Economic historian Amity Shlaes had an extremely valuable article in the Wall Street Journal on Saturday reminding us that "the stock market crash of October 1929 and the Great Depression were not the same thing." As she notes, it was the Depression's long duration that made things so bad. And the evidence is overwhelming that FDR's New Deal prolonged the Depression.
Roosevelt's first effort at raising wages to revive the economy, the National Recovery Administration, was declared unconstitutional. Next came the Wagner Act, which led to massive unionization. Wages increased and unemployment even dipped a bit, but productivity did not rise in commensurate fashion. This contributed to companies' struggles, as Lee Ohanian of UCLA has shown. Industrial production plunged. In 1938, John L. Lewis of the CIO attained the apogee of his power, but unemployment was again at that appalling two in 10.
The signal Washington emitted in these years was clear: Not Open for Business. A poignant moment came in August, 1937, when [former Treasury Secretary Andrew] Mellon died in Southampton, N.Y. When this star of their old firmament winked out, investors felt themselves in uncharted waters. Other negatives—rising labor costs, regulatory tightening, a doubling of reserve requirements for banks—suddenly seemed insurmountable. The market dropped from 189 in August to 120 by the next February, well below the lowest ebb in 1929.