This article originally appeared in the Financial Post. Below is an excerpt from the article.
By Philip Cross, September 18, 2025
In his new book False Dawn: The New Deal and the Promise of Recovery, 1933-1947, University of Georgia professor and Cato Institute senior fellow George Selgin elaborates the case that Franklin Roosevelt’s New Deal did not end the Great Depression, contradicting a fundamental tenet of Keynesian orthodoxy. On the contrary, FDR’s anti-business policies and rhetoric contributed to the anemic business investment that is key to understanding the length and severity of the Great Depression.
New Deal programs prolonged the depression in several ways, Selgin argues. One was via the “high-wage doctrine,” which holds that legislating higher wage rates lifts consumer spending. FDR pursued this chimera by adopting a federal minimum wage, exempting firms from antitrust action if they raised wage rates, and making it easier for workers to unionize and go on strike.
The high-wage doctrine ignores the basic law of supply and demand, which dictates that raising wage rates will reduce labour demand. A 1935 Brookings report concluded the Roosevelt administration never anticipated “that a high price for labour might restrict the amount used.” Selgin explains how the high-wage doctrine confuses the wage rate for individuals with the total wage bill paid by firms. Raising wage rates forces companies to control total costs by cutting employment.
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Philip Cross is a senior fellow at the Macdonald-Laurier Institute.
