NIRA economics and the economics of the NIRA

This paper distinguishes between NIRA (National Industrial Recovery Act) economics and the economics of NIRA, with the former referring to the existing body of work on the NIRA which is based, in large measure, on market-clearing assumptions, and the latter referring to an alternative interpretation of both the objectives and policy instruments of the NIRA and the resulting analysis. NIRA economics sees the NIRA strictly in terms of higher wages, cartelization and what is a sector-specific and aggregate downward-sloping demand for labor curve, whereas the economics of the NIRA focuses on the structural issues Roosevelt's Brains Trust attempted to address. Specifically, it is shown that the NIRA was based, in large measure, on Brains Truster Rexford G. Tugwell's (Economics, Columbia University) writings on technological change in the 1920s and the failure of wages and income in general to follow suit, resulting in underconsumption and overall stagnation. It is argued that the NIRA should as such be understood and analyzed as an attempt on the part of the Roosevelt Administration to correct these lacuna. To this end, it sets out to examine the efficacy of blanket wage policies in the presence of firm heterogeneity (with regard to the adoption of the new technology). Industry-specific wage and price data are examined in detail, as are industry employment data. It comes to the startling conclusion that, even when examined in more empirically-consistent terms, the NIRA was self-defeating. Put differently, the chosen policies could not, given the presence of firm heterogeneity, have successfully addressed the problem of disequilibrium wages.