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To: Uncle Miltie; UCFRoadWarrior
Why did GDP rise while trade didn't? BECAUSE SMOOT HAWLEY CONSTRAINED TRADE. Jeez. Idiot flag is up.

Reading the analysis of a real economist is usually best. Dr. Thomas Sowell is my favorite. (He even gets the name of the "Hawley-Smoot Act" right!)

Unhappy Birthday Hawley-Smoot

by Dr. Thomas Sowell

Only a few economic historians are likely to notice that June 17th marks the 75th anniversary of the signing of the Hawley-Smoot tariff bill, and even economic historians are unlikely to be nostalgic about that disastrous legislation.

Why not leave the bad news of the past in the past? After all, we have our own problems today.

Unfortunately, the same kind of thinking that led to the Hawley-Smoot tariffs is still alive and well -- and in full youthful vigor -- in the media and in politics today.

At the heart of past and present arguments for restricting imports that compete with American-made products is the notion that these imports will cost Americans their jobs. That fear was even more understandable back in 1930, when the Great Depression was getting under way and unemployment was at 9 percent.

The Hawley-Smoot bill raised American tariffs to record high levels, in an attempt to protect existing jobs and in hopes of helping the unemployed find work producing things that the United States had previously been importing from other countries. Many businesses were in favor of the new tariffs, hoping to retain or expand their markets, and farmers were especially big supporters of the Hawley-Smoot tariffs.

Who was opposed?

Most of the leading economists in the country were opposed. A front-page headline in the New York Times of May 5, 1930 read: "1,028 Economists Ask Hoover to Veto Pending Tariff Bill." Those signing this public appeal against the new tariffs included many of the top economists of the day -- 25 professors of economics at Harvard, 26 at the University of Chicago, and 28 at Columbia.

But, to a politician, what do 1,028 votes matter in a country the size of the United States? Congressman Hawley and Senator Smoot both ignored them, as did President Herbert Hoover, who signed the legislation into law the next month.

The economic reasons for not restricting international trade then were the same as they are today. The only difference is that what happened then gives us a free home demonstration of what can be expected to happen if we go that route again.

The economists' appeal spelled it out: "The proponents of higher tariffs claim that the increase in rates will give work to the idle. This is not true. We cannot increase employment by restricting trade."

If 9 percent unemployment was troublesome in 1930, when the Hawley-Smoot tariff was passed, it was nothing compared to the 16 percent unemployment the next year and the 25 percent unemployment two years after that. The annual rate of unemployment in the United States never got back down to the 9 percent level again during the entire decade of the 1930s.

American industry as a whole operated at a loss for two consecutive years. Farmers, who had given strong support to the Hawley-Smoot tariffs, saw their own exports cut by two-thirds as countries around the world retaliated against American tariffs by restricting their imports of American industrial and agricultural products.

The economists' appeal had warned of "retaliatory tariffs" that would set off a wave of international trade restrictions which would hurt all countries economically. After everything that these economists had warned about happened, tariffs began to be reduced but throughout the 1930s they remained above where they were before the Hawley-Smoot tariffs -- and so did unemployment.

Many factors, of course, affected the Great Depression of the 1930s.

But later economists looking back have seen the Hawley-Smoot tariff as one of the factors needlessly prolonging the economic disaster.

How much wiser are we today? Not much, if at all.

Talk about import restrictions or complaints about "outsourcing" today proceed with the same mindless disregard of what other nations are doing and will do.

People who throw around statistics about how many American jobs have been outsourced don't even mention how many Americans have jobs that have been outsourced from other countries, much less how many Americans will lose those jobs if we start a new round of international trade restrictions.

16 posted on 02/04/2009 2:57:15 PM PST by TChris (So many useful idiots...)
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To: TChris

Thanks for the support. Should’ve known to go to the master.


29 posted on 02/04/2009 3:13:04 PM PST by Uncle Miltie (Congress declares a National Dividend in the amount of $9,000 per taxpayer instead of Porkulus.)
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To: TChris

Note Sowell provided no proof of his claim....no proof whatsoever.

Because the facts belie everything he said. And, I think he is aware of that....the GDP figures totally refute his claim


37 posted on 02/04/2009 3:19:44 PM PST by UCFRoadWarrior (The Threat To Our Soverignty Is Rampant Economic Anti-Americanism)
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To: TChris; UCFRoadWarrior
Another recent column by Dr. Thomas Sowell.

Thomas Sowell: Another Great Depression?

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.

41 posted on 02/04/2009 3:21:04 PM PST by jazusamo (But there really is no free lunch, except in the world of political rhetoric,.: Thomas Sowell)
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To: TChris; Uncle Miltie; UCFRoadWarrior
It was called the Smoot-Hawley tariff, in that order. Sowell's switching it around would only tend to make student research a little more difficult. And like it or not, the recovery did start in 1934 (see GDP, economists of our more honest fathers, all).

Just be grateful that the government didn't keep the businesses after starting them (important difference between the USA and Soviets). That said, our current bailouts and "stimulus" plan are funneling money mostly to government offices and porcine enterprises that produce nothing useful in return--pathological social engineers and CFR constituents. ..."business as usual." And yes, presidents Reagan and even Bush imposed wrongful tariffs (e.g., against Canadian lumber for the sake of one monopolizing Canadian expatriate with his false environmentalist fronts shutting small western American competitors down).
70 posted on 02/04/2009 3:52:11 PM PST by familyop (combat engineer (combat), National Guard, '89-'96, Duncan Hunter or no-vote, http://falconparty.com/)
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