Everyone knows that the depression resulted from Herbert Hoover's do nothing approach. Ohanian concludes that:
... the 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.
He contends that the "defining characteristic of the Great Depression is a substantial and chronic excess supply of labor, with employment well below normal, and real wages in key industrial sectors well above normal."
Economic theory would suggest that in a condition of excess labor supply, real wages would fall below normal rather than rising above normal. He concludes that the higher than expected wages resulted from "President Hoover’s program that offered industrial firms protection from unions in return for paying high wages."
Mankiw suggests that this should make everyone think of the macroeconomic effects of card check now before Congress. It was certainly my reaction as I read Ohanian's conclusion. In our present economic situation, increased unionization through card check seems to be the last thing this country needs.
