Stock crash aftermath

What can be even worse than a stock market crash -- including the great crash of 1929 -- are politicians rushing in to fix things. At one time, it was widely assumed that the 1929 crash led directly to the Great Depression that lasted throughout the decade of the 1930s. Now, more and more people who have studied that era have come to see what the government itself did to help as being the biggest reason why the depression went so deep and lasted so long. Even a liberal economist like John Kenneth Galbraith described the actions of the Federal Reserve in response to the 1929 crash as "shockingly incompetent." Neither Republican President Herbert Hoover or his Democratic successor Franklin D. Roosevelt had a clue about economics or a policy that made any sense.

Both sought to keep prices -- including wages -- up, despite the fact that the money supply had declined by one third. How was the country supposed to buy all the output at existing prices, and employ all the workers at existing wages, when there was so much less money?

One of Herbert Hoover's biographers said aptly that he was a great man but not a great president. Anyone who doubts his greatness should study the history of his massive program to feed starving people in Europe during and after the First World War.

Most people would have raised the money first and then bought the food, but Hoover realized that people would be dying while he was raising money. So he risked his own personal fortune by buying the food first, hoping to raise enough money later from donations to recover all the millions of dollars it would take to pay for the food. It worked out in the end, but it didn't have to.

Had Hoover never become president, he would have gone down in history as simply one of the great humanitarians of the 20th century. As it was, he was demonized politically for decades as the calloused president who refused to take responsibility to help those ruined by the depression.

In reality, it was Hoover -- not FDR -- who became the first president to throw the power of the federal government into the effort to get the country out of a depression. In recent years, it has become more widely acknowledged that Roosevelt's New Deal was essentially Hoover's policies raised to the next exponent, spending on a more lavish scale and saddling the country with counterproductive programs that have lasted into the next century.

The fact that the first government efforts to get the country out of a depression -- by both Hoover and FDR -- were followed by the longest depression in our history has also not been lost on some. Quite aside from the specific harm done by specific programs, the general uncertainty generated by unpredictable government interventions made investors reluctant to make the long-term commitments needed to generate more jobs, more output, and more purchasing power.

Not only the Federal Reserve and two presidents managed to make the Great Depression worse, so did Congress. When it passed the Hawley-Smoot tariff of 1930, it contributed to a worldwide contraction in international trade, as country after country tried to "save jobs" by protectionism.

The notion that the stock market crash of 1929 caused the Great Depression that ravaged the 1930s has long been popular on the left, since this blames capitalism and casts government in the role of rescuer of the economy. However, Professor Peter Temin of MIT has pointed out that in 1987 the "stock market fell almost exactly the same amount on almost exactly the same days of the year" -- and there was no depression.

This year's scandals and stock market collapse could not have come at a worse time, with an election coming up and no other big issues around for politicians to use. It is also worth noting that there are only two economists in Congress and hundreds of lawyers, ready to say and do whatever will look good and feel good at the moment.

If Congress passes laws that put corporate crooks behind bars for a long time, that is fine. But if it passes laws that will enable politicians to micro-manage businesses, that is a proven formula for big economic problems for a long time to come.

President Bush seems to understand the good aspects of these concepts and seems to me, to be acting upon them.

I'm constantly amazed at how well he is handling things. I voted for him, but he has made me a true believer in his politics as I watch him during the times we all face. One day people will realize how well he handled a multitude of complex situations. We are blessed to have him leading this nation.

Thomas Sowell is my favorite author among current intellegentsia. We would all be served well if there were more people in academics like him. We would fare better as a society if more read him and understood him.

Thanks for posting this John.

I think the only thing at play is micro managing audits, which is needed. It is about transparency. It will strengthen capitalism, not weaken it. It will assist in making equity prices more closely match fair value, and help to dampen boom and bust. Sowell misses the mark here. This should be a conservative agenda since it helps to preserve the same.

Ah yes, Bush is such an economic genius that he enacted steel, textile, lumber, and numerous other tarrifs plus the farm subsidies at a time when the economy was anemic. Shutting down the global trading system is not the way to an economic recovery. Tell me, what exactly has Bush done about the economy to inspire such admiration in you, besides some inflammatory rhetoric about "wrongdoers" being hounded by "financial crimes SWAT teams"?

Oh, I will inform you but it will have to be later as I have an engagement this morning, company due in this evening, and I'm extremely busy. There is a lot to mention, so when I have the time to look it up "FOR YOU" instead of you trying to find it.. I'll let ya know, Stay tuned....

PS. I'm not for everything President Bush has done or wanted. But there will never be a President in History whose ideas we agree with in totallity. That just isn't humanly possible. But this Man is a GREAT President. Sadly, you can't seem to see it. But I WILL TRY to enlighten you when I have time.

So besides the politics-above-all US Congress, what on the horizon could be the kind of suicidal govt program to be the monkey wrench in the world economy this time?

Perhaps this: EU Tax Collection Plan Will Hurt U.S. Economy.

Or maybe the UN getting its was with the Kyoto [tax collection] protocol.

I'm not for everything President Bush has done or wanted. But there will never be a President in History whose ideas we agree with in totallity. That just isn't humanly possible. But this Man is a GREAT President. Sadly, you can't seem to see it. But I WILL TRY to enlighten you when I have time.

If you read D'Souza on Reagan, you'll be reminded of the slogan "Let Reagan Be Reagan." That cry arose from conservatives unhappy with some Reagan Administration policies. But Reagan always was Reagan.
We bless the memory of his administration, but at the time we had some serious concerns. Even, it has to be said, his cozy relationship with Gorbychev. It had a terribly familiar appearance--it looked like just one more FDR, sure he could handle Uncle Joe. And it only proved to be the prying loose of the linchpin of the whole USSR!
So yes, we do hold our breath and hope for the best from a GWB who in some ways reminds of RWR. But a lot of it is simply hope. And we have precious little choice. It isn't, after all, as if a conservative party would do a Ross Perot, and actually win--instead of assuring the victory of an x42 . . .

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