Ninety years ago
In late July 1933, President Roosevelt enacted one of the most destructive economic policies in all of American history. The President’s Re-employment Agreement mandated an immediate 20% rise in hourly nominal wages. The stock market crashed. This action aborted a promising economic recovery that had raised industrial production by 57% between March and July 1933. By May of 1935, industrial production was actually lower than on day the wage policy was enacted.
Almost exactly 90 years ago, on May 27 1935, the Supreme Court saved FDR from his folly. The entire NIRA was ruled unconstitutional, including the wage fixing provisions. Industrial production almost immediately began rising rapidly, and FDR won a historic landslide victory in the November 1936 election.
In other news, this caught my eye:
The Trump administration’s threat to impose 50 percent tariffs on the European Union and steep tariffs of varying sizes on other critical American trading partners hung in limbo on Thursday after a panel of U.S. federal judges blocked a set of across-the-board charges.
But both trade experts and America’s trading partners around the world greeted the news with caution, not celebration.
Stocks rose internationally as investors hoped the decision, handed down by the U.S. Court of International Trade, might restrain the assault that Washington is waging on world markets.
Of course, the decision will be appealed.
It might seem unreasonable that an obscure lower level court could veto a massive change in American global trade policy. The court was set up to rule on minor trade issues. Aren’t we a democracy?
But it’s equally true that the president has no legal authority to enact a massive change in American global trade policy. His recent tariff actions have been based on laws allowing narrowly targeted adjustments in trade policy reflecting issues such as national security. The law does not allow the president to determine US fiscal policy (which is the prerogative of Congress), nor does it allow the president to change America from a free trading nation to a protectionist nation. It only looks like the court overstepped its role because it was pushing back against a presidency that had also overstepped its role.
If Congress had enacted massive tariffs, and then the court ruled they were illegal, then it would in fact be overstepping its role. The GOP-dominated Congress is perfectly free to enact any tariffs proposed by President Trump. The courts would have no justification for overturning such tariffs.
PS. This is from a very informative article by Ilya Somin:
It is worth noting that the panel include judges appointed by both Republican and Democratic presidents, including one (Judge Reif) appointed by Trump, one appointed by Reagan (Judge Restani), and one by Obama (Judge Katzmann).
In late July 1933, President Roosevelt enacted one of the most destructive economic policies in all of American history. The President's Re-employment Agreement mandated an immediate 20% rise in hourly nominal wages. The stock market crashed. This action aborted a promising economic recovery that had raised industria...
A major assertion by the Trump Administration is that tariffs are paid for by foreigners. And, indeed, under very specific circumstances, a tariff may be paid in part or in whole by a foreign producer: if the importing country is a monopsony (or has significant market power), if the exporting country has pr...
Economist Marina von Neumann Whitman died, at age 90, on May 20 this year. She was one of my 3 bosses when I was a summer intern at the Council of Economic Advisers in the summer of 1973. (I think of this as the “Watergate summer” because the hearings of the Watergate Committee were conducted that summer. E...
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