Skip to comments.Another Great Depression? (Thomas Sowell)
Posted on 12/22/2008 9:07:58 PM PST by jazusamo
With both Barack Obama's supporters and the media looking forward to the new administration's policies being similar to President Franklin D. Roosevelt's policies during the 1930s depression, it may be useful to look at just what those policies were and-- more important-- what their consequences were.
The prevailing view in many quarters is that the stock market crash of 1929 was a failure of the free market that led to massive unemployment in the 1930s-- and that it was intervention of Roosevelt's New Deal policies that rescued the economy.
It is such a good story that it seems a pity to spoil it with facts. Yet there is something to be said for not repeating the catastrophes of the past.
Let's start at square one, with the stock market crash in October 1929. Was this what led to massive unemployment?
Official government statistics suggest otherwise. So do new statistics on unemployment by two current scholars, Richard Vedder and Lowell Gallaway, in their book "Out of Work."
The Vedder and Gallaway statistics allow us to follow unemployment month by month. They put the unemployment rate at 5 percent in November 1929, a month after the stock market crash. It hit 9 percent in December-- but then began a generally downward trend, subsiding to 6.3 percent in June 1930.
That was when the Smoot-Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences.
Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.
This was more than a year after the stock market crash. Moreover, the unemployment rate rose to even higher levels under both Presidents Herbert Hoover and Franklin D. Roosevelt, both of whom intervened in the economy on an unprecedented scale.
Before the Great Depression, it was not considered to be the business of the federal government to try to get the economy out of a depression. But the Smoot-Hawley tariff-- designed to save American jobs by restricting imports-- was one of Hoover's interventions, followed by even bigger interventions by FDR.
The rise in unemployment after the stock market crash of 1929 was a blip on the screen compared to the soaring unemployment rates reached later, after a series of government interventions.
For nearly three consecutive years, beginning in February 1932, the unemployment rate never fell below 20 percent for any month before January 1935, when it fell to 19.3 percent, according to the Vedder and Gallaway statistics.
In other words, the evidence suggests that it was not the "problem" of the financial crisis in 1929 that caused massive unemployment but politicians' attempted "solutions." Is that the history that we seem to be ready to repeat?
The stock market crash, which has been blamed for the widespread suffering during the Great Depression of the 1930s, created no unemployment rate that was even half of what was created in the wake of the government interventions of Hoover and FDR.
Politically, however, Franklin D. Roosevelt could not have been more successful. After all, he was the only President of the United States elected four times in a row. He was a master of political rhetoric.
If Barack Obama wants political success, following in the footsteps of FDR looks like the way to go. But people who are concerned about the economy need to take a closer look at history. We deserve something better than repeating the 1930s disasters.
There is yet another factor that provides a parallel to what happened during the Great Depression. No matter how much worse things got after government intervention under Roosevelt's New Deal policies, the party line was that he had to "do something" to get us out of the disaster created by the failure of the unregulated market and Hoover's "do nothing" policies.
Today, increasing numbers of scholars recognize that FDR's own policies were a further extension of interventions begun under Hoover. Moreover, the temporary rise in unemployment after the stock market crash was nowhere near the massive and long-lasting unemployment after government interventions.
Barack Obama already has his Herbert Hoover to blame for any and all disasters that his policies create: George W. Bush.
What was so great about the first one?
I’ve wondered why it’s named the Great Depression because it wasn’t great for those who went through it.
That means Obama is going to need a war to get us out of the next depression, and save his ass.
The Great Depression was not like this one. “Great” means big.
This depression was caused by trying to create a “World Wide” Financial Network. It is world wide, and it is into our food supply, manufacturing and everything that there is.
Greenspan, Bernanke, and Henry Paulson had never done anything like this before, and they did not know what they were doing. If it were up to me, I would try them for treason. They have endangered the USA with their stupidity.
We are headed for a socialist authoritarian state. GWB planted the economic seeds and O will assure that the Constitution exists in name only.
Headed? We are already a socialist state, and the authoritarian is about to be sworn in.
Welcome to the Dark Ages!
You are SO correct...
This one will be wonderful.
(superl.) Long continued; lengthened in duration; prolonged in time; as, a great while; a great interval.
(superl.) More than ordinary in degree; very considerable in degree; as, to use great caution; to be in great pain.
The article said — “Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.”
We don’t have to have anything like Smoot-Hawley tariffs now — because the banking and financial system is doing the same thing that Smoot-Hawley did before. Look for the double digits unemployment to happen in 2009 and the Great Depression to take hold then...
Barack Obama: Re-arranging deck chairs on the Titanic...
“Look for the double digits unemployment to happen in 2009”
I’d be shocked if we don’t see 10%+ unemployment in 2009, particularly in the Northeeast and Midwest. Then, in 2010, inflation will begin it’s assent when all of this phoney money is disseminated into the marketplace by banks being coerced by Washington to lend.
I wonder who’s going to play the parts of Tojo and Yamamoto?
And, people wonder why I cried on Nov 4th.
These government interventions are scaring the heck out of me. I have no doubt if it continues, there will be another great depression. Sadly, a great last line by Dr. Sowell.
Were it so benign as that. It's more like he's ordering full steam ahead and a turn into the direction of the hole in the hull, while ordering all hatches open to facilitate movement of the crew.
Many Americans are just like small children, they have to learn the hard way. Unfortunately, they will be taking us all down with them.
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