The Output Effects of Government Sponsored Cartels During the New Deal

Abstract

This paper uses the National Industrial Recovery Act of 1933, which set up industry‐wide cartels in the manufacturing sector of the US economy, to gain empirical insight into the current debate on the output effects of cartels. Recent theoretical studies have demonstrated ways in which cartels could expand, rather than reduce output as is traditionally thought. The New Deal cartel experiment does not support this ‘efficient cartel’ view. On the contrary, the legislation brought about a reduction in manufacturing output, as traditional cartel theory would predict.

Work‐sharing During the Great Depression: Did the ‘President's Reemployment Agreement’ Promote Reemployment?

“…Many empirical studies, including Cole and Ohanian (2004), Taylor (2002), Vedder and Gallaway (1997), Bernanke (1986) and Weinstein (1980), have examined the effects of the NIRA on either the labour market specifically, or the macro economy more generally. These studies generally conclude that the legislation's labour and cartelization policies were important factors behind the weak recovery of the 1930s as the cartels reduced output and higher wage rates further exacerbated the unemployment problem.…”

Allocating lawmaking powers: Self-regulation vs government regulation

“…While we argue that regulatory choices were a result of the self-interested decisions of politicians, we show that the decentralized regulatory equilibrium with economy-wide industry self-regulation, although not first best, was in fact efficient given the specific historical setting. Thus, our analysis moderates the more pessimistic interpretations of the New Deal's associational regime (Taylor, 2002;Cole and Ohanian, 2004) and highlights the public interest elements of the policy, without arguing that those elements were ultimately responsible for the regime's implementation.…”

Cartel Attributes and Cartel Performance: The Impact of Trade Associations

“…The literature on the NIRA suggests that the cartels underwent a compliance crisis in the spring of 1934 in which it appears collusion was systematically lost in many industries (Brand [], Alexander [1997] and Taylor []). To examine this further Taylor [] created dummy variables that took on a value of 1 only from the time the code was enacted through March of 1934, since the compliance crisis is said to have taken hold by April of that year.…”