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.
Gerald Celente predicts food riots by 2012. It makes one wonder.
Most likely with Iran.
NAFTA trade with Mexico has really elevated both of our economiesIndeed it has.
At the onset of an inflation, the price level can actually fall because people, as their estate begins to lose value, contract spending and prices of goods that remain unsold in larger amounts must be reduced in price, often at a rate that more than offsets tha inflation in order to clear the market. That flood of new nominal money reverses that apparent trend after a short time.
A mild deflation, such as we had from the mid eighties until 2001 or so can be politically beneficial because labor "unrest" largely disappears when wage earners do not feel pressed by rising prices and stagnant wages. Their wages, while not increasing nominally, continually buy a little more. In an inflation wages do not keep up with prices and labor "unrest" - strikes and the like, tend to increase.
Why do we think Roosevelt's spending on the economy worsened the depression, but the war spending helped lift us out?Unemployment vanished with war spending.
China will be the new Japan.
No argument from me about the AP. It is totally a propaganda agency. Absolutely worthless, and that is why the Newspapers are dying. It is about content, not media.
Unfortunately they “own” the print media. Very few papers understand that this is killing them. Those that do feel powerless to fix it, because they can only fix it with employees who think, are informed, and give an honest effort at expressing where we really are.
Downsizing, cost cutting, efficiency only mentality have destroyed worthwhile content.
There are exceptions that are often referenced here. For the most part: IBD, WSJ, and a few Regional Papers.
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.
These are stats that are small enough for me to commit to memory, for the next time someone mentions the great FDR.
This stuff can’t be repeated often enough and it is to the ever lasting shame of educators in the US, dating from the time of FDR, that this wasn’t taught in school. Fat chance of anything like this being taught now!
He has a war. He just needs to fight it, and rally the American people.
If Bush had rallied the country to fight rather than tell us to go to the Mall we wouldn’t be discussing the next Great Depression.
Obama needs to ask for sacrifices from all America so we can defeat Islam once and for all. Yeah...that means we ration. That means we form civilian defense. That means we start growing our own food.
It is just a matter of time before this koranimals start attacking us here. I suspect when we finally get our Beslan here in the US that government will finally get serious. The people will demand it.
ping
Very good point in regards to the four years or more ahead which don't look good. It is so frustrating that Dr. Sowell and people like him are ignored by our so called leaders, how ignorant and arrogant they are!
Thanks for you previous post and the link to The New Dealers' War.
Good point...It always irks me when someone speaks of the great FDR and how he saved the country.
It may have made a difference assuming Smoot-Hawley never passed. You still had the death of the Federal Reserve governor that allowed interest rates to be raised. The balanced budget gospel back then was also a problem.
Slightly OT, but can anyone give me a quick review of Dr Sowell’s book “Applied Economics”? I’m considering using my Barnes & Noble gift card for it (I do already have “Basic Economics”)
Merry Christmas/Happy Chanukah!
Bump for later perusal...
Thomas Sowell Ping
Thankya, an enlightening thread indeed!
It;s not ther banks which have led to this debacle.
It’s rest with the regulations and mandates forced on to the banks. Sub prime loans.
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