President Biden is clearly in a Franklin D. Roosevelt frame of mind. Summing up his policy vision in an address to a joint session of Congress last week, he referenced FDR’s Depression-era motto “We do our part.”
Yet many of us who study Roosevelt’s New Deal cringed at Biden’s reference. This phrase accompanied the Blue Eagle, an emblem created to increase compliance with the National Industrial Recovery Act of 1933. Economists rarely agree on much, but we are nearly unanimous in acknowledging that NIRA was a harmful policy. By using this phrase to justify his own agenda, President Biden should hope he is not repeating FDR’s policy mistakes.
Biden’s team would do well to study the history of the NIRA. The law dramatically increased government control of the economy, giving D.C. bureaucrats the power to approve prices, control worker wages and hours, and limit business operations. It also disallowed many forms of competition across the economy, with the goal of protecting workers and stimulating recovery.
It didn’t work. Prior to the NIRA, Roosevelt had done much right. As a result, industrial production rose an astounding 57% between March and July 1933. But the recovery was brutally derailed when the NIRA arrived on the scene. Starting Aug. 1, 1933, firms had to abide by the law’s restrictive rules. As though a switch had been flipped, the Depression roared back with a vengeance. Between August and November 1933, manufacturing output fell 49%.
It turned out that “we do our part” did far more harm than good. Businesses that did their part were allowed to display the Blue Eagle in their store windows and on their packaging. (The accompanying “NRA” abbreviation indicated approval by the National Recovery Administration, created to oversee the law’s implementation.) But President Roosevelt asked Americans to boycott businesses without the emblem. Then, as now, the government of the United States pitted workers and businesses against each other, hurting both in the end.
The government did its part, too — and it was painful. When federal agents caught Washington, D.C.’s Liberty Baking charging five cents a loaf — a penny below the NIRA’s required minimum price — proprietor Pete Theodore was ordered to return his Blue Eagle to the local postmaster. Once the companies lost the label, they struggled to attract customers and retain workers, damaging the local economy instead of strengthening it.
In addition to being boycotted, guilty firms also potentially faced fines and imprisonment. In April 1934, Jacob Maged was sentenced to 30 days in jail for pressing a suit for 35 cents, five cents below the NIRA minimum. After three days in prison, the judge told Maged to “fall in line like a good little soldier.” Photographers captured the humbled Maged putting the Blue Eagle up in his shop window, ready to now do his part by charging 40 cents per suit.
The irony is that proprietors who violated the NIRA did more for the economy than those who abided by it. They produced more output, charged lower prices, and worked more hours than allowed — all of which are key ingredients to the economic growth that communities need. Hence why economists resoundingly state that the NIRA held back economic recovery. It should come as no surprise that the economy grew again after the Supreme Court ruled the NIRA unconstitutional in May 1935.
It is doubtful that President Biden knows this history. Yet it bears directly on his party’s vision for federal policy. Policymakers who now tout massive programs that will expand the federal government’s size and power likely view Roosevelt’s tenure as the model of good governance. But the centerpiece of his rule — the NIRA — is among the most coercive, and damaging, economic policies in U.S. history. It may sound nice when President Biden hearkens back to “we do our part,” but Americans should want no part in repeating the mistakes that worsened the Great Depression.