Looks like government spending IS a part of GDP, and it doubled during the Great Depression. Hmmm...
Posted on 02/04/2009 2:40:10 PM PST by UCFRoadWarrior
"The Smoot-Hawley Tariff Act caused the Great Depression" as a number of talk-radio show hosts, politicians, and cable news channel reporters have lamented in recent weeks.
"The 'Buy American' clause in the Stimulus Bill will be another Smoot-Hawley" rails others.
Did Smoot-Hawley cause the Great Depression? The answer to that is "no".
Did Smoot-Hawley continue the Great Depression. The answer to that is "no", also.
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When it was announced last week that the proposed "Stimulus Bill" would contain a "Buy American" clause, every advocate of Free Trade...from conservative GOP members to Socialist European Union politicians...decried the "Buy American" clause, claiming it would affect Free Trade, lead to a "trade war", and, also lead to another depression "like Smoot-Hawley did in the 1930's"
However, there is no evidence the Smoot-Hawley Tariff Act caused the Great Depression, nor, did it exacerbate the Great Depression.
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The Smoot-Hawley Tariff Act, passed in the summer of 1930 in the wake of the Great Depression, was an attempt to try to preserve American industry from further economic erosion during the worst economic crisis in United States' history. The tariff was designed to protect American industry from potential predatory trade practices from foreign nations, mainly European (which was still reeling economically from the aftermath of World War I).
In recent years, the Smoot-Hawley Tariff Act has been the de facto "Economic Bogeyman" for the Free Trade and Globalist crowd. In the wake of the worldwide economic failure, the Free Trade advocates are looking for cover in the wake of huge national trade deficits, growing wordlwide unemployment, and a collapsing world banking system.
Smoot-Hawley has been their proverbial whipping boy.
However, the economics do not back up the negative assertions from its critics.
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In the following chart, you will see that the Smoot-Hawley Tariff Act had no real negative effect on the economy. In fact, in most years that Smoot-Hawley was in effect (1930-1945), the US national Gross Domestic Product actually GREW.
(Note that 1929 figures are included, as this was the year of the Stock Market Crash)
Table format
I Gross domestic product
II Personal consumption expenditures
III Gross private domestic investment
IV Exports
V Imports
VI Government consumption expenditures and gross investment
(Figures in billions of dollars)
I II III IV V VI 1929 103.6 77.4 16.5 5.9 5.6 9.4 1930 91.2 70.1 10.8 4.4 4.1 10.0 1931 76.5 60.7 5.9 2.9 2.9 9.9 1932 58.7 48.7 1.3 2.0 1.9 8.7 1933 56.4 45.9 1.7 2.0 1.9 8.7 1934 66.0 51.5 3.7 2.6 2.2 10.5 1935 73.3 55.9 6.7 2.8 3.0 10.9 1936 83.8 62.2 8.6 3.0 3.2 13.1 1937 91.9 66.8 12.2 4.0 4.0 12.8 1938 86.1 64.3 7.1 3.8 2.8 13.8 1939 92.2 67.2 9.3 4.0 3.1 14.8 1940 101.4 71.3 13.6 4.9 3.4 15.0 1941 126.7 81.1 18.1 5.5 4.4 26.5 1942 161.9 89.0 10.4 4.4 4.6 62.7 1943 198.6 99.9 6.1 4.0 6.3 94.8 1944 219.8 108.7 7.8 4.9 6.9 105.3 1945 223.1 120.0 10.8 6.8 7.5 93.0
NOTES:
Although trade declined after the Smoot-Hawley passage...and the GDP dropped each year between 1929 through 1933...the biggest percentage declined was in Gross Private Domestic Investment...it was not in trade. Private investment started to disappear in the US before Smoot-Hawley passage.
Also, trade was a small part of the US GDP before Smoot-Hawley. In 1929, the combined exports-imports were just over 10% of the GDP (well below today's current percentage of trade compared to GDP). Even if trade went to zero in the early Great Depression years, that would not explain the larger percentage drop in GDP (which was due mainly due to bad financial and business practices...pre-1929).
However, in years 1933-1937, the US GDP began to rise...and in much greater percentage than the total trade output. If Smoot-Hawley truly continued the Great Depression...why did GDP rise while trade not so much? If Smoot-Hawley truly continued the Great Depression...there would not have been the GDP growth.
1938 is an interesting year, because the GDP actually dropped from 1937 levels. Trade numbers also dropped....even though the overall tariff from Smoot-Hawley DROPPED from over 19% to over 15%. The reduction in tariff did not help the economy that year.
In 1939 and 1940, the GDP grew, while the trade totals still remained lower than before Smoot-Hawley. The percentage of trade-to-GDP continued to be smaller than in 1929
1941 saw the GDP finally eclipse the pre-1930 levels...while overall trade was much lower than pre-1930...Smoot-Hawley was still in effect at the time.
1942-1945 saw massive growth in the GDP, as the US was spending heavily on the World War II war effort. The percentage of trade-to-GDP continued to drop, with Smith-Hawley still in effect. It should be noted that, with World War II taking place, trade worldwide was affected.
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While Smoot-Hawley did not help the economy prosper, it certainly did not cause, nor continue, the Great Depression, as critics claim. In most years the GDP still rose, with trade restrictions in effect.
In the first year after the rate of tariff on Smoot-Hawley decreased (1938, after it was decreased in 1937)...the level of trade and the GDP dropped. The drop in trade and GDP in 1938 demonstrates even strongly that lower tariffs did not lead to economic gain.
Critics of protectionism and favorable national trade practices will need to find a new "Economic Bogeyman". The evidence does not support that Smoot-Hawley caused the Great Depression, nor continue it.
Unfortunately, as current Free Trade and Globalist practices continue to lead to worldwide economic failure, those ignorant of the real history of the Smoot-Hawley Tariff Act will continue to critique, without presenting the facts.
The facts do not support their thesis...and the constant misinterpretation of facts regarding Smoot-Hawley well demonstrate the inability of those Free Traders and Globalists who cannot provide any explanation to why current international Free Trade practices have not worked.
#62 - were you expecting perpetually increasing GDP shrinkage forever & ever & ever? When would you expect us to have reached negative GDP?
In 1929, GDP was $103 billion. Exports were $5.9 billion while imports totaled $5.6 billion. In 1930, GDP was $91 billion. Exports were $4.4 billion and imports $4.1 billion. In 1931, GDP was $76 billion; exports $3 billion; imports $2.9 billion. In '32 GDP was $58 billion while exports and imports together totaled $4 billion.
Do you still want to stick by your earlier claim that trade only accounted for 2% of our GDP during the depression? You're uniquely unqualified to be lecturing anyone about "facts."
GDP had fallen from $103 billion in 1929 to just $56 billion by 1933. Exports were just $2 billion and imports $1.9 billion in 1933. Yeah, the collapse in trade had nothing to do with making the depression deeper and longer. Is that what you're really trying to sell here? Friedman and Sowell are wrong and you're (the guy who thinks $4 billion is 2% of $58 billion) right on this issue?
LOL!
Not to mention our OP has conveniently forgotten that one of the components of GDP is government spending, which was balooning (even excluding Social Security and unemployment) during the 1930s. Of course GDP can still go up when the goverment is spending like a drunken fratboy.
Tariffs are constitutional plain and simple. The 16th amendment is arguably NOT.
Hmm. So I understand this, you're comparing stolen property and slavery to me buying a Lexus, Mercedes or a mango from Ecuador? Really? That's the best ya got?
So you think free trade is bad.
Milton Friedman thought it was good. Tom Sowell agrees. So does every other competent economist. I’ll take their opinions any day.
Case closed.
IS government spending a part of GDP, or not?
You sure you really want to go there?
What we call 'Free Trade' is more accurately called 'labor arbitrage'.
In other words, a race to the bottom via workers wages. Now just who had the lowest labor costs in the years leading up to WWII?
If you guess Japan and Nazi Germany - you win the Kewpie Doll. It was bad enough that the Western Democracies allowed Hitler to take the Cechkosovakian* arms works without a shot ... imagine how much more wealthy the Jerries would have been if they had enjoyed a free access to the American Market?
Most free traders on this forum state they were too smart to get drafted - so they really don't appreciate just how much the GI wants his opponent to be ill fed - and lacking supplies....
Some things you just cannot place a dollar value on.
(Spell check likes its spelling - so what can I say?)
Beautiful. That's a keeper. Can I steal that as my tag line?
Looks like government spending IS a part of GDP, and it doubled during the Great Depression. Hmmm...
Should've put a < sarc> < /sarc> tag on that. I did not mean to go there in earnest. While it may be true, it is an indefensible argument; just like the one made by the article poster. You can't prove causality in these cases without tons of PhD level work.
I was looking for Small Hooters.
Agreed. Still, the wisdom of both is in serious question.
Whoa Dude! Free Trade <> Income Tax.
I can propose a vast number of alternative tax strategies that would encourage growth, protect workers, fund the government (less), and have nothing whatsoever to do with trade.
We can both hate taxes equally, and perhaps still disagree on one type of tax (tariffs). ;-)
The Smoot-Hawley Tariff Act, passed in the summer of 1930 in the wake of the Great Depression,
- I think you meant to say, "passed in the summer of 1930 in the wake of the Stock Market Crash in October, 1929"; the Great Depression lasted until the start of WWII.
- I read somewhere that the crash of '29 occurred on rumor that Smoot-Hawley would be passed and would be signed into law.
“the GDP figures totally refute his claim”
I know you did not make this statement...but you appear to be wise in the ways of Econ 101.
Isn’t governemnt spending a part of the Gross Domestic Product? Wouldn’t increased gov’t spending in the 1930s be a (significant) factor in WHY the GDP continued to increase despite Smoot Hawley?
Right, and it was reversed when the damage to U.S. steel consuming industries became quite apparent. Moving washing machine and car manufacturing (IIRC) to Canada and Mexico to avoid sheet steel prices in the U.S. is no way to “protect” American jobs. IIRC, the net effect of the steel tarrifs was to DECREASE American manufacturing jobs. It moved the manufacturing of steel constructed gizmos off shore.
Regarding dumping, if countries wish to sell us stuff for less than it costs them to manufacture it, I’m in favor. Let their taxpayers support our consumption.
I am not aware of a long-term successful dumping strategy in which a local industry was decimated, causing long-term price increases foisted by the dumper. Usually, the dumping strategy just moves on to the next foolish country that wishes to corner that market.
I’m not a student of the economics of the history of dumping. So if you have an example of a long-term successful strategy, I’ll listen.
Fed action caused the GD, and Smoot-Hawley was a minor and greatly exaggerated element, along with many others that were enacted after the Fed's shrinking of the money supply had set things in motion.
And, a 30% reduction in the money supply affect every type of business activity, including the import/export business.
Dude. You rock.
Though, Keynesianism is dead. So I’d have to think about that more than I want to right now. Getting close to Miller Time.
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