IF this is true...this is insane. MUST read, so I'm quoting it.
The grand myth that has been taught to whole generations is that the government is “forced” to intervene in the economy when there is a downturn that leaves millions of people suffering. The classic example is the Great Depression of the 1930s. What most people are unaware of is that there was no Great Depression until AFTER politicians started intervening in the economy. There was a stock market crash in October 1929 and unemployment shot up to 9 percent — for one month. Then unemployment started drifting back down until it was 6.3 percent in June 1930, when the first major federal intervention took place. That was the Smoot-Hawley tariff bill, which more than a thousand economists across the country pleaded with Congress and President Hoover not to enact. But then, as now, politicians decided that they had to “do something.” Within 6 months, unemployment hit double digits. Then, as now, when “doing something” made things worse, many felt that the answer was to do something more. Both President Hoover and President Roosevelt did more — and more, and more. Unemployment remained in double digits for the entire remainder of the decade. Indeed, unemployment topped 20 percent and remained there for 35 months, stretching from the Hoover administration into the Roosevelt administration.
Did you catch that? Sowell said that
(a) the market recovered from the crash of '29 just fine, This is highly believable based on the quick recovery from the depression of 1920, and Harding's complete lack of governmnet response.
(b) that government action was the (whole? primary?) cause of the great depression, (c) that the primary legislation responsible for the start of the great depression was a set of import tariffs...which cost the country hundreds of thousands or millions of jobs -- because that's what tariffs do.
UPDATE:
Don Boudreaux responds:
(a) Sowell is basically correct. The crash of '29 was unrelated to the great depression.
(b) However, while Smoot Hawley was hideous, it wasn't the key, because unlike now, our industry isn't so interconnected that tariffs/trade war can kill us.
(c) The key idiocy was actually trying to stay on tight gold-standard-like money, and that mostly caused the real pain in '30. Just as it has in every recession since.
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4 comments:
Interesting.
The key idiocy was actually trying to stay on tight gold-standard-like money, and that mostly caused the real pain in '30. Just as it has in every recession since.
Counterexample: The recession of the mid 1970's was fought with easy money. Didn't seem to work.
I think c) is a misinterpretation.
"A far worse government failure than Smoot-Hawley was the “Great Contraction” – the Fed allowing the money supply to fall by one-third between 1930 and 1933."
A hard currency standard can no more contract than expand. This sounds like fractional-reserve shenanigans.
Though now I can see why people think deflation is bad for growth. How contraction works in the current debt-antidebt system is that when someone pays back their debt, it annihilates antidebt, causing lower supply, causing deflation, which means all further debt costs more to pay back. I suspect Bordeaux is describing something similar.
A second possibility is that literally a third of debts defaulted. This will indeed cause problems even in a hard money system, but if that happened, the Fed probably caused it, rather than failed to prevent it. However, the problems will mainly be for the lenders - banks. The failure would be limited and temporary, unless someone deliberately links it to the rest of the economy.
Judging by La Wik - which is shockingly not solely Keynesian on this issue - it was fractional reserve shenanigans, as the root cause of the problem in either scenario above.
Paying back loans does not cause contraction in a hard money system. Only in a fractional reserve system.
On hard money, it causes interest rates to fall as banks bid lower for loans, until they can loan out all the money again. Bank profits would suck, but everyone else would find the 'depression' easier to do business in.
I learned something. Federal interest-rate price fixing is an attempt to replicate a hard money system while on soft money.
"Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Ben Bernanke - Nov. 8, 2002
source
rsf
Demand Shocks vs Supply Shocks.
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