Sunday, September 13, 2009

The Big One

This is it. The big one.

We now have ourselves a trade war. That has been the missing piece. The current recession had been looking a lot like the Great Depression, until now.

Now it looks exactly like the Great Depression.

Here is economist Thomas Sowell on the Smoot-Hawley tariff and its aftermath:

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."

...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?

So if disaster comes to pass because of Obama's actions, does it mean we will vote him out of office? Not necessarily. Sowell continues:

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.

Who else do we know who is a master of political rhetoric?

On economic matters, the image the government likes to cultivate is that of a wise and shrewd doctor, complete with white jacket, stethoscope, and a wink, who can diagnose the problems in the blink of an eye and have us back on our feet in no time. That's the image. The reality is this: picture a Boeing jumbo jet flying 600 mph at 30,000 feet, with a four-year-old boy at the controls grinning like a fiend and possessing no sense of his own limitations -- and pushing buttons and pulling levers as fast as he can. He's having a great time, but the passengers are screaming.

As Rahm Emmanuel said, never let a good crisis go to waste. What he didn't say is, if you need a good crisis, you can always make one.

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