major leap forward. In addition, former U.S. President Barack Obama once pursued economic stimulus measures modeled on the “New Deal.” In this way, the “New Deal” is often presented around the world as an alternative for solving economic problems.

The “New Deal” originated from the fiscal policy centered on large-scale social overhead capital (SOC) investment that Franklin Delano Roosevelt pursued shortly after being elected President of the United States in the 1930s. Even now, many people believe that the “New Deal” made a major contribution to overcoming the Great Depression at the time.

However, the “New Deal” in fact had little effect in bringing the economic downturn to an end. The Great Depression showed no sign of ending until 1939, and some analyses even concluded that the “New Deal” delayed its end. In the end, the Great Depression only came to an end after World War II began and U.S. wartime supplies increased.

The “New Deal” failed because of the government’s misguided attitude of suppressing competition. By restricting competition, it interfered with the natural workings of the market economy. In particular, the National Recovery Administration (NRA), established in 1933, further fueled the confusion caused by the “New Deal.” The NRA’s main goal was to improve workers’ lives by regulating wages. However, businesses raised product prices at the same time as they increased wages to meet the standards, and as a result wholesale prices soared by as much as 23% over two years.

In other words, the NRA ended up making workers’ living conditions more difficult. A series of such policies at the time blocked new firms from entering the market and delayed job creation, deepening the recession. Accordingly, many Americans at the time also recognized that there were serious problems with the policy, and in 1935 the NRA was ultimately struck down as unconstitutional and abolished.

Murray N. Rothbard likewise argued that government intervention such as the “New Deal,” far from improving a recession, only worsened it into a depression. In short, the Great Depression that the “New Deal” sought to resolve was in fact caused not by the failure of the market economy but by the failure of excessively aggressive government intervention.

This is a case from which we should draw lessons: the government’s good intentions can produce bad results. The greater the impatience for the government to solve economic problems quickly, and the greater the expansion of government intervention, the more people’s quality of life is bound to decline, contrary to what was intended. Therefore, rather than having the government step in directly to implement large-scale policies, it is desirable to pursue policies that do not run counter to economic trends and instead enhance the private sector’s autonomous capacity for recovery. Such an approach will be highly effective, unlike the failed “New Deal” of the past.

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Original title: 뉴딜은 실패한 정책이었다

Author: Seong-woo Jeong

Date: 2020-07-30

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=13&idx=22975