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Jan Bouwens (ABS Professor of Accounting) wrote a letter to the Financial Times on 13 July in response to a statement made by British Prime Minister Boris Johnson. In this statement, Johnson promised the UK a New Deal like the one American President Roosevelt offered in the 1930s as a way of resolving the economic crisis at the time.

Bouwens wrote: “Hopefully Boris Johnson referred to Franklin D. Roosevelt’s New Deal policy only metaphorically as research by Harold Cole and Lee Ohanian demonstrates that providing cartel rights to US firms in exchange for higher wages for workers deepened the crisis rather than leading to economic recovery. Economic recovery was curbed as the New Deal allowed these cartels to put through rampant price increases where lower prices would have provided economic relief. The policy stifled labour competition, where more competition was a recipe for recovery.”

Responses to the letter

This letter generated a number of responses. Martin Wolf confirms Bouwens' analysis and writes that improvements were only seen after WWII. “It was the Keynesian impact of the war (reduced labour force plus increased demand) that caused the recovery. European competition really was not very relevant. The US really was a very closed economy before World War II. Unfortunately, pre-WWII, FDR was not a convinced Keynesian, unlike (alas) Hitler”, wrote Wolf.

Two other letters argued against Bouwens' assertion saying he had cast doubt on FDR's achievements by only focusing on one element of his policy. Another letter writer felt that New Deal type measures were needed due to the COVID-19 situation. Bouwens, however, would not support such measures if they were to involve a New Deal with cartel agreements.