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Arthur Laffer: How Tax And Tariff Hikes Crushed 1930s America
IBD ^ | 07/20/2015 | Arthur Laffer

Posted on 07/20/2015 4:46:29 AM PDT by SeekAndFind

'Government is not the solution to our problem; government is the problem," may well be President Reagan's most oft-repeated quote. And the reason it's so frequently quoted is because it's so damn true. And no example fits this quote better than the government actions taken before and during the Great Depression.

In 1929, the single largest tax increase on traded products was passed by both the U.S. House and the U.S. Senate. In May 1930, this so-called Smoot-Hawley tariff was signed into law by President Herbert Hoover, which precipitated massive retaliation on U.S. products by foreign governments. From that moment it was "game on" for the worst economic period in U.S. and world history.

To the politicians of the day, this tariff increase was supposed to not only increase tax revenues and reduce the deficit, but also to stimulate the economy. With a tariff on imports, so the logic went, Americans would eschew foreign-made goods and instead would "buy American," leading to increased U.S. output, employment and production. And the politicians thought this would be the end of the story.

Unfortunately for those politicians and everyone else, their beautiful theory was killed by a nasty, ugly little fact: U.S. tax revenues and U.S. employment went into free-fall. I guess American consumers, now penalized for buying high-quality low-cost foreign products, chose to work less over buying American, and American workers supplying goods to foreigners had their markets slammed shut.

The magnitude and destructive power of this tax increase is hard to overstate.

(Excerpt) Read more at news.investors.com ...


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: arthurlaffer; artlaffer; depression; laffer; laffercurve; punkmonetarist; tarriff; tax
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1 posted on 07/20/2015 4:46:29 AM PDT by SeekAndFind
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To: SeekAndFind

2 posted on 07/20/2015 4:46:48 AM PDT by SeekAndFind
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To: SeekAndFind

That was a (far) different world than we have today.

Back then, America made everything.

Now, we import everything.


3 posted on 07/20/2015 4:48:01 AM PDT by Cringing Negativism Network (http://www.census.gov/foreign-trade/balance/c5700.html)
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To: Cringing Negativism Network

High tariffs on imports will result in high tariffs on our exports. That’s why increasing tariffs hurt the economy and cost American jobs.

That was the economic truth in 1930 and it still functions the same in 2015.

No doubt we will run the experiment to test that theory but the results will be the same as they were during the Great Depression.


4 posted on 07/20/2015 4:57:57 AM PDT by InterceptPoint
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To: Cringing Negativism Network
Now, we import everything.

Heavy sigh...

Some myths just never die. We produce more manufactured goods now than at any time in our history. It's only the labor intensive product lines that can't be produced here any more. And that isn't because of foreign competition. It's because of our own taxes, environmental regulations, frivolous lawsuits, and especially, our unions.

5 posted on 07/20/2015 5:08:49 AM PDT by SeeSharp
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To: InterceptPoint; Cringing Negativism Network; 1rudeboy; Mase; Toddsterpatriot; SAJ
High tariffs on imports will result in high tariffs on our exports. That’s why...

Let's not forget the fact that high tax rates not only stop econ growth but also reduce tax revenue.  Why is it so hard for conservatives to want lower taxes?

6 posted on 07/20/2015 5:13:13 AM PDT by expat_panama
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To: SeeSharp

“The beneficiaries of free trade are many, and they don’t know who they are, while it’s victims are few, and they know who they are.” Milton Friedman.


7 posted on 07/20/2015 5:19:33 AM PDT by Daveinyork ("Trusting government with money and power is like trusting teenaged boys with whiskey and car keys",)
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To: SeeSharp
Some myths just never die. We produce more manufactured goods now than at any time in our history.

No, we produce a higher value of goods. Not more.

8 posted on 07/20/2015 5:21:27 AM PDT by raybbr (Obamacare needs a deatha panel)
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To: SeekAndFind
Laffer is wrong Smoot-Hawley had almost no effect on the US economy. Import Exports were only 5% of GDP at the time. You can be against trade tariffs but have a real reason and not the Smoot-Hawley myth.


Imports during 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. Monetarists, such as Milton Friedman, who emphasize the central role of the money supply in causing the depression, note that the Smoot-Hawley Act only had a contributory effect on the entire U.S. economy.[22]

---wiki


The Smoot-Hawley tariff was simply too small a policy change to have so large an effect as triggering a Depression. For a start, it only applied to about one-third of America's trade: about 1.3 percent of our GDP. One point three percent! America's average tariff on goods subject to tariff went from 44.6 to 53.2 percent--not a very big jump at all. America's tariffs were higher in almost every year from 1821 to 1914. Our tariffs went up in 1861, 1864, 1890, and 1922 without producing global depressions, and the great recessions of 1873 and 1893 spread worldwide without needing the help of any tariff increases.

---Ian Fletcher

9 posted on 07/20/2015 5:30:59 AM PDT by central_va (I won't be reconstructed and I do not give a damn.)
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To: Daveinyork

Milton Friedman is also on record saying Smoot Hawley is a myth.


10 posted on 07/20/2015 5:32:05 AM PDT by central_va (I won't be reconstructed and I do not give a damn.)
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To: SeekAndFind

Bookmark


11 posted on 07/20/2015 5:33:25 AM PDT by gaijin
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To: expat_panama
High tariffs on imports will result in high tariffs on our exports. That’s why...

Our exports(USA exports) are tariff the world over. But for some (corrupt) reason we refuse to retaliate. My guess is a lot of congressional member are bribes by the gloBULList cartel.


“The case in which it may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods is, when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours. ...

There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.

--- Adam Smith

12 posted on 07/20/2015 5:41:55 AM PDT by central_va (I won't be reconstructed and I do not give a damn.)
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To: InterceptPoint
The world of 1930 is not the same as today. There are more developed countries and not the bottleneck of the past, with limited trade potential.

Countries today, like Germany, Mexico, and China use tariffs to protect their own facilities and create highers costs, it works well for them.

We are gonna lose jobs anyway to innovation and tech, we have to determined what is the best way to have a tax base for our economy, and our people.

13 posted on 07/20/2015 5:54:40 AM PDT by Theoria (I should never have surrendered. I should have fought until I was the last man alive)
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To: SeekAndFind
'Government is not the solution to our problem; government is the problem," may well be President Reagan's most oft-repeated quote. And the reason it's so frequently quoted is because it's so damn true.
. . . and the corollary to it is equally true:
SOME writers have so confounded society with government, as to leave little or no distinction between them; whereas they are not only different, but have different origins. Society is produced by our wants, and government by our wickedness; the former promotes our happiness POSITIVELY by uniting our affections, the latter NEGATIVELY by restraining our vices. The one encourages intercourse, the other creates distinctions. The first is a patron, the last a punisher. - Thomas Paine, Common Sense (1776)
Governmentists obviously hate Reagan’s truth, and the way they evade it is by abuse of language. It’s shocking to realize that governmentists were already using “society” as a euphemism for government - and getting called on it - in 1776. IMHO they do not get called on it nearly enough, for the problem persists to this day.

Governmentists even now assert, “You didn’t build that,” as if anyone ever thought differently. In reality, as Leonard E. Read makes clear (I, Pencil, 1958) society makes the pencils which bear the Eberhard Faber imprint. Society (Read doesn’t use the word) facilitates every step of the process of raw material gathering and transportation, and support of the people whom Eberhard Faber employ.

But, as Thomas Paine makes clear, that does not make the governmentist’s case, not at all. Because, all pretense to the contrary notwithstanding, society is not government. If the two were identical, then indeed “everything is either mandatory or forbidden” - and freedom could not meaningfully exist. And if “You didn’t build that” implied government responsibility for successful businesses, it equally would imply government responsibility for every business failure. Thus, “crony capitalism” - a.k.a, fascism.


14 posted on 07/20/2015 5:56:03 AM PDT by conservatism_IS_compassion ('Liberalism' is a conspiracy against the public by wire-service journalism.)
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To: central_va
Then again there's also this quote:

“It is the maxim of every prudent master of a family never to make at home what it will cost him more to make than to buy… . If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them.”

Adam Smith

15 posted on 07/20/2015 5:59:37 AM PDT by expat_panama
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To: Theoria
The world of 1930 is not the same as today.

That was not my point.

I'm talking about the economic behavior of countries. We raise tariffs. They will respond by raising tariffs as an effort to get us to change our minds. We all spiral down together.

I will always vote for free trade. Yes, it will hurt some American workers. But the overall economic impact will be favorable.

Just think about what would happen if we put a 100% tariff on all imported goods. Would that work?

16 posted on 07/20/2015 6:02:19 AM PDT by InterceptPoint
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To: InterceptPoint
'Just think about what would happen if we put a 100% tariff on all imported goods. Would that work? '

Probably not, are you suggesting we do?

So we enter into free trade agreements with countries that lower our tariffs while the corresponding country keeps theirs and helps their tax bases while we promote other incentives to send such jobs to that country. No thanks.

We have sent our jobs overseas, our taxes are already high, we need jobs to keep this going. Secondly, we have helped to develop countries like China, where they are now a economic and military threat via our trade policies. Well done!

Also, concerning tariffs, is that we can actually produce most of the stuff we need, unlike countries like Singapore. So, a country can raise a tariff against US, but they need to eat.

17 posted on 07/20/2015 6:07:18 AM PDT by Theoria (I should never have surrendered. I should have fought until I was the last man alive)
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To: expat_panama
As long as I can send you the bill for social spending I am cool with that.

The current bastardized form of "Free Trade" where factories are closed here and sent to a backward third country in secret trade deals, with the intended purpose of under cutting domestic labor is new modern phenomenon. It is an ugly thing that I think even Adam Smith would be appalled with. Marx would love it. As you do.

18 posted on 07/20/2015 6:10:24 AM PDT by central_va (I won't be reconstructed and I do not give a damn.)
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To: SeekAndFind
First, the claim in the graphic is wrong. Smoot-Hawley was signed into law during June, 1930, and was also called The Tariff Act of 1930.

That Smoot-Hawley was a significant factor in the Great Depression is total BS. The Federal Reserve pursued policies that shrunk the money supply by 30% during the first three years after the stock market crash of 1929.

The great depression and its offspring, the New Deal, could both have been avoided if the Federal Reserve had performed the task assigned to it. All the Federal Reserve had to do to avoid the Depression and the subversion of the American constitutional order was to purchase $1 billion in government securities during the 10-month period from December 1929 to October 1930. The result would have been an increase, instead of decrease, in high-powered money, and the banking crisis that began in the autumn of 1930 would not have occurred.

The above from a Hoover Institution article based on the work of Milton Friedman.

The Fed's "Depression" and the Birth of the New Deal

Anyone who thinks Milton Friedman bought into the Smoot-Hawley BS should Google: Milton Friedman and the Great Depression and read some of the links. Here's another excerpt:

Milton Friedman’s book on the monetary history of America is irrefutable and reveals quantitatively the reduction in money supply that caused the Great Depression. Indeed, few events, in the history of mankind, have caused as much damage as the Keynesian revolution suggesting a Statist solutions to a Statist failure.

Milton Friedman: The Great Depression

Smoot-Hawley talk seems to be resurfacing again because some want to use it to shoot down Trump's suggestions about how to correct some of our one-sided trade deals. I even heard Mark Levin talking about Smoot-Hawley as if it proves that tariffs are always bad. It doesn't.

People interested in this subject should read the links above and Google: Milton Friedman and the Great Depression. There is a lot of ignorance out there about the Great Depression.

19 posted on 07/20/2015 6:14:08 AM PDT by Will88
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To: Cringing Negativism Network

The ignorant Smoot Hawliests are lingering and are still among us


20 posted on 07/20/2015 6:18:59 AM PDT by bert ((K.E.; N.P.; GOPc.;+12, 73, ..... No peace? then no peace!)
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