Thread: Laffer: Depression Perilously Close, Still

Laffer: Depression Perilously Close, Still

Thursday, September 24, 2009 8:34 AM

By: Marc Davis

Easy money is the current Fed policy to avoid the mistakes of the 1930s that caused the Great Depression, says Arthur B. Laffer.

But tight money was not the cause of the Depression writes Laffer, chief economic adviser under President Reagan and chairman of Laffer Associates, in The Wall Street Journal.

It was high taxes and protectionism.

Although Fed monetary policy was an important factor, "The Smoot-Hawley tariff of June, 1930, was the catalyst that got the whole thing going," Laffer says.

Politicians raised taxes on imports in an effort to protect American manufacturing, touching off a trade war.

"It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products."

Two years later, says Laffer, "huge federal and state tax increases. . . followed the initial decline in the economy. . . There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy's relapse in 1937."

Laffer says the lessons are clear.

"My hope is that the people who are running our economy do look to the Great Depression as an object lesson. My fear is that they will misinterpret the evidence and attribute high unemployment and the initial decline in prices to tight money, while increasing taxes to combat budget deficits."

Laffer is not alone in his concern about the economy taking a double dip.

Stephen Roach chairman of Morgan Stanley Asia told Bloomberg that odds of a U.S.- led relapse into global recession "may be as high as one-in-three."

http://www.moneynews.com/streettalk/laf ... ode=8A63-1

It seems as if our gov't is intentionally trying to bankrupt us. Anyone know why they might want to do that?

I disagree that trade barriers or tariffs will impact negatively on our economy. This is not 1929, when we had a trade surplus, when we exported more than we consumed, and our goods were prized over the world. The free trade deals with considerable outsourcing of our jobs has created this situation, and we need to unfast track all the underhanded deals made by Bush which accelerated the slope we are on right now. The best thing that could happen to us would be to reverse globalism and produce our own goods. The economies of India, China and even Canada grew last year, while we are worsening.