During the Great Depression, President Roosevelt through his New Deal undertook a number of economic policies purportedly to stimulate the economy (some suggested reading on the period here, here and here).
One of the most far-reaching initiatives was that of the 1933 National Industrial Recovery Act (NIRA), which in theory was supposed to raise wages and increase employment by creating minimum wage rules and shortening the amount of hours that people could legally work.
The policy was implemented just as it appeared the economy had finally bottomed out. As Chase Bank economist Benjamin Anderson wrote of the business climate at the time the legislation was being created in his 1949 book “Economics and the Public Welfare:”
“With the reopening of the banks in the middle of March, 1933, there came an extraordinary rally in American business…Banks which had reopened were believed to be sound…The panic was over, and something like normal orderly buying on the part of retailers began, which meant a vast increase in the volume of buying.
Expansion of plant and equipment was hardly in order at the moment, because there was so much unused plant and equipment, but ordinary maintenance of plant and equipment meant a great increase in buying as compared with that which had prevailed. A powerful upward movement began. The Federal Reserve Index of Production was just under 60 in March of 1933 and ran up to 100 by July of 1933.”
But with the implementation of the NIRA in June of that year, all of that changed. When word came down of the legislation:
“Businessmen suddenly realized that with the application of the NRA codes [those provisions created under the National Recovery Agency regime created by the NIRA], and with the application of the processing taxes which the Agricultural Adjustment Act provided, there would come a great increase in the costs of production.
They speeded up production to get as much done as possible before these increased costs began to operate.”
What happened next would prove uncanny in light of the results of practically every piece of major economic recovery legislation to become law during the Bush and Obama presidential administrations. Anderson writes [emphasis ours]:
“One of the most appalling things about NRA was the sudden multiplication of new rules with which businesses must comply, rules not resting on settled law but on arbitrary decisions of administrative bodies, subject to change almost without notice.The business community was suddenly called upon to rush to Washington to participate in the making of codes, codes which represented bargains among different elements of the industries, bargains with labor, and bargains with an extraordinarily incapable set of Government officials and employees, many of whom were extremely radical, and few of whom knew anything about business.
Title: Economics and the Public Welfare
Author: Benjamin M. Anderson
The business community was suddenly cfalled upon to prepare replies to a great mass of questionnaires, which often called for information that could not readily be obtained from the books of the businesses as ordinarily kept, and which involved immense labor on the part of the accounting offices and gravely burdened the attention of the chiefs of business, as categories had to be interpreted and the laws and the rules had to be interpreted.
All this was complicated for the financial community by the new laws and regulations connected with the Banking Act of 1933 and the new security legislation. The definition of “affiliates” under the Banking Act of 1933 was such as to impose upon financial institutions, and especially upon the banks and the security affiliates of the banks, responsibility for reporting on the financial affairs of a great many institutions that they did not in fact control and to whose detailed figures they had no legal access. One fine veteran, a very upright man, faced this problem, labored with it for several days and finally threw up his hands in despair. He died that night. Many men turned suddenly old under the heavy pressure.
Lawyers Replace Engineers and Salesmen. It is not easy to keep a powerful business move going when the head of the business must give more time to his lawyers than he can give to his engineers or to his salesmen. Under NRA, especially in the early stages, the main time and the main energies of the business leaders went into conferences with their lawyers.
NRA Hardest on Small Businesses. Hard as NRA was on the great businesses of the country, it was harder still on the small businesses and on businesses in smaller places. Businesses with limited working capital simply could not stand the sudden increase in costs. Fortunately the enforcement of NRA was lax where small businesses and small places were involved.
But over the country there was a great mortality in small businesses, and this was particularly true in regions where capital was scarce and labor relatively abundant. An effort was made under NRA to meet unequal conditions in different parts of the country by allowing differentials as between regions, but these differentials did not begin to meet the problem.
In another painful parallel, many have noted that the black community has been hit hardest during America’s stagnation since the 2007-2008 financial crisis, with the chair of the Congressional Black Caucus Rep. Emanuel Cleaver famously stating back in 2011 that the black community “would probably be marching on the White House,” had a President such as Bill Clinton been in office and not focused on disproportionately high black unemployment.
Here’s what happened to the black population under the NIRA, according to the Director of Research of the NRA, which implemented the law, Charles Frederic Roos:
“Roos estimates that, by reason of the minimum wage provisions of the codes, about 500,000 Negro workers were on relief in 1934
Roos adds that a minimum wage definitely causes the displacement of the young, inexperienced worker and the old worker.”
And what was the cumulative result of all of these policies?
NRA and the processing taxes [associated with the Agricultural Adjustment Act] came in July and August, and the production curve turned sharply downward, the Federal Reserve index dropping from 100 in July to 72 in November of 1933.”
…The autumn of 1933 was a pretty blue period for the business community, for the speculative markets, and for the economic planners in Washington who saw their plans go wrong.”
The NIRA was declared unconstitutional in 1935, though many of its provisions were re-implemented under the National Labor Relations Act passed later that year. That act led to the creation of the National Labor Relations Board (NLRB), and prompted the dramatic growth of unions throughout the country.
The Great Depression continued on.