Herbert Hoover Started the Great Depression Because His Industrial Program Kept Nominal Wages Fixed

Herbert Hoover. I develop a theory of labor market failure for the Depression based on Hoover’s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation/low nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

—Lee E. Ohanian, “What — Or Who — Started the Great Depression?” abstract, Journal of Economic Theory 144, no. 6 (November 2009): 2310.