Policy Lessons from the Great Depression 62 comments
October 27, 2009
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I’ve been reading Amity Shlaes’ wonderful book, The Forgotten Man, A New History of the Great Depression (Harper Perennial, 2008) with an eye out for parallels and lessons for our current crisis. You will find some of those and much, much more.
Amity showed great restraint in writing her book. A scholar with her expertise could have driven the ideological lessons home and saved those of us on a practical mission some time. Instead, she patiently let the characters and the circumstances speak for themselves letting the nuance show through for us to savor.
While I wasn’t totally clueless about the depression, not having lived through it, you see, I must admit that my knowledge of many of the details was limited.
Here’s what I thought I knew going in:
- There was still debate over whether the October 1929 stock market crash caused it, just preceded it, or how big a role it played.
There was general agreement that:
- The Smoot-Hawley tariff was a terrible mistake that made it much worse, and may have made the difference between recession and depression.
- The Fed made it worse by allowing the money supply to shrink.
- Things got better in the mid-thirties, but then worsened again, probably because of policy mistakes.
- Hoover was totally ineffective and did next to nothing to help, while
- Roosevelt was an activist who experimented with cures and generated public hope and was generally successful.
- The depression really didn’t end until WWII.
- The most important change made to prevent future depressions was the FDIC’s deposit insurance.
- The semi-socialist measures of the Roosevelt administration saved capitalism from something far worse.
Here’s what I thought of a couple of the things mentioned above:
- I couldn’t really deny the Friedman and Swartz charge that the Fed erred by allowing the money supply to shrink.
- However, I thought insufficient attention had been paid by the economics community to the following factors:
- The shrinkage of the money supply was primarily a by-product of bank failures.
- The world was still on a gold-standard and policymakers were presumably supposed to follow the “rules” of the gold standard game.
- There was no consensus within the economics community on what to do to get out of a depression.
- This consensus would await the publication of Keynes’ General Theory in 1936 and its subsequent popularization and incorporation into economics textbooks.
Here are some of the things I learned by reading the book:
- Much of what Roosevelt did >scale by Hoover. Hoover was not sitting on his hands waiting for better times.
- Hoover came off better in the book than I expected. Roosevelt came off badly, as expected, based on his economic policies and actions. What I didn’t expect to learn was that Roosevelt was rather petty and vindictive.
- The Smoot-Hawley tariff, arguably Hoover’s biggest mistake (expected), came very early (1930) in the first year of his administration without a lot of thought given to it. Protectionism was apparently accepted Republican dogma at the time; so Hoover accepted it almost routinely. (He would try to improve it; not oppose it.)
- Hoover’s “economic philosophy” was really an engineer’s view of the world where planning was useful and where problems can be fixed. He was willing to tamper with the machinery up to a point, but he respected the constitution, including the constitution of the gold standard, as limitations on government action.
- Roosevelt, on the other hand, had no philosophy to speak of, he cared little about the constitution, and he broke the gold standard with his prolonged devaluation of the dollar. (I had known about the devaluation of the dollar, of course, but I had missed that it wasn’t an immediate thing. Instead, Roosevelt enjoyed setting the price of gold every morning from his bedroom. Different strokes for different folks.)
- Roosevelt’s lack of a “North Star” to guide his way made him particularly vulnerable to being pulled in different directions by his staff and “brain trust.” During his administration, policy shifted back and forth between stimulus measures (job creating) and a desire to get back to fiscal rectitude by balancing the budget with large tax increases.
- Large and untimely tax increases in the middle of the depression—probably not considered that way then—killed off an incipient recovery.
- This should be a huge lesson for us today. Among other potential tax increases implied by various programs under consideration today, we have the pending reversal of the Bush tax-rate cuts looming next year. Could we possibly repeat that mistake?
- As for other lessons, for now, I think Chairman Bernanke was very much influenced by this last factor and has resolved to avoid premature “fiscal rectitude.” He considers declaring victory prematurely a bigger danger than waiting too long.
- He has already avoided the mistake of allowing the money supply to shrink and have deflation psychology take hold. His critics on that, however, are getting louder and louder, calling for an “end game” sooner rather than later.
- One issue involving monetary policy is very much relevant for today: the excess reserves on banks’ (and the Fed’s) balance sheets. As in the 1930s, the banks have more reserves than the law or regulations require them to have—hence the term “excess” reserves. However, also as in the 1930s, banks have good reason to be cautious and remain even more liquid than the law requires. Attempts to “mop up” those excess reserves before they are used in ways that might contribute to inflation could have disastrous results. The fact that banks are holding them voluntarily is proof enough for me that they are “required” reserves in the minds of the bankers and that banks would try to restore them if they were removed by the Fed prematurely.
- One final note: I didn’t realize that our current mob-rule attitude toward successful people that has us cutting executive pay and hauling executives before congressional committees to be humiliated had a counterpart in the 1930s, but, apparently there is nothing new under the sun. Amity has an entire chapter on “Prosecutions” that amounted to political payback. It’s like our leaders are bent on taking the worst lessons from the past.
- I had wondered whether Keynes had had much influence on administration policies during the depression since The General Theory came too late. Even though he had earlier influential books, I gather not. My favorite part of Amity’s book was when she describes a meeting that Keynes had with President Roosevelt on May 28, 1934, lasting fifty-eight minutes, about the time of a class-room lecture. Both Keynes and Roosevelt indicated that the meeting did not go well.
- The President indicated that “Keynes had left him, disappointingly, with a ‘rigmarole of figures.’ He must be a mathematician rather than a political economist.”
- Don’t you just love “rigmarole of figures?”
P.S. I worry that I have done Amity Shlaes' The Forgotten Man a disservice by my inadequacy in describing it. Even if I haven’t conveyed its merits sufficiently, trust me, it’s great, and well worth your time.
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This article has 62 comments:
If the government wants to stimulate the economy and is willing to print or borrow hundreds of billions in dollars to do it, it should be investing in projects that can generate new streams of economic wealth.
Helping financial institutions with their liquidity so they can speculate and drive up the price of commodities and equities, does not create real economic growth. It creates asset price inflation.
www.dukascopy.com/iben...
One of the aggravating factors in the Great Depression was Hoover's program to support wage rates.
According to UCLA professor Lee Ohanian, "...pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation's gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression......By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product...His policy was the single most important event in precipitating the Great Depression."
As you point out, Hoover was a government activist, not a free marketeer.
This ongoing effort that I see in the media by the "Fox News" crowd to vilify the current administration and claim that private industry can regulate itself and take care of the economy alone is ludicrous.
Personally, I do believe in pure Capitalism and am all for letting industry regulate itself, so long as we also minimize all government contracts and eliminate all subsidies and tax breaks-instituting a flat tax on all organizations-including so called "non-profits" that claim to be for the public benefit but engage in aggressive fund-raising and pay their executives 6 and 7 figure salaries. This would also obviously imply that we never have another government bailout of anybody, and those companies that are still in bailout mode would be subject to harsh penalties-including the institution of an "E-3" pay rank ($1650/month-the same pay a private first class on active duty receives) for all of those who are de-facto government employees.
You wrote that a few lines below the part about policy mistakes... whoops. New Deal, New New Deal etc.
> "The semi-socialist measures of the Roosevelt administration saved capitalism from something far worse. "
The socialist ( not semi socialist) policies of Roosevelt turned a recession into a horrible depression that ended in world war. We are still also paying for the ponzi scheme known as Social(ism) security until it pops.
> "There was no consensus within the economics community on what to do to get out of a depression."
- Over 1,000 economists signed a petition to get the President to NOT sign the Smoot Hawley Act.
> Roosevelt came off badly, as expected, based on his economic policies and actions. What I didn’t expect to learn was that Roosevelt was rather petty and vindictive.
Roosevelt also overstayed George Washington's unwritten rule of 2 terms as President. Washington didn't want anyone to become "King", like the oppressive government he defeated.
Roosevelt forbid the media from video taping him from the waste down. He was a blood thirsty control freak politican hungry for power. In the words of Rahm Emmanuel, he didn't want to "waste a crisis".
> "Roosevelt, on the other hand, had no philosophy to speak of, he cared little about the constitution, and he broke the gold standard with his prolonged devaluation of the dollar."
FDR was the worst president this country ever had.
"He has already avoided the mistake of allowing the money supply to shrink and have deflation psychology take hold. His critics on that, however, are getting louder and louder, calling for an “end game” sooner rather than later."
The Hawks in the 30's, (1937) pressured the government back then... The depression had a recession within the depression.
I also saw no mention of maybe the dumbest policy in American history ( and that's saying something). The AAA act where our crippled lunatic president paid Farmers to kill livestock, and burn crops.
Think of it like cash for clunkers but with pigs and corn stalks. Murder your pigs, and burn your crop fields and the government gave you money... This was all during the time that people were standing in bread lines starving to death.
Can I suggest a book to read?
Atlas Shrugged
We tried that Sir. That's how we got into this mess.
On Oct 27 09:06 AM LilBob wrote:
> This is the kind of out-dated and irrelevant thinking that really
> has no place in modern discussion if we ever hope to fix our current
> economic mess. What brought us out of the recession was interest
> on US war bonds, GI Pay and wages paid to Rosie the Riveter. The
> restoration of the consumer base made possible by the scaling up
> for WWII was what brought the country out of the recession. Reducing
> taxes on the wealthy at this point would do nothing but exacerbate
> the creation of aggressive investment schemes that created our current
> mess.
>
> This ongoing effort that I see in the media by the "Fox News" crowd
> to vilify the current administration and claim that private industry
> can regulate itself and take care of the economy alone is ludicrous.
>
>
> Personally, I do believe in pure Capitalism and am all for letting
> industry regulate itself, so long as we also minimize all government
> contracts and eliminate all subsidies and tax breaks-instituting
> a flat tax on all organizations-including so called "non-profits"
> that claim to be for the public benefit but engage in aggressive
> fund-raising and pay their executives 6 and 7 figure salaries. This
> would also obviously imply that we never have another government
> bailout of anybody, and those companies that are still in bailout
> mode would be subject to harsh penalties-including the institution
> of an "E-3" pay rank ($1650/month-the same pay a private first class
> on active duty receives) for all of those who are de-facto government
> employees.
This, from the article caught my eye:
"One final note: I didn’t realize that our current mob-rule attitude toward successful people that has us cutting executive pay and hauling executives before congressional committees to be humiliated had a counterpart in the 1930s, but, apparently there is nothing new under the sun. Amity has an entire chapter on “Prosecutions” that amounted to political payback. It’s like our leaders are bent on taking the worst lessons from the past."
So far, I've seen no signs of mobs aside from the small gatherings of jet-set protesters that are omnipresent at every trade and G-X gathering. You can perhaps forgive a politician who caters to the mob. What we face today are politicians attempting to whip up mobs and populist anger. It's called spreading the wealth around. If you want to review the worst sort of this activity, try some of the histories of the Stalinist period in the '30's as they conducted show trials and executed "wreckers" when the five-year plans never worked.
It is true there's nothing new under the sun. All is vanity.
> "Personally, I do believe in pure Capitalism and am all for letting
> industry regulate itself".
>
> We tried that Sir. That's how we got into this mess.
You mean pure capitalism like
Sarbanes Oxley?
How about the government telling people who to lend to?
How about the government setting the Price and Quantity of money
How about the "greenspan put"
Is that pure capitalism?
This may be a convenient story for the SA Austrians, but is simply wrong. It was the actions of Hoover and Mellon that turned a recession in to a depression. That was already "achieved" by the time FDR took office. In the 3 years after 33, real GDP increased by 11%, 9% and 13%. He made mistakes by reversing his policies in 37, but his initial efforts reversed the effects of Hoover's disaster.
John Galt probably agrees with Mellon's advice to Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system." But it was this attitude that turned a recession in to a depression, not FDR.
On Oct 27 09:44 AM John Galt wrote:
> On Oct 27 09:16 AM TradingHelpDesk wrote:
Agreed, the government favoring some citizens at the expense of others doesn't seem part of the American ideal.
> It's the government's job to-broadly-regulate the money supply, and no contractor could or should ever be trusted with such a venture.
I'd challenge you to look back at the history of money.
Mises, " What has the government done to our money" is a good start but there are other fantastic books.
The government never "invented" money. Money spontaneously came about in many forms around the world to be used as a medium of exchange. It could have been shells, clams, cows, pigs, tobacco, gold, silver, bronze but precious metals grew to be the favorite around the world.
Money was traded based on weight ( hence pound sterling). In the marketplace merchants used to have scales to weight/trade metals and tampering with scales was a penalty that could have warranted death. At some point people had black smiths coin money and verify it's weight. Jack the blacksmith guarantees this silver coin weighs 5 pounds... coined money came about. Money THRIVED for years WITHOUT government all around the world in different forms...
Greedy government did get involved though under the false guise of "regulating money". Greedy government realized they could quietly steal money through inflation. It's a lot easier to debase coins and take money, than pass taxes and take money. Shave off 10% of that gold coin, dillute it with a cheaper metal and make new gold coins. Hey, we just made Caesar 10% of the money supply!
You had situations where gold coins weren't even gold anymore, they were debased to the point of just being lesser metals. Now if you had to buy a loaf of bread, do you think you'd trade your 75% Silver coin or your 33% Silver coin for that bread? The cheap watered down money was used for exchanges. The government made laws that said that merchants HAD to accept the funny money, and prices rose as a response...
Prices didn't rise because the merchants were greedy, they rose because the government was stealing money through debasement of the currency. If I'm giving you 50% of a gold coin, your going to want 2 of them instead of 1... Greedy government then blamed price increases on the merchants who were responding to this new thing called inflation...
Inflation isn't a natural phenomenon. It's due to manipulative central bankers. Look at YOUR money here in America. Your dollar lost 97% of it's value since the Federal Reserve act in 1913, do you think that's natural???
YOU ARE TELLING ME WE SHOULD TRUST THE GOVERNMENT TO REGULATE OUR MONEY WHEN THE DOLLAR HAS LOST 97% OF IT'S VALUE SINCE 1913? DO YOU UNDERSTAND HOW CRAZY THIS SOUNDS???
I recently read some fascinating commentary by Bill Bonner on the approach taken by Warren Harding (widely considered a dunce) to the depression he encountered on taking office in 1921. Lacking a "brain trust" at the time, he reportedly took the simple-minded approach of slashing taxes, slashing government spending by almost half, and encouraging citizens to live more frugally. He was something of a laughing stock at the time, but two years later the economy was embarking on the boom that would ultimately end badly, enabling Hoover and FDR to do their mischief and forever transform American society.
The more things change, the more they stay the same. At least Bernanke seems to have learned something from his study of the Depression, but his job unfortunately is pretty much to underwrite the folly of our elected "benefactors."
Hindsight should suggest that Harding was the intelligent one. The view that he was a bit of a laughingstock originates from his easygoing, let-the-good-times-roll attitude in the face of hard times. But his easygoing approach worked.
On Oct 27 10:43 AM Alphameister wrote:
> I'm a fan of Amity Schlaes and will have to order her book. When
> you commented on the vindictiveness and pettiness of FDR, am I the
> only one whose thoughts turned to Obama and Fox News? FDR may soon
> have competition for the status of most damaging president in US
> history.
>
> I recently read some fascinating commentary by Bill Bonner on the
> approach taken by Warren Harding (widely considered a dunce) to the
> depression he encountered on taking office in 1921. Lacking a "brain
> trust" at the time, he reportedly took the simple-minded approach
> of slashing taxes, slashing government spending by almost half, and
> encouraging citizens to live more frugally. He was something of a
> laughing stock at the time, but two years later the economy was embarking
> on the boom that would ultimately end badly, enabling Hoover and
> FDR to do their mischief and forever transform American society.
>
>
> The more things change, the more they stay the same. At least Bernanke
> seems to have learned something from his study of the Depression,
> but his job unfortunately is pretty much to underwrite the folly
> of our elected "benefactors."
We tend to see the 1920s, 1930s and 1940s each too much as set images and forget that there were many changes and ups and downs within each of these decades. The conflation in our minds of each of these decades into static stereotype images means that we miss the important details and effects of changes within each of these decades. In the case of the period from 1929 to 1941 the US moved from mild recession to stock market panic to depression to bank panic to modest recovery to return to depression and to recovery again; it wasn’t a uniform experience throughout by any means. Why this was so and how things could have been handled better are important question that remain relevant today.
Quotes from The Great Crash 1929, by John Kenneth Galbraith:
… It was plain that an increasing number of persons were coming to the conclusion – the conclusion that is the common denominator of all speculative episodes – that they were predestined by luck, an unbeatable system, divine favor, access to inside information or exceptional financial acumen to become rich without work. Introduction xiv
– Even in such a time of madness as the late twenties, a great many men in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them. There is always the fear; moreover, that even needful self-criticism may be an excuse for government intervention. That is the ultimate horror. Introduction xxiv
- No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decision of hundreds of thousands of individuals. The latter were not led to the slaughter. They were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich….. The signal feature of the mass escape from reality ……. Was that it carried Authority with it. Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution. C1,p4
– The buyers did not expect to live on it (Florida real estate); it was not easy to suppose that anyone ever would. But these were academic considerations. The reality was that this dubious asset was gaining in value by the day and could be sold at a handsome profit in a fortnight. It is another feature of the speculative mood that, as time passes, the tendency to look beyond the simple fact of increasing values to the reasons on which it depends greatly diminishes. And there is no reason to do so as long as the supply of people who buy with the expectation of selling at a profit continues to be augmented at a sufficiently rapid rate to keep prices rising. C2,p10
– By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great. C2,p21
– Could the right to the increased value be somehow divorced from the other and now unimportant fruits of possession and also from as many as possible of the burdens of ownership, this would be much welcomed by the speculator. Such an arrangement would enable him to concentrate on speculation which, after all, is the business of a speculator….. The worst of the burdens of ownership, whether of land or any other asset, is the need to put up the cash represented by the purchase price. C2,p23
– (Morally) Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that it encourages the extra trading which changes a thin and anemic market into a thick and healthy one. C2,p25
– There were still better ways of making money (1928). In principle, New York banks could borrow money from the Federal Reserve Bank for 5 percent and re-lend it in the call market for 12. In practice they did. This was, possibly, the most profitable arbitrage operation of all time. C2,p27
- … The position of the people who had at least nominal responsibility for what was going on was a complex one. One of the oldest puzzles of politics is who is to regulate the regulators. But an equally baffling problem, which has never received the attention it deserves, is who is to make wise those who are required to have wisdom. C3, p29
– The consequences of successful action seemed almost as terrible as the consequences of inaction, and they could be more horrible for those who took the action.
A bubble can easily be punctured. But to incise it with a needle so that is subsides gradually is a task of no small delicacy. C3,p30
– Regulation originates in raucous debate in Congress in which the naked interests of pressure groups may at times involve an exposure bordering on the obscene. Promulgation and enforcement of rules and regulations is by grinding bureaucracies which are ceaselessly buffeted by criticism. In recent times it has become obligatory for the regulators at every opportunity to confess their inadequacy, which in any case is all too evident. C3,p31
- Wall Street, in recent times has become, as a learned phrase has it, very “public relations conscious.” Since a speculative collapse can only follow a speculative boom, one might expect that Wall Street would lay a heavy hand on any resurgence of speculation. The Federal Reserve would be asked by bankers and brokers to lift margins to the limit; it would be warned to enforce the requirement sternly against those who might try to borrow on their own stocks and bonds in order to buy more of them. The public would be warned sharply and often of the risks inherent in buying stocks for the rise. Those who persisted, nonetheless, would have no one to blame but themselves. The position of the Stock Exchange, its members, the banks, and the financial community in general would be perfectly clear and as well protected in the event of a further collapse as sound public relations allow.
As noted, all this might logically be expected. It will not come to pass. This is not because the instinct for self-preservation in Wall Street is poorly developed. On the contrary, it is probably normal and may be above. But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound. C10,p195
1. If Smoot-Hawley “was a terrible mistake that made it much worse, and may have made the difference between recession and depression” then why did it happen in the 1930s and not in the previous hundred years? When Smoot-Hawley was introduced the US was already the most trade protected nation in the world and had been for more that a hundred years. During that hundred years of high tariffs the United States economy overtook free trade Great Britain as the world's most advanced economy.
2. How could such a small drop in trade cause so much trouble? Before Smoot-Hawley trade was 6 percent of GDP and shrink to 2 percent afterward. True it was a 66 percent decrease but 66 percent of too small a number to justify the boogieman status the trade reduction has been given. In the 1930s foreign trade was just not that important.
3. Why did elimination the Smoot-Hawley tariffs not cure the Great Depression? The Smoot-Hawley tariffs did not last long. They became effective in mid 1931 and the Roosevelt administration began removing them in 1934. By 1937 tariffs were long back to pre Smoot-Hawley levels but the depression got worse.
The history of trade protection has been written by zealous advocates of free trade and they have left out a lot. Here is some of it:
In the world according to free traders the US was a free trading country until Mr. Smoot and Mr. Hawley got together and invented trade protection in 1930. But it is wrong! The real world experience of US trade protection is much more positive that the free traders want to admit. In 1828 one of the few things Andrew Jackson and Henry Clay agreed on was that America needed protective tariffs. So they passed the “Tariff of Abomination” that was the highest tariffs we have ever had. Higher than the Smoot-Hawley tariffs of a hundred years latter. These high tariffs upset the then Vice-President John C. Calhoun who set off a Constitutional crisis by urging nullification of the tariff within South Carolina. They compromised and cut the tariff from about 62 percent to about 40 percent.
Tariffs went up and down but generally drifted lower in the following years ending at about 20 percent just before the Civil War. According to free traders a trade protected economy without foreign competition should have high prices, shoddy products, and producers should have no incentive to innovate. Society should slide into mediocrity and poverty. That was never the US experience with trade protection. Contrary to free traders, the economy was growing with higher wages, lower prices, and much innovation.
After the first few months of the Civil War Congress decided to protect industry from foreign competition in war time and passed the Morrill and War tariffs which jacked tariffs up to just under 50 percent. After the war tariffs oscillated but stayed high until the first decade of the twentieth century. Again, contrary to free traders, the economy was growing with higher wages, lower prices, and much innovation. During this time we overtook free trade Great Britain.
In the first part of the twentieth century it was thought that the way to respond to industrial monopolies was to expose them to foreign competition. Tariffs were lowered to below 20 percent. That cost jobs and was abandoned in favor of anti trust legislation. By the 1920s tariffs were back in the range of 40 percent where they were when Mr. Smoot and Mr. Hawley introduced their new tariffs that raised tariffs to just below 60 percent.
Smoot-Hawley tariffs went into effect in June 1931 but did not last long. In 1934 Roosevelt started lowering them. When the Great Depression got worse in 1937 tariffs were long back to pre Smoot-Hawley levels. Tariffs continued to decline to current low levels.
During the long period of trade protection, contrary to the theory of free traders, the US had higher real wages, lower prices, and more innovation than the rest of the world. During that long period of protection the US ascended to the economic high from which it has descended during a short period of free trade.
Perhaps Jefferson had it right after all: "That government is best which governs least."
The debate between Mercantilism and Free Trade of which the issues of protection and tariffs plays a prominent part doesn’t have a clear cut winner in all circumstances. Obviously economies of scale and specialization benefiting all players ultimately by growing the economic pie more, encouraging the most economic use of resources and opening markets to all comers on equitable grounds is the promise of the Free Trade ideal while the Mercantilist ideal offers a country the prospect of greater control and pace of its own internal development, a better capacity to bargain with other countries for access to markets and resources and the opportunity for its internal economy to be more diversified and less exposed to global economic panics etc. This only repeats what you undoubtedly know but it sets the stage for making the following points, most of which have been made by others many times:
1. Free Trade and Mercantilist practices are followed to a mixed extent by most countries.
2. While a better case can be made that general Free Trade would accelerate world development and prosperity generally, a rational case can be made for particular countries to follow more protectionist policies moderately at certain stages of their development.
3. Arguably Mercantilism in moderation followed intelligently by an emerging economy in a largely Free Trade international environment allows that nation to develop faster to the point where the transition of that economy to a more open Free Trade policy will work best for them and the world economy generally. This is what the US, arguably, did in the later 19th and early 20th century (and, arguably, China is doing now).
4. It is tempting for a country to adopt or persist with Mercantilist policies against its own best interests and those of the world generally. The autarchic practices of Germany and many other countries in the 1930s are a case in point. When several significant countries are following this practice it is difficult for their trading partners to justify continuing Free Trade practices.
Smoot-Hawley occupies an interesting time and space in the economic history of the US and world in light of the foregoing points. Was this a case of the US persisting with protectionism to the general detriment of all, including itself, after it had become a leading mature world economy or was the US simply leveling the playing field in face of the practices of its foreign rivals? Was it intrinsically flawed or did it have some useful effects at some periods while it was in force?
The better view may be against Smoot-Hawley but the debate remains legitimately open on some aspects of the history of the US policies Smoot-Hawley has come to represent.
On Oct 27 02:48 PM n6532l wrote:
> I have a few questions for those who say Smoot-Hawley played a significant
> role in the Great Depression:
>
> 1. If Smoot-Hawley “was a terrible mistake that made it much worse,
> and may have made the difference between recession and depression”
> then why did it happen in the 1930s and not in the previous hundred
> years? When Smoot-Hawley was introduced the US was already the most
> trade protected nation in the world and had been for more that a
> hundred years. During that hundred years of high tariffs the United
> States economy overtook free trade Great Britain as the world's most
> advanced economy.
> 2. How could such a small drop in trade cause so much trouble? Before
> Smoot-Hawley trade was 6 percent of GDP and shrink to 2 percent afterward.
> True it was a 66 percent decrease but 66 percent of too small a number
> to justify the boogieman status the trade reduction has been given.
> In the 1930s foreign trade was just not that important.
> 3. Why did elimination the Smoot-Hawley tariffs not cure the Great
> Depression? The Smoot-Hawley tariffs did not last long. They became
> effective in mid 1931 and the Roosevelt administration began removing
> them in 1934. By 1937 tariffs were long back to pre Smoot-Hawley
> levels but the depression got worse.
>
> The history of trade protection has been written by zealous advocates
> of free trade and they have left out a lot. Here is some of it:<br/>
>
> In the world according to free traders the US was a free trading
> country until Mr. Smoot and Mr. Hawley got together and invented
> trade protection in 1930. But it is wrong! The real world experience
> of US trade protection is much more positive that the free traders
> want to admit. In 1828 one of the few things Andrew Jackson and Henry
> Clay agreed on was that America needed protective tariffs. So they
> passed the “Tariff of Abomination” that was the highest tariffs we
> have ever had. Higher than the Smoot-Hawley tariffs of a hundred
> years latter. These high tariffs upset the then Vice-President John
> C. Calhoun who set off a Constitutional crisis by urging nullification
> of the tariff within South Carolina. They compromised and cut the
> tariff from about 62 percent to about 40 percent.
>
> Tariffs went up and down but generally drifted lower in the following
> years ending at about 20 percent just before the Civil War. According
> to free traders a trade protected economy without foreign competition
> should have high prices, shoddy products, and producers should have
> no incentive to innovate. Society should slide into mediocrity and
> poverty. That was never the US experience with trade protection.
> Contrary to free traders, the economy was growing with higher wages,
> lower prices, and much innovation.
>
> After the first few months of the Civil War Congress decided to protect
> industry from foreign competition in war time and passed the Morrill
> and War tariffs which jacked tariffs up to just under 50 percent.
> After the war tariffs oscillated but stayed high until the first
> decade of the twentieth century. Again, contrary to free traders,
> the economy was growing with higher wages, lower prices, and much
> innovation. During this time we overtook free trade Great Britain.
>
>
> In the first part of the twentieth century it was thought that the
> way to respond to industrial monopolies was to expose them to foreign
> competition. Tariffs were lowered to below 20 percent. That cost
> jobs and was abandoned in favor of anti trust legislation. By the
> 1920s tariffs were back in the range of 40 percent where they were
> when Mr. Smoot and Mr. Hawley introduced their new tariffs that raised
> tariffs to just below 60 percent.
>
> Smoot-Hawley tariffs went into effect in June 1931 but did not last
> long. In 1934 Roosevelt started lowering them. When the Great Depression
> got worse in 1937 tariffs were long back to pre Smoot-Hawley levels.
> Tariffs continued to decline to current low levels.
>
> During the long period of trade protection, contrary to the theory
> of free traders, the US had higher real wages, lower prices, and
> more innovation than the rest of the world. During that long period
> of protection the US ascended to the economic high from which it
> has descended during a short period of free trade.
James Monroe, a president for our times? Oct. 15, 2009
James Monroe: A president for his time, not ours Oct. 20, 2009
On Oct 27 03:49 PM Alphameister wrote:
> >>Hindsight should suggest that Harding was the intelligent one.
> The view that he was a bit of a laughingstock originates from his
> easygoing, let-the-good-times-roll attitude in the face of hard times.
> But his easygoing approach worked.<<
>
> Perhaps Jefferson had it right after all: "That government is best
> which governs least."
A huge part of depression formation starts with a real estate bubble, then excessive borrowing, then mortgage defaults, then banking decline and failure, and finally general economic decline stemming from the inability to borrow.
While foreign trade was small, a large part of it was farm produce related. Farm real estate had a bubble & the beginnings of a decline by the mid 1920's. I suspect that this decline was a result of the 40% tariff you mention. Further increasing tariffs to 60% was the nail in the coffin of many farmers.
The time period from 1931 to 1937 is a very long time for punishingly high rates. As many have stated recently about Obama style protectionism, the international response to protectionism is very swift, but the response to lower tariffs is very much slower.
The assertion that the economic health of the US during the 1800's (particularly the post civil war era) was excellent is nonsense. The series of recessions and a depression that some call the worst in US history that happened in the 2nd half of the 19th century was one of the worst periods in our history. I don't know if the Morrill and War tariffs caused that mess, but I wouldn't be surprised.
My answers to your questions:
1. A strong economic environment can trump trade protection. Look at China today. It has similarities with the period of US history you describe. In both cases there are growing economies, trade protection and trade surpluses. What would hurt China today was what hurt us back in the 30s - retaliatory action and trade wars.
2. Smoot-Hawley is seen as important, not just for its direct impact on the US, but for its impact on the world. Many countries introduced trade barriers as a result and this made it a world depression. World trade declined by 66% between 29 and 34. In terms of the US, recognize that trade has a multiplier effect on the economy i.e. one export transaction results in a series of other transactions. A trade gap of "just" 5% can have a massive impact on a country - as we have been learning to our cost.
3. The elimination of the tariffs did not cure the depression because there were other factors at play. The reduction in tariffs helped the growth that happened from 34 to 36. But in 1937, the administration reversed the policies that had brought it success over the previous 4 years. They did that because they thought they had beaten the depression and were concerned about the deficit. Another (much less severe) leg down resulted.
Overall, in my view, there is no argument to say that the tariffs caused the depression, but equally it would be a mistake to say that they had no effect.
bob adamson
On Oct 27 10:07 AM chap08 wrote:
> John Galt says: "The socialist ( not semi socialist) policies of
> Roosevelt turned a recession into a horrible depression that ended
> in world war."
>
> This may be a convenient story for the SA Austrians, but is simply
> wrong. It was the actions of Hoover and Mellon that turned a recession
> in to a depression. That was already "achieved" by the time FDR took
> office. In the 3 years after 33, real GDP increased by 11%, 9% and
> 13%. He made mistakes by reversing his policies in 37, but his initial
> efforts reversed the effects of Hoover's disaster.
>
> John Galt probably agrees with Mellon's advice to Hoover to "liquidate
> labor, liquidate stocks, liquidate farmers, liquidate real estate…
> it will purge the rottenness out of the system." But it was this
> attitude that turned a recession in to a depression, not FDR.
Borrowing money so you can "keep up appearances" is the road to perpetual ruin.
On Oct 27 08:44 AM TradingHelpDesk wrote:
> I see no evidence at all the the current batch of policy makers in
> the US and UK have learned anything from the 1930's depression.<br/>
>
> If the government wants to stimulate the economy and is willing to
> print or borrow hundreds of billions in dollars to do it, it should
> be investing in projects that can generate new streams of economic
> wealth.
>
> Helping financial institutions with their liquidity so they can speculate
> and drive up the price of commodities and equities, does not create
> real economic growth. It creates asset price inflation.
>
> www.dukascopy.com/iben...
The US has been hoodwinked into opening up to "free trade" and getting little in return from the countries that benefit from exporting to USA.
If in the past America had insisted that opening it's borders to cheap Chinese goods had been reciprocated by China opening it's borders to American goods, and if America had started putting a tax on imported oil to (a) encourage local production (b) encourage alternative strategies to reduce US dependence on imported oil, things might have worked out differently.
It appears to me that America is going further and further into debt to keep an Alice in Wonderland charade that clearly damaged it, in play.
Free trade is good, if it's free.
On Oct 27 06:52 PM chap08 wrote:
> n6532l
>
> My answers to your questions:
>
> 1. A strong economic environment can trump trade protection. Look
> at China today. It has similarities with the period of US history
> you describe. In both cases there are growing economies, trade protection
> and trade surpluses. What would hurt China today was what hurt us
> back in the 30s - retaliatory action and trade wars.
>
> 2. Smoot-Hawley is seen as important, not just for its direct impact
> on the US, but for its impact on the world. Many countries introduced
> trade barriers as a result and this made it a world depression. World
> trade declined by 66% between 29 and 34. In terms of the US, recognize
> that trade has a multiplier effect on the economy i.e. one export
> transaction results in a series of other transactions. A trade gap
> of "just" 5% can have a massive impact on a country - as we have
> been learning to our cost.
>
> 3. The elimination of the tariffs did not cure the depression because
> there were other factors at play. The reduction in tariffs helped
> the growth that happened from 34 to 36. But in 1937, the administration
> reversed the policies that had brought it success over the previous
> 4 years. They did that because they thought they had beaten the depression
> and were concerned about the deficit. Another (much less severe)
> leg down resulted.
>
> Overall, in my view, there is no argument to say that the tariffs
> caused the depression, but equally it would be a mistake to say that
> they had no effect.
In this cyclical stabilization/recovery ,the FED had finally adopted (it seems) a more cautious outlook on aggressive monetary policy.
Another lesson we all should have learned from the Great Depression is that the major decompression will implode the price of the gold.
Of the Power Elitist, By the Power Elitist, For the Power Elitist, with a little Hessian preaching to his choir thrown in for flavor.
If you are in that group, you will love this piece.
If you are on the fence, you will either stay there or be pushed to the other side.
With a little luck, you could get this published in the WSJ and maybe reviewed on FOX, they'll love it too.
PS: Hoover was not as bad as portrayed by history, and he didn't have the advantage of historical hindsight to help him. He also had a lot of less than astute advice, same as "W".
Better yet, spend a couple hours there a day reading from their library, watching and listening to the lectures... I do.
On Oct 31 11:48 AM philais wrote:
> Murry Rothbart tells what really happened to prolong the Great Depression.
> If ya'll really want to understand economic's and get away get away
> from the lies of the Keynesians and the Monetarists, go to the Mises
> Institute and read this article... mises.org/misesreview_...
>
>
> Better yet, spend a couple hours there a day reading from their library,
> watching and listening to the lectures... I do.
In making these comparisons one must always not only remember that there were many stages in the domestic and international economic environment between 1929 and 1941 but also that President Obama has come into office at a much earlier stage in the current crisis than FRD did in the earlier one. Why is this important?
FDR had many burdens but one great advantage as a political leader in coming into office at the very depth of the Depression after President Hoover had struggled for about three years to understand and address the unprecedented events that were unfolding. President Obama comes into office at a much earlier stage of economic crisis. While in the hindsight of history the differences between the nature and cause of the Great Depression and those of the current crisis may be seen to be marked by as many significant differences as similarities (it’s too early to judge now), the significant similarity is the unprecedented and overwhelming impact of both crises. It follows that for each there are no self-evident cookie-cutter solutions upon which all would agree at the time the crises broke if only they had the wit and will to do so. It further follows that the making and execution of effective policy to address each crisis as it unfolds will necessarily be a hit and miss thing to some degree, especially during the early crisis stages.
In the context described in the preceding paragraph, the leadership challenge faced now by President Obama is more like that face in 1930 by President Hoover then that faced in 1933 or 1934 by FDR. It is not how to lift the US out of the depth of economic chaos and misery but rather how to prevent the US falling into that state; a challenging task when the underlying nature of the unfolding crisis is not clear in all its aspects and details, your predecessor in office did not try and fail with other solutions over several years and the nation (after years of failed efforts) is desperate and therefore willing to follow new leadership in economic matters.
On Oct 27 09:09 AM John Galt wrote:
> > "Roosevelt was an activist who experimented with cures and generated
> public hope and was generally successful. "
>
> You wrote that a few lines below the part about policy mistakes...
> whoops. New Deal, New New Deal etc.
Interesting that you would categorize FDR as the worst president in the history of the US.
Yet, US Presidential polls covering many thousands of historians, researchers, academics, writers, etc who have spent their entire professional lives studying US Presidents and writing about them totally disagree with you. Dozens of US Presidential polls have been done over the last 30+ years and every single one of them consistently ranks FDR in the top 5 Presidents in US history.
So, while you are entiled to your own personal opinion, (even if it is totally biased by idealogical beliefs in utopian free markets that have never and cannot ever exist) the fact is that the weight of the evidence and considered opinion by many "knowledgable experts" is far more convincing in concluding that FDR was in fact one of the best US Presidents to ever hold office.
On Oct 27 09:09 AM John Galt wrote:
> > "Roosevelt was an activist who experimented with cures and generated
> public hope and was generally successful. "
>
> You wrote that a few lines below the part about policy mistakes...
> whoops. New Deal, New New Deal etc.
A poll of the North Korean people would show that Kim Jong-il is a god-like figure of mythologized proportions who is the best leader they ever had.
FDR has been similarly mythologized and his transgressions against the Constitution and the rights of the individual ignored by those who look to others rather than themselves for security.
The nation recovered despite FDR. Our leaders don't save us or condemn us, we do. The writers of history have decided to put FDR on a pedestal because he was a progressive, a socialist, a man who lived by the maxim "do as I say, not as I do" and whose presidency marked the turning point from state power to oppressive federal hegemony.
This centralized planning nanny state perspective appeals to historians and the media because they are, for the most part, liberal leaning national socialists (remember - that is what the Nazis were) who are afraid of the freedom and liberty and requisite responsibility of individualism and self-determination.
All hail Caesar.
On Oct 31 02:00 PM untrusting investor wrote:
> John Galt,
> Interesting that you would categorize FDR as the worst president
> in the history of the US.
>
> Yet, US Presidential polls covering many thousands of historians,
> researchers, academics, writers, etc who have spent their entire
> professional lives studying US Presidents and writing about them
> totally disagree with you. Dozens of US Presidential polls have been
> done over the last 30+ years and every single one of them consistently
> ranks FDR in the top 5 Presidents in US history.
>
> So, while you are entiled to your own personal opinion, (even if
> it is totally biased by idealogical beliefs in utopian free markets
> that have never and cannot ever exist) the fact is that the weight
> of the evidence and considered opinion by many "knowledgable experts"
> is far more convincing in concluding that FDR was in fact one of
> the best US Presidents to ever hold office.
Today, I think we are in the 1936-1937 period. The economy seems to be improving and people are once again calling for fiscal and monetary restraint. Although we don't have ignorant people in charge of fiscal and monetary policy, you never know what sort of politics will dictate their actions.
I think we are in a precarious position and the next 12 months could either tip into true economic recovery or complete disaster. It's almost a binary outcome to a problem overflowing with ambiguity.
The risk of a serious double-dip warrants extreme caution.
www.planbeconomics.com.../
The massive stimulus, primarily the FED liquidity of money printing and trillions in 0% money to "banks" and insurance companies, Fannie/Freddie, FHA, and money printing has expanded the 1930 rally to longer and stronger than any that followed 1930-1932 until the bottom was reached.
This puts us at Fall 1930, but with a faster and steeper fall to the bottom. The assumption that this is a recovery or that we are in the 1937 time frame does not have a foundation.
On Oct 31 03:54 PM Plan B Economics wrote:
> Thanks for the summary.
>
> Today, I think we are in the 1936-1937 period. The economy seems
> to be improving and people are once again calling for fiscal and
> monetary restraint. Although we don't have ignorant people in charge
> of fiscal and monetary policy, you never know what sort of politics
> will dictate their actions.
>
> I think we are in a precarious position and the next 12 months could
> either tip into true economic recovery or complete disaster. It's
> almost a binary outcome to a problem overflowing with ambiguity.
>
>
> The risk of a serious double-dip warrants extreme caution.
> www.planbeconomics.com.../
This time, the problem won't be in Europe. It will likely be some bank "offshore" China in Hong Kong or Taiwan. Maybe Korea or Singapore. But by sending the Chinese economy into a tailspin, it will put paid to the rest of the global recovery.
bob adamson
On Oct 31 04:00 PM ebworthen wrote:
> I hear this alot, the 1936-37 time frame. I would say we are still
> in the 1930 time frame.
>
> The massive stimulus, primarily the FED liquidity of money printing
> and trillions in 0% money to "banks" and insurance companies, Fannie/Freddie,
> FHA, and money printing has expanded the 1930 rally to longer and
> stronger than any that followed 1930-1932 until the bottom was reached.
>
>
> This puts us at Fall 1930, but with a faster and steeper fall to
> the bottom. The assumption that this is a recovery or that we are
> in the 1937 time frame does not have a foundation.
The belief in "pure capitalism" or "free market capitalism" is pure folly. We live in a corporatist-fascist state. If Adam Smith were alive today he would shudder at the concentration of monopoly power in the largest corporations and in the organization of special interest groups. It's ironic...no tragic...that the loudest voices for "pure capitalism" are the most ignorant of what that really means.
Very good article. I have just one thought to add to yours.
Real estate prices fell precipitously in 1925 before the onslaught of the October 1929 stock market crisis. In our present situation, the "Housing Bubble" peaked in around 2006, and of course, followed by the September 2008 stock market crash.
Note the difference in the time periods. There was a lag of some 4 years in the Great Depression case, whereas, if indeed we would have another one (whatever magnitude and name) coming, the lag was much shorter, only 2 years. While it is too cursory to compare these two factors in a out of context manner, would you have any comments on thoughts on this observation? Any commentators have any thoughts to enlighten me?
Thanks,
TK
You're thoughts are what 16 yr olds are taught to believe in High School. FDIC helped? Because of the FDIC it didn't matter what the banks did with your money because it was all insured, so they could for example, take the money and invest it in risky investment vehicles like oh I don't know...Mortgage Backed Securities, or giving out zero down loan's with Adjustable Rate Mortgages (ARM's)
A lot of what you implied was the "consensus" simply isn't. We couldn't afford FDR's "New Deal" then and we STILL can't afford it. THINK ABOUT IT!
On Oct 31 09:27 PM Nik Kondratieff wrote:
> A world catastrophe, like a war is the only thing that will stop
> the death spiral of the U.S. economy...that is the salient parallel
> with the 1930s Great Depression.
>
> The belief in "pure capitalism" or "free market capitalism" is pure
> folly. We live in a corporatist-fascist state. If Adam Smith were
> alive today he would shudder at the concentration of monopoly power
> in the largest corporations and in the organization of special interest
> groups. It's ironic...no tragic...that the loudest voices for "pure
> capitalism" are the most ignorant of what that really means.
On Oct 27 10:43 AM Alphameister wrote:
> I'm a fan of Amity Schlaes and will have to order her book. When
> you commented on the vindictiveness and pettiness of FDR, am I the
> only one whose thoughts turned to Obama and Fox News? FDR may soon
> have competition for the status of most damaging president in US
> history.
On Oct 31 11:45 PM Smartinvestor30 wrote:
> People are going to tear this article apart!
>
> You're thoughts are what 16 yr olds are taught to believe in High
> School. FDIC helped? Because of the FDIC it didn't matter what the
> banks did with your money because it was all insured, so they could
> for example, take the money and invest it in risky investment vehicles
> like oh I don't know...Mortgage Backed Securities, or giving out
> zero down loan's with Adjustable Rate Mortgages (ARM's)
>
The review is a very good one. This is shown by the many comments.
A better book, shorter, cheaper, more scholarly, and yes, more ideological but at least it has a theme, is this one, written by a true scholar and not a speechwriter:
Rethinking the Great Depression (American Ways Series) (Paperback) ~ Gene Smiley
Buyer beware--Shlaes is getting a lot of press from her media friends. Her book is not worth the money--boring, boring, boring. And she misses or glosses over how the mini-Depression of 1937 was caused by a hard money policy. BTW I am not a fan of Keynes or FDR.
"We tried that Sir. That's how we got into this mess. "
Ahem, we haven't allowed pure capitalism in the USA for over a century. FDA, Fed, OSHA, EPA, SocSec, HHS, FDIC, SEC, utilities regs, Medicare, the list goes on. All funded by a system where Government takes more than a third of our GDP and controls (too) much of the rest.
The 'lets regulate' crowd needs to stop living in the past and stop blaming capitalism for the mistakes of a flawed and fallible central government.
> Interesting that you would categorize FDR as the worst president in the history of the US.
>
> Yet, US Presidential polls covering many thousands of historians,
> researchers, academics, writers, etc who have spent their entire
> professional lives studying US Presidents and writing about them totally disagree with you..."
American History in academia today is the polemic of the liberal left that adores more government power and wants the original constitution trashed and replaced by one more in line with socialist thinking. Surveys of academia now show a bias so strong that Republicans/conservatives are an endangered species and on college faculties, you have a mix of 'left' and 'far left'. As such, they adore FDR, the man who did more to destroy American liberty than any other President.
ebworthen: "FDR has been similarly mythologized and his transgressions against the Constitution and the rights of the individual ignored by those who look to others rather than themselves for security.
The nation recovered despite FDR. Our leaders don't save us or condemn us, we do. The writers of history have decided to put FDR on a pedestal because he was a progressive, a socialist, a man who lived by the maxim "do as I say, not as I do" and whose presidency marked the turning point from state power to oppressive federal hegemony.
This centralized planning nanny state perspective appeals to historians and the media because they are, for the most part, liberal leaning national socialists (remember - that is what the Nazis were) who are afraid of the freedom and liberty and requisite responsibility of individualism and self-determination."
Exactly so.
On Nov 01 09:16 AM CLH wrote:
> The comparison of capitalism to socialism makes no sense at all.
> Capitalism is an economic system and the only one we have. Socialism
> is a religion based on the same things as Christianity (caring for
> the poor and doing away with war etc). Lets not compare apples and
> oranges.
>
> The review is a very good one. This is shown by the many comments.
The real folly is thinking we are in either cases. We are in the 2009 and 2010 timeframe, circumstances, technology, and much more is different than the same. There are lessons from the great depression, but its not a simplistic 'its just like 70 years ago', when so much is different.
The greatest risk to our economy right how is a leadership in Washington, DC, that pursues tax, regulation and spending policies directed at harming the private sector economy. Of particular concern is the triple threat of ObamaCare, cap&trade, and the ending of the Bush tax cuts. Together, they represent about a $3 trillion (over ten years) tax hike, enough to spiral us into another recession. For those looking for historical repeats, its what Roosevelt did to the economy in 1937-1938 when he raised taxes.
The second greatest risk/factor is the ongoing deleveraging of the economy. If the folks in DC were pro-growth, however, we would get through the deleveraging in short order and come out in decent shape. That is not destined to happen while Obama/Reid/Pelosi run the government.
I am so very sorry to add this to a most fascinating article and intelligent comments but I cannot resist. Please skip over this one now if you want to remain on point today.
My doctor informed me that Medicare is no longer paying to remove benign tumors as the cost is so far in excess of the rewards. That decision was made by a death panel. It may have been a good call but it will lead to more deaths among the aged. That death panel of experts will be the first of many convened over the next decade as we bring our bloated and moribund government directed health care system into sync with economic reality. We got into much of the current health care mess when the courts effectively shut down the insurance company run death panels in the 80's as lawyers ran wild with lawsuits against them and won.
Liz, get over Sarah Palin. You will never like her because she is right - and speaks far too clearly for many to handle.
I don't think the present crop senators and representatives are of any leadership caliber. Most are wealthy pedigrees, lawyers, social elites, self-styled self-serving altruistic social workers all jockeying for a "Trophy" limelight position. Everyday they just spend a hundred billion here, another hundred billion there. They have no moral authority to govern as they are responsible for putting the country in a $13T national debt and $1.5T budget deficit, and with 20 million illegal immigrants on the streets tacitly approved by them.
A new political party has to rise up to replace them and the voters are the ones to show them the walking papers.
On Nov 01 10:45 AM Freedoms Truth wrote:
> 1930? 1937?
> The real folly is thinking we are in either cases. We are in the
> 2009 and 2010 timeframe, circumstances, technology, and much more
> is different than the same. There are lessons from the great depression,
> but its not a simplistic 'its just like 70 years ago', when so much
> is different.
>
> The greatest risk to our economy right how is a leadership in Washington,
> DC, that pursues tax, regulation and spending policies directed at
> harming the private sector economy. Of particular concern is the
> triple threat of ObamaCare, cap&trade, and the ending of the
> Bush tax cuts. Together, they represent about a $3 trillion (over
> ten years) tax hike, enough to spiral us into another recession.
> For those looking for historical repeats, its what Roosevelt did
> to the economy in 1937-1938 when he raised taxes.
>
> The second greatest risk/factor is the ongoing deleveraging of the
> economy. If the folks in DC were pro-growth, however, we would get
> through the deleveraging in short order and come out in decent shape.
> That is not destined to happen while Obama/Reid/Pelosi run the government.
Nik-Nik is clearly a scholar and devotee of Adam Smith's writings.
On Oct 31 09:27 PM Nik Kondratieff wrote:
> A world catastrophe, like a war is the only thing that will stop
> the death spiral of the U.S. economy...that is the salient parallel
> with the 1930s Great Depression.
>
> The belief in "pure capitalism" or "free market capitalism" is pure
> folly. We live in a corporatist-fascist state. If Adam Smith were
> alive today he would shudder at the concentration of monopoly power
> in the largest corporations and in the organization of special interest
> groups. It's ironic...no tragic...that the loudest voices for "pure
> capitalism" are the most ignorant of what that really means.
In his review, Mr. McTeer does not refer to the enormous influence that the Soviet Union and its economic model had on the cadre that made up the advisers to FDR. It was that disastrous influence which deepened and prolonged the suffering of the depression. Accordingly, beware of the present Marxist influences.
I read the book when it was released, and I have been appalled that the pattern is being repeated with very little time translation.
The idea that capitalism failed and that it requires more regulation is testimony to the power of denial. The most regulated entities have failed us the most. Who are the villains, the banks or the hedge funds? Of course, when they are upholding the rule of law and the bankruptcy laws of this country, the hedge funds are demonized and threatened by the government. Congrats, UAW! With government guns, you win and we lose!
It is government, not capitalism, which has created this mess. Capitalism is not government coercion, largesse to bank, corporate and special-interests, phony government accounting (audit the Fed, anyone?), enormous deficits and misrepresentation of same.
Everything I see in the world today is a 3-D version of an 80-year old "black and white movie" (with a few names and details changed).
I alluded to a possible repeat of the Credit Anstalt collapse.
Is it possible for us to avoid another "Hitler"? Or was he (and a successor), just a product of the respective times.
On Oct 31 11:07 PM Teutonic Knight wrote:
> Bob - -
>
> Very good article. I have just one thought to add to yours.
>
> Real estate prices fell precipitously in 1925 before the onslaught
> of the October 1929 stock market crisis. In our present situation,
> the "Housing Bubble" peaked in around 2006, and of course, followed
> by the September 2008 stock market crash.
>
> Note the difference in the time periods. There was a lag of some
> 4 years in the Great Depression case, whereas, if indeed we would
> have another one (whatever magnitude and name) coming, the lag was
> much shorter, only 2 years. While it is too cursory to compare
> these two factors in a out of context manner, would you have any
> comments on thoughts on this observation? Any commentators have
> any thoughts to enlighten me?
>
> Thanks,
> TK
What was liquidated was the debt and the financial funny money and the phoney wealth it had created. The lack of liquidation in the current crisis has me worried that the expansion phase will be weak and prone to greater shocks.
The country did not want to have another potential "President for Life" in the future.