Pre-Depression Indicators Forecasted Rosy Economy

The Wall Street Journal ^ | Wednesday, August 6, 2003 | CYNTHIA CROSSEN

[TroutStalker]

Consumer confidence is down, but gross domestic product is up. Unemployment is relatively high, as are sales of new homes, but producer prices are down. The budget deficit is up, which is bad, but interest rates are down, which is good.

[harpseal]

I am familiar with the income tax cuts and the tariffs of the 1920's. I am not stating the income tax cuts coupled with the traiffs were wrong merely that tariffs alone do not cause a Depression. That was the gist of your post blaming Smoot Hawley as the cause of teh American Depression.

Now one thing is clear there is little actual econometric data to prove that Smoot Hawley either worsened or lessened the effects of the Depression that satrted before its enactment. This is simply fact

[AdamSelene235]

You just reminded me that China may very well wait until we can't afford to do anything about their messing with Taiwan.

Why do you think they are accumulating our MBS and Treasury debt? The Chinese can throw America into a financial crisis anytime they please.

[AdamSelene235]

Huh? How are tax cuts socialist?

Deficit spending is a de facto increase in taxation. The effective fiscal burden of government has been increased. Only the method of payment has changed. I'd argue that currency instability is a far more damaging tax than direct taxation.

[harpseal]

This is a debate that has been ongoing for decades, and you and I are not going to resolve it here. If you are not one of those who believe that domestic tax and tariff (taxes on foreign trade) increases are bad for an economy, I'm not going to change your mind.

I consider domestic taxes as something entirely different from tariffs in their overall economic effect. I strongly favor cutting domestic taxes and using tariffs where appropriate. I favor a protective tariff when countries have either manipulated currency, imposed non-tariff restrictions on American products or used tariffs on American products. I favor protective tariffs for a limited period when enacted and tehy are always subject to negotiations with those nations subject to them. I favor no subsidies for offshore investment. By the way I also favor minimal government regulation of businesses.

I don't mind having a sensible debate, but I see no reason for the personal attack.

I did not realize I was engaging in a personal attack when I pointed out the time differential. You made some blanket statements regarding the Smoot-Hawley tariffs that were very misleading as to the historical record. when you respond here you are referncing the historical record.

You don't have any idea of what my grasp of history is. The tariffs were enacted in June 1930 but were working through Congress in late 29. The House Ways and Means announcement in early December that it was considering tariffs on "all" commodities, and Hoover's announcement that he would not include an anticipated cut in taxes in his proposed budget coincided almost pefectly with the collapse in the stock market.

There are two distinct actions listed here that could have percipitated teh Black Tuesday crash besides teh Federal Reserves actions at this time. To exclusively blame Smoot Hawley is I believe disingenuous. The comments of the chairman of the House comittee on legislation over eight months from enactment when it is markedly different from what was then in the Senate is hard to take as a basis for the depression and quite frankly there have been many such allegations over the last months here on Free Republic.

So what's historically inconsistent with the possibility that these events and the depression that began in 1930 might be related?

There is a very great difference btween these events might be related and Smoot-Hawley tariffs caused the depression or even exacerbated the depression. Now even the association of the Smoot Hawley tariffs is a whole lot less clear when one considers Hoover's statements about the income tax cuts. Furtehr, there is no way teh eventual conference comittee tax tariff that combined all the tariffs of the Senate on manufactured goods with all the tariffs of teh house on commodities could have been known in October 1929. The depression IMHO was well underway by teh time of the Smoot Hawley tariffs. If you disagee with this point I would be happy to see your evidence.

And if you would you please list for me the nations whose depression "ended" in 1930, it would be helpful.

Now here we have a situation of you misintepreting me as I seem to have misinterpreted you. I said ended in the early 1930's. By 1935 Germany was out of the depression. Likewise Japan, Poland, Sweeden, Chezkoslovakia, and Austria.

Now as to the overall question of tariffs as a means of protecting industries within the USA such make sense IMHO for dealing with the absolute advantage conferred by authoritaian regimes imposing low living standards on its populace and for maintaining a good envirornment for capital investment. Beyond that they make sense as a reasonable response to currency controls foreign government subsidies and foreign tariffs and of course foreign non-tariff barriers.

I personally prefer them to be used as "bargaining chip." I also realize there will be some who will demand teh complete economic surrender of teh USA (the pRC comes to mind).

I don't disagree with you that the Federal Reserve played a role in the disaster. It hiked interest rates when it should have been slashing them, for instance, and the the most knowledgeable member of the Fed had just died. Have you read Friedman and Schwarz's seminal study?

Yes I have read the study.

Yet, I think their incompetence was just an aggravation of forces set in motion by Congress and the administration. If you don't agree with me, then we simply disagree. I won't hold it against you.

My disagreement is that the FED actions actrually started before Congress and that the Federal reserve board was trying to expand its control through some of these actions. I further note that the Federal Reserve's actions were presaged by the Bank of England raising interest rates. Now as to the relative roles each entity had and each action had as you noted in your opening that will be debated for a long time but I consider teh blaming of the Depression on teh Smoot Hawley tariffs to be a canard that is absolutely unsupported by the record. I note that in the post I am repling to your are not taking that stand.

[harpseal]

By the way I do appreciate your change into reasoned discussion along with accurate history. It makes civil discussion so much easier and as I said my appreciation for this is extended.

[Lazamataz]

I find imagining them doing the worst possible thing at the worst possible time yields the most accurate predictions.

Similar to my life. When I do the worst possible thing at the worst possible time, I get the most beneficial result. :o)

[harpseal]

Please note B.Bumbleberry's response when called on aqn assertion he/she made. furtehr pleae not that the response was polite and discussing issues. i heartily recommend that approach to you.

[harpseal]

And when Roanld Reagan ran on "stay the course" and "It's morning in America", he won by one of the biggest landslides in American history.<P. Note the change in the economy when Ronald Reagan ran for re-election and what the economy was like when he took over from Jimmy Carter.

[B.Bumbleberry]

I don't know Elliott. The tariff issue is an emotional one, and I don't think I want to debate it much. I for one think the debate was settled long ago by Ricardo, who demonstrated that on balance everyone benefits from free trade. I'll leave it to you to research that. This of course assumes that the trade is fair. Government subsidies cloud the picture.

I'll just tell you how I see it and leave it at that. You aren't going to agree, and you aren't going to get me to change my mind.

There can be no question that foreign competition can be destructive to those businesses it operates against. Just as can competition from businesses in another state, or from competitors within a state. Destruction is part of free enterprise. High cost, less efficient competitors are driven to either compete or cease to exist. Hence, the destruction argument is not presuasive to me.

If I can buy an item made in Japan for $50 that is better quality and $10 less than the same item made here, I am more than $10 richer. I'll be able to spend that $10 on something else which will go into the economy. The domestic manufacturer that misses out on my purchase will lose maybe $5 in profit that will force him, if he loses so much market share that his business is impacted, to either become more efficient, improve his quality, redirect his resources to something he can make money on, or go out of business. Most businesses will survive and compete, just as the car companies have done. Just think how much better and cheaper cars are today than they might be if Japanese cars had been kept from the market by high tariffs.

It makes no more sense to me to tax foreign producers to even out cost advantages than to do the same for producers in another state that is competing against a local company, which would be unconstitutional. If you put a tax (tariff) of $10 on the Japanese producer above, I'm $10 poorer, the Japanese producer is poorer, and the domestic producer has no incentive to become a better competitor. Think of how stupid it would have been in the early days of the industrial revolution to put a tax on tractors because they were "unfairly" competing against farm labor and putting farm laborers out of work. The logic to me is indistinguishable from the logic of tariffs.

It's hard to tell workers employed by the inefficient, higher cost enterprise that everyone is better off by a process that puts them out of work, but I think it is demonstrably true. Personal wealth of everyone (on average) increases with increased efficiency, which is driven by competition more than any other factor. It doesn't matter whether the competition is from a foreign enterprise.

I think the real proof of the pudding is to look at our unemployment rate and the health of our economy. Foreign competition has not prevented us from having one of the lowest unemployment rates in the industrialized world.

[Dane]

Note the change in the economy when Ronald Reagan ran for re-election and what the economy was like when he took over from Jimmy Carter

Take a look at Reagan's victory speech on election night in 84. He mentioned that the economy wasn't in the greatest shape, and more had to be done.

But what the hey, it seems that you are hellbent to derail Bush on FR any way you can, even if that means using liberal demo chicken little tactics.

[the gillman@blacklagoon.com]

When you find something that works, go with it!

[gcruse]

Oh Yeah?

---

In 1931 the editors of The Viking Press put together a marvelous little book chronicling some of the public statements of prominent figures leading up to the October 29, 1929 stock market crash and in the early days of the great depression. Some of these are shared below.

---

"The outlook of the world today is for the greatest era of commercial expansion in history. The rest of the world will become better customers."

Herbert Hoover, speech at San Francisco, July 27, 1928.

"Unemployment in the sense of distress is widely disappearing.... We in America today are nearer to the final triumph over poverty than ever before in the history of any land."

Herbert Hoover, speech accepting the Republican nomination, Palo Alto, CA, Aug. 11, 1928.

"Secretary Lamont and officials often Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board."

The New York Times, Oct. 14, 1929.

"The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis."

Herbert Hoover, statement to the press, Oct. 25, 1929.

"Conditions do not seem to foreshadow anything more formidable than an arrest of stock activity and business prosperity like that in 1923. Suggestions that the wiping out of paper profits will reduce the country's real purchasing power seem far-fetched."

The Wall Street Journal, Oct. 26, 1929.

"Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks. We are continuing and will continue our purchases in substantial amounts at levels which we believe represent sound investment values."

John D. Rockefeller, Sr., Oct. 30, 1929.

"There are no great failures nor are there likely to be."

Monthly Review, National City Bank, Dec. 2, 1929.

"Never before has American business been as firmly entrenched for prosperity as it is today. Steel's three biggest customers, the automobile, railroad and building industries, seem to me to justify a healthy outlook. This great speculative era in Wall Street, in which stocks have crashed, means nothing in the welfare of business. The same factories have the same wheels turning. Values are unchanged. Wealth is beyond the quotations of Wall Street. Wealth is founded in the industries of the nation and while they are sound, common stocks may go up and stocks may go down, but the nation will prosper.

Charles M. Schwab, Chairman of the Board, Bethlehem steel Corp., address before the Illinois Manufacturers Association, Chicago, Dec. 10, 1929.

"I see nothing in the present situation that is either menacing or warrants pessimism. During the Winter months there may be some slackness or unemployment but hardly more than at this season each year. I have every confidence that there will be a revival of activity in the Spring and that during the coming year the country will make steady progress."

Andrew W. Mellon, New Year's Day message, Jan. 1, 1930.

"Trade recovery now complete, President told. Business survey conference reports industry has progressed by its own power. No stimulus needed. Progress in all lines by the early spring is forecast."

New York Herald Tribune headline, Jan. 24, 1930.

"The psychological effect of stock market activities on business is, I think, usually overemphasized.... I do not think that the fall in security prices will itself cause any great curtailment in consumption,..."

E. H. H. Simmons, President, The New York Stock Exchange, Jan. 26, 1930.

"Business will be all right. I am not in the least pessimistic. You notice that everybody is anxious to be at work; that is one of the healthiest signs of the times. -- There is no such thing as overproduction.

Henry Ford, quoted in the New York Herald Tribune, July 31, 1930.

"The average man won't really do a day's work unless he is caught and cannot get out of. There's plenty of work to do, if people would do it."

Henry Ford, quoted in The New York World-Telegram, March 18, 1931.

"With the exception of the difficulties that have arisen as a result of the drastic deflation of commodity prices, the business horizon is clear.... we all know that the present period cannot long endure."

Richard Whitney, President of the New York Stock Exchange, address before the Merchants Association, New York, Sept. 10, 1930.

"The country is not in good condition."

Calvin Coolidge, Jan. 20, 1931.

[harpseal]

Take a look at Reagan's victory speech on election night in 84. He mentioned that the economy wasn't in the greatest shape, and more had to be done.

And your point is? I remember that speech well.

But what the hey, it seems that you are hellbent to derail Bush on FR any way you can, even if that means using liberal demo chicken little tactics.

Actually I am a Bush supporter. I was in 2000 and I will probably be one in 2004. I am discussing appropriate tactics for GWB to impelement and you are taking it as a personal attack on him. If the employment picture has improved by 2004 then Bush can run on that even if it has not gone to an economic boom. But the total employemnt in the USA has decreased this year even while in a "recovery." your gloom and doom name calling does nothing to enhance GWB's re-election chances. In fact you are probably doing him more harm than good.

Let me state this clearly there is absolutely no Democrat I could vote for in 2004. GWB is the putative republican nominee. He needs to triangulate this issue from teh Democrats if he wishes to win. Note winning is what it is about in politics.

[Lael]

Now if you want GWB re-elected the way to do that is to address issues not pretend they are not issues. GWB needs to address issues not merely wait for them to go away if things go his way

Bush is a one termer.

The Demos are already honing the line that Bush #2 is the first President since Herbert Hoover to have an actual Shrinkage in jobs during his term!

[harpseal]

I don't know Elliott. The tariff issue is an emotional one, and I don't think I want to debate it much. I for one think the debate was settled long ago by Ricardo, who demonstrated that on balance everyone benefits from free trade. I'll leave it to you to research that. This of course assumes that the trade is fair. Government subsidies cloud the picture.

Since you brought up Riccardo he also was very much aware of the differences between absolute advantage and natural advantage. He actually proposed that tariffs should be used to take away absolute advantage.

Now as to the rest of what you say about foreign competition versus domestic competition please not my very careful limitations on tariffs regarding the actions of foreign nations and their use as barganing chips.

I would emphasize your comments about this assumes teh trade is fair. That it seems is the crux of the issue are we dealing with fair free trade?

[the gillman@blacklagoon.com]

I remember Reagan in 83. He had taken over Carter's disasterous reign with it's 21% interest rates and malaise.
By 83, he had already made me a rich man because I had bought every slum I could get my hands on at 19-21% rates. Most with no down payment, but they carried themselves.(almost)Prices went through the roof as rates went down and the people regained their courage and optimism.

He chopped off about half my value with his tax reform of 86, but I eventually forgave him as I got it back.

Difference is huge. Reagan pulled the country up out of it's funk, created by Carter. Bush is (wrongfully) thought to have inherited a boom and lost it.

People are generally lazy and don't like to think.

The times are very different. It's Bush's game to win or lose now, no matter whose fault the bust was.

[the gillman@blacklagoon.com]

Forgot to add, nobody thought Carter had created a robust economy.

Nobody.

[scottlang]

Exactly, he is a good man who is a good president. But, he needs to do and be seen doing somthning to help the joblesss and the economy. If he does not and a moderate dem does. The dem has a good chance of winning in 2004.

[Dane]

Bush is a one termer.

The Demos are already honing the line that Bush #2 is the first President since Herbert Hoover to have an actual Shrinkage in jobs during his term

So says the DU(democrat underground) ambassador on FR. I guess the landslide re-election of Ronald Reagan slipped your mind.

I can see why. That was a sad night for you all.

[harpseal]

The Demos are already honing the line that Bush #2 is the first President since Herbert Hoover to have an actual Shrinkage in jobs during his term!

The Democrats love to run against Herbert Hoover. Now is the time for Bush trianguulate this issue. take a stand against offshoring and importing from China. simnply state the laws governing H1-B visas and thst they should not dispalce American workers will be an enforcement priority. he can win with this isf he just doesn't hide form it but if he doesn't act soon he will be a one term president.

Now we come to the implications of a Democrat in the White House for the period from 2005 to 2009. I for one think that such a circumstance would lead to Civil War in the USA. we may expect a wholsale abrogation of what remains of the Second Ammendment, massive welfare programs, nationalization of health care, transfer of more technology to China, destruction of the US military and the complete loss of american sovereignity.