Joseph Salerno writes in today’s Mises Daily:
In fact, economists are finally beginning to rediscover Mises’s explanation of the prolonged mass unemployment of the 1930s. For example, UCLA economist Lee Ohanian in his recent paper, “What—or Who—Started the Great Depression,” argues that Hoover’s policies of propping up wages and encouraging work sharing “was the single most important event in precipitating the Great Depression” and resulted in “a significant labor market distortion.” He estimates that “the recession was three times worse — at a minimum — than it otherwise would have been, because of Hoover” and that the severe labor-market disequilibrium induced by Hoover’s policies accounted for 18 percent of the 27 percent decline in the nation’s GDP by the fourth quarter of 1931. Ohanian concludes along Misesian lines:
the [Great] Depression is the consequence of government programs and policies, including those of Hoover, that increased labor’s ability to raise wages above their competitive levels. The Depression would have been much less severe in the absence of Hoover’s program. Similarly, given Hoover’s program, the Depression would have been much less severe if monetary policy had responded to keep the price level from falling, which raised real wages. This analysis also provides a theory for why low nominal spending — what some economists refer to as deficient aggregate demand — generated such a large depression in the 1930s, but not in the early 1920s, which was a period of comparable deflation and monetary contraction, but when firms cut nominal wages considerably.