Tuesday, September 29, 2009

FDR's NRA tried to Transform Economy

There is a great deal of shock over the aggressive and even radical agenda of President Barack Obama. In spite of this, he is not the first to attempt such a radical transformation of government. Franklin Roosevelt tackled the depression that he inherited upon taking office in 1933 by making it into a Great Depression that has become the subject of songs, movies, and books. This happened by choosing an approach to problem solving that attempted to violate human behavior and by creating disruptions in the economy that lasted for years.

FDR created an "alphabet soup" list of proposals that included the NRA, AAA, WPA, FERA, and many others. All of them were ostensibly designed to benefit "the little guy" who was hardest hit by the depression. The reality is, his programs were particularly harsh on the "person on the streets" and those striving to pursue the American Dream. An example of this was his National Recovery Act (NRA) of 1933. In the early years of the Depression, America's demand for goods had reached an all time low, which led to prices plummeting. In order to stabilize prices, FDR fixed the prices of all goods made in the United States. These price controls were not artificially low, but too high. The effects of this legislation had were far reaching:

  • Already hampered by the Smoot-Hawley Tariff Act (which prevented foreign goods from coming into the US and led to worldwide retaliation), artificially high prices made it impossible for the US to compete with foreign countries. Not only did it make US goods unattractive to other countries, the US could not compete with cheaper goods from foreign lands that made it in.

  • One of the only advantages small businesses have against large companies is their ability to sell things at a lower price since they cannot afford to advertise at the same level of their larger competition. The government guaranteed a huge advantage for larger companies because they had the larger advertising budgets when the NRA became law. Some desperate CEOs who refused to participate in this program actually went to jail for resisting the government's mandate.

  • NRA was a bureaucratic nightmare, Journalist Raymond Clapper noted that between 4,000 and 5,000 business activities were deemed illegal by NRA orders that carried the force of law, which were found in approximately 3,000 administrative orders with over 10,000,000 pages, and supplemented by what Clapper said were "innumerable opinions and directions from national, regional and code boards interpreting and enforcing provisions of the act." There were also "the rules of the code authorities, themselves, each having the force of law and affecting the lives and conduct of millions of persons." Clapper stated: "It requires no imagination to appreciate the difficulty the business man has in keeping informed of these codes, supplemental codes, code amendments, executive orders, administrative orders, office orders, interpretations, rules, regulations"... This proved very difficult to the new entrepreneur who was trying to participate in the economy and made it next to impossible for new players to pursue economic success.

Fortunately the US Supreme Court brought this bizarre legislation to an end in an unanimous decision in 1935. The Court didn't hesitate to stop the policy, not only because it was harmful to business, but more importantly it went well beyond the Constitutional limits of government. We can only hope that the courts of our day will take a similar view of the Constitution when they tackle Obama's bizarre experimentation in government because the legal challenges will come.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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