Income Inequality Doesn’t Matter, Study Finds — Here’s What Does

Investor's Business Daily ^ | 3/25/2016 | John Merline

[central_va]

So, from 1929 to 1934, US imports fell $2.9 billion, while exports fell $3.3 billion, and US GDP fell 54%. Overall world-trade fell 66% in those years, and US unemployment rose from 8% to 25%.

I noticed you gave specific figures in billions USD of the imports. But GDP you did not give specific amount. Why? So how big was the overall GDP compared to imports?

I am on to all the Free Traitor™ tricks.

[BroJoeK]

Perchant: "Have you paid attention to China for the last 20 years?
They’ve been Smoot-Hawleying us to the hilt."

I totally agree.
You may remember, various presidents were elected on promises of a "deal": FDR = "New Deal", Truman = "Fair Deal".
So now Trump promises a better deal for Americans, and I agree that's a good deal.

[BroJoeK]

central_va: "I noticed you gave specific figures in billions USD of the imports.
But GDP you did not give specific amount.
Why? "

No problem, I have those numbers for US GDP in $billions:

1929: $104
1930: 91
1931: 77
1932: 59
1933: 56
1934: 66
1935: 73

From the peak in 1929 to the valley in 1933 US GDP fell 46%.
Smoot Hawley was repealed in 1934, and US GDP began to rise.

[central_va]

Some economists( the ones with a clue ) argue that the Smoot-Hawley tariff act may have been a very bad idea but that it did not cause the Great Depression. They point out that exports only accounted for some seven percent of the U.S. gross national product in 1929 and the decline in U.S. exports in the ensuing years may have been caused by the depression itself and not solely by tariff retaliation. Some note that the U.S. had also enormously raised tariffs in 1922 and that this did not cause a depression.

Smoot-Hawley was passed almost year after the '29 crash. LOL.

[Koracan]

...“The fact that spending inequality is dramatically smaller than wealth inequality....


I always knew, these guys had more spending money then me.

[BroJoeK]

US exports during the 1930s were strictly a function of international demand for US products.
Those in turn were influenced by US tariffs imposed on foreign imports.

But, returning to our topic, the question is why in 1992 did most Republicans support NAFTA?
The answer, in brief, is because they accepted the common understanding that Smoot Hawley was bad for the Depression.
No, not that it STARTED Depression, but that once started, Smoot Hawley made it deeper & longer.
They were also highly worried about inflation and saw NAFTA as a way to control that.

Today fewer Republicans buy it, and even some Democrats have found Trump’s “fair trade” message very appealing.
Most believe Trump will negotiate better deals tban we have today.

[central_va]

The answer, in brief, is because they accepted the common understanding that Smoot Hawley was bad for the Depression.

I watched Rush Limbaugh rail on at Perot. I never heard the term Smoot Hawley once.

[Soul of the South]

“The Smoot-Hawley lie.”

The numbers don’t support the Smoot Hawley lie. In 1929, when Wall Street crashed, foreign trade comprised less than 5% of GDP. Half of the GDP contribution came from manufacturing, half from agriculture so the impact of the manufacturing goods tariff increases from Smoot would have cost the country no more than 2.5% of GDP even if 100% of exports had been lost. Smoot was passed in 1930.

At depth of the Great Depression in 1933, GDP had fallen by 50% and manufacturing production by about 55%. Since trade comprised only 5% of GDP at the beginning of the Depression, and at the depth of the Depression trade volume was about 50% of the pre-depression level, tariffs contributed very little to the decline in economic activity. A drop in domestic demand for goods and services was the cause of the depression which was exacerbated by Federal Reserve actions to decrease the money supply.

The second evidence for tariff policy being insignificant is the performance of the US economy during the 19th century. The US pursued a high tariff trade policy throughout the 19th century. This policy was driven by two specific objectives. 1) was to protect developing US manufacturing industry from foreign competition and 2) was to fully fund the federal government from tariff and duty revenue. During the 19th century, and particularly during the 35 year period from 1865 to 1900, the USA enjoyed the highest sustained economic growth rates of any economy in modern history. The US built the greatest industrial infrastructure of any country in the world, the US became the center of innovation and technology, and the US developed a huge middle class. All of this economic growth occurred when the country was pursuing a high tariff policy.

The Smoot-Hawley argument is bogus. It is not supported by the historical evidence. Certainly the high trade deficits and declining standard of living for most US middle class households, as well as the US manufacturing sector since the adoption of zero tariff trade policies in the 1990’s should be evidence low tariffs do not necessarily lead to high economic growth.

[central_va]

I never heard the term Smoot-Hawley until recently. It is new meme of the Free Trade crowd and simplistic attempt at re-writing history to suit their needs. It took many US history courses as an undergrad and NEVER heard Smoot-Hawley being debated about the causes of the Great Depression of making it worse..

[BroJoeK]

Thanks for highly informative posts.
I agree that some “lessons of history” we were taught in school were more anti-Republican propaganda than valid economics.
I’m only saying: in 1992 most people, especially Republicans, supported NAFTA at least in part because of the Smoot Hawley “lesson of history”, and because NAFTA was sold as increasing prosperity and reducing inflation.

Now here we are 24 years later, and does anybody even know how much it performed as advertised?

By the way, just so we’re clear on this point: Donald Trump himself says he is a “free trader” then qualifies by saying he will negotiate deals which are much more of “fair trade”.
So I think nearly everyone can agree that free trade plus fair trade equals a good deal for Americans.

But I certainly hope both of you appreciate the infinite irony of some people who claim the 1830 Tariff of Abominations was bad enough to cause Civil War, also saying that 1930 Smoot Hawley was a good thing and should serve as a model for us today.

[BroJoeK]

I first learned about Smoot Hawley in high school, and saw the lesson repeated throughout my education and many times since.
What’s new here is the idea that Smoot Hawley WAS NOT a bad thing and likely had very little impact on the Great Depression in the US.
But that idea makes sense to me, so I don’t think we can any longer use Smoot Hawley to justify trade agreements whose net effects are to close plants putting yet more people on Big Government welfare.

[Harmless Teddy Bear]

I'd say the billionaires deserve whatever punishments she dishes out to them.

The "billionaires" will not get punished. It will not even be a blip on their radar.

Now the family who owns a "stop and rob"? Or a little farm? Or a small business with 10-50 employees? They will be crushed.

But then what is new? The GOPe has no interest in saving those guys either. They are not rich enough to buy a lobbyist.

[Harmless Teddy Bear]

What’s new here is the idea that Smoot Hawley WAS NOT a bad thing and likely had very little impact on the Great Depression in the US.

It is? Only to the poorly educated. I learned it in 4 grade US history.

But that was because my parents used real history books rather then poorly written propaganda by the DoE.

[BroJoeK]

No,no... you may not remember, but in relatively recent years there’s been a conservative rethinking of what caused the Great Depression to sink so deep and last so long.
Sure, Friedman wrote in 1963, but even Friedrich Hyek didn’t admit to agreeing with him until 1978 (of course, for young folks, that’s all ancient history ;-) )
These studies have pointed the finger more at Roosevelt and Fed policies, than at Smoot Hawley.

Sadly, at least in this regard, I grew up in an earlier age, and to the point of this discussion: so did many other Republicans who supported NAFTA against Ross Perot in 1992.
That’s why they supported it.

[BroJoeK]

Ooops.
Hyek = Hayek

[BroJoeK]

You say billionaires will not get punished, but Bernie has promised a 90% tax rate, which sounds pretty punishing to me.
So now Hillary will appear “moderate” if she only asks for 80%.
Then Republicans will want to look “conservative” and propose just 60%, after which they’ll negotiate a compromise of 70%.
Isn’t that how Washington works?

Of course, all that presumes Trump will pull a Ross Perot on us and go nuts before the November balloting.
Then, as I said, the billionaires will deserve whatever Hillary and or Bernie dish out to them.

[kearnyirish2]

As far as I can see the only responsive politicians are in the House, because they run for re-election every two years. This country would be much better off if the Senate and President faced re-election every two years as well; as it is, they can wreak havoc for a couple of years then mount a taxpayer-funded PR campaign for the next couple to get in again...

[Harmless Teddy Bear]

You say billionaires will not get punished, but Bernie has promised a 90% tax rate, which sounds pretty punishing to me.

There used to be a 91% tax rate. Nobody paid it because there were always bought and paid for tax loopholes in the system.

No one will pay it now for the same reason.

There is a reason why Warren Buffett will always pay lower taxes then his secretary. It is not a nice reason but it is a real one that must be faced.

So relax. The billionaires will be just fine.

It is the rest of us who will be up the creek.

And while people like you keep on saying Trump is...(Fill in the blank) The truth is that Trump is not any of those people. He is himself. And so far that has worked out pretty well.

[Harmless Teddy Bear]

You may not remember having been trained by the modern day school but like I said it has been know by anyone with a decent education for decades. I believe the article I read on it was written about the time of World War II and even then it was not a new thought.

People keep on thinking they have rediscovered the wheel. They haven't.

[BroJoeK]

Harmless Teddy Bear: "You may not remember having been trained by the modern day school..."

I confess to nearing the age of Methuselah, and being educated in schools which taught Democrat propaganda as "lessons of history".
So Smoot-Hawley was long said -- and for all I know may still be said -- to have deepened and lengthened the Great Depression.
This puts the blame on Republicans and draws attention away from Democrat FDR's economic mismanagement.

But obviously I'm not the only one, since 24 years ago Republican voters overwhelmingly rejected Ross Perot's anti-NAFTA platform, and at least for me, it was visions of Smoot-Hawley which motivated.

Now, as to current thought on what started the Great Depression, and why it lingered so long in the US, even after other industrialized countries were recovering, all that is a matter of lengthy discussion and debate, and was certainly not settled by some unnamed article you read from the time of World War II.

Nice try though.