Economic historian Brad DeLong, a fierce warrior hailing from FDR's camp in the ongoing battle to redefine the meaning of the Great Depression and the New Deal, was the first to respond to my queries about UCLA economist Lee Ohanian's new paper blaming Herbert Hoover's "pro-labor stance" for causing the Great Depression.
Completely wrong. If wages had fallen faster and further, goods prices and real estate prices would have fallen further and faster, more banks would have gone into bankruptcy, the bank failures would have shrunk the money supply even more, the velocity of money would have fallen even further, and the Great Depression would have been even worse.
Milton Friedman's teacher Jacob Viner always argued that it was "unbalanced deflation" -- i.e., declines in asset prices and wages and incomes while debts remained the same -- that was the cause of the Great Depression. So did monetarist school founder Irving Fisher.
Ask yourself: if everybody's salary in America were to be cut now by 20 percent -- but everyone's mortgage payment and every corporation's debt interest payments remained the same, would we see a recovery or another chain of financial bankruptcies that would push the economy down further?
Boiled down, DeLong is saying that if U.S. employers had ignored Hoover's plea not to cut wages drastically (more below about that), they would have drastically increased the speed and ferocity of the post-stock-market crash economic contraction.
UPDATE: Eric Rauchway, a historian at U.C. Davis and author of "The Great Depression and the New Deal: A Very Short Introduction," chips in his own two cents. While acknowledging that he has not yet read the paper, Rauchway suspects it is "operating similarly to Ohanian's earlier work," which he has previously considered in the context of critiquing Amity Shlaes.
More concretely, here's the thing: if you want to say, "I'll take 'Causes of the Great Depression', Alex," you have to be prepared with an explanation for (a) why things got so bad under Hoover and (b) why they then got better under Roosevelt.
Monetarist models explain this: the gold standard was deflationary, and going off the gold standard helped countries out of the Great Depression. Hoover didn't go off the gold standard. FDR did. Things got better.
Keynesian models explain this: Hoover didn't do enough to stimulate demand. Roosevelt did more (though still not quite enough).
Ohanian's model doesn't explain this.
I'm a historian. Although labor history is not my specific field, I can confidently tell you that this is ideologically motivated garbage. Hoover's calls for volunteerism generally fall under the "too little, too late" category, and it's ridiculous to describe Hoover as pro-labor. As president he defended his decision to not take action on the grounds that the market solves problems better than government and that government assistance would limit liberty and discourage hard work. (Sound familiar?) That said, historians and economists are deeply divided over how much weight to assign the various factors that contributed to the Depression, including monetary policy, declining investment, declining consumer spending, and international issues such as tariffs and WWI reparations. But to say that Hoover's calls for volunteerism -- (urging corporate leaders to not cut wages or lay off workers, while also urging labor leaders to not go on strike or press for concessions, on the grounds that everyone should voluntarily come together as neighbors to help one another through the crisis) were the "single-most important event" is just bizarre.