Thread: Another Great Depression?

Another Great Depression?
By Thomas Sowell
December 23, 2008

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.

http://www.gopusa.com/commentary/tsowel ... 2231.shtml

We are already in a depression according to the American people that have lost their jobs and can't find another one. But while statistics have already shown, they are easily manipulated by throwing out stats that do not promote our "healthy economy," such as throwing out stats for those that have been out of work for a while and quit looking, or the marginally attached that have been forced into part-time work where they can get it.
I am sorry the writer has given us no idea of a path he could recommend, something to think about, rally around and promote. Instead it is a recap of everything that has gone historically and currently wrong.

Like i said before, you cannot export wealth and import poverty and expect your country to survive. The United States has exported its' Industrial base to China and others which in itself, was a great source of wealth, besides vast amounts of wealth to the Middle East. Hundreds of Billions went to bail out Banks, which in turn did not use the funds to free up lending markets. These banks are refusing to state where the funds actually went. When in reality, banks are buying huge amounts of Gold Bullion and converting US funds they received into foreign currency.
To make matters even worse, Obama plans to inflate the almost useless dollar by printing another Trillion for a massive Infrastructure project, hand it over to the states. It's a good bet most of these funds will be diverted to fill massive state budget gaps if there is no real federal oversight. Let's not forget Legalizing 20-30 million illegal aliens who will overwhelm State, County and local Social Services Systems. If the United States even survives the next 2 years it will take divine intervention from God himself. I hope im wrong.

One silver lining is during the Great Depression, immigration was actually NEGATIVE, more people were leaving the US than came in, because the rest of the world was mostly doing better economically than the US.

The author of the article says that Smoot-Hawley tariffs caused unemployment to skyrocket. I'm confused. How does restricting imports cause unemployment to rise?

Okay, I did a little research. Apparently Smoot Hawley caused other countries to retaliate with tarriffs against US goods, so US exports drastically decreased. So it wasn't Smoot Hawley itself, but other countries' reaction to it that caused the problems.