Antoher Great Depression?

[AUTiger1]

A great read by Thomas Sowell from back in Dec.  I have had to catch up on his articles for the past few weeks.  I usually agree with a lot of what Sowell writes, IMO he tends to be spot on.  Long article so I will condensed it some.  To take a page from TarHeel's playbook, all emphasis is my own.

   
Jewish World Review Dec. 23, 2008 26 Kislev 5769

Another Great Depression?

By Thomas Sowell

http://www.jewishworldreview.com/cols/sowell122308.php3

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.[/b] 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.

Does this sound eeriely similar to what is happening now?  It's a shame that most can't, or don't care enough to see the patterns.

[Tarheel]

Great article "AUTiger1"; thanks for posting it and for the highlights (although I read the whole thing anyway).

A couple of things stand out to me. 

Both FDR and The ONE could be described as masters of political rhetoric which ingratiated themselves to millions of people aside from their policies.  FDR was so good at it he had four terms in spite of his policies (in addition to "Smoot-Hawley") causing even greater unemployment. 

Anecdotal as it is, I recall talking to my Old-South, Democrat grandparents (on my mother's side) and, as bad as it was during The Great Depression, both of them spoke of FDR like he was a saint; while Hoover, on the other hand, was a bum.  "He was fishing while we were starving."  I had too much respect for my grandparents to tell them that maybe he was showing everybody how to feed themselves.

One other thing stands out to me and that is the lack of mentioning the war effort and the effect that WWII had on the economy.  Conventional wisdom is that things would have been much, much worse had we not gotten involved in the war.

By contrast, I wonder how "bad" things would be were we not involved in the War on Terror now (that so many Democrats socialists oppose...especially Iraq)?

I think that Sowell is generally spot-on but I also think there is a LOT of over-reacting going on on Wall Street and 'Main Street' today.  Of course, the media and the Democrats socialists are more than happy to carp on and on about how awful things are...if it helps their political agenda.

(For the record, my other grandparents were Republicans.)

[AUTiger1]

FDR gets a lot of praise for basically forcing the New Deal Socialism on everyone.  He and "Neo" both are presenting it in a nicely wrapped package with a pretty bow on top.  You get all excited, but once you open the box, the present looks great, you play with the new toy for a few days and then you notice it starts to tear up.  That is the problem with Socialism and Socialistic ideas, they look and sound great at the surface, kick the tires, so to speak and you begin to see it is actually a piece of junk.  It also preys on the volunarable, catch someone down on their luck, promise them you can help and they will believe you.

Same here, my grandparents were good "Old-Southern Dixiecrats"  FDR and Ike were almost god like in their eyes.  Problem is, when I would ask them how the "Great Depression" affected them my grandmother would reply, "not to bad to be honest, we were already poor so we didn't know the difference".  Confused me as to why they thought the world of FDR.  The other set were Conservatives, my grandfather was leery of labeling himself to a political party.  He didn't trust that some of the younger Republican were conservative enough.

I am sure that Thomas Sowell knew the impact of WWII, but I would assume that he was referencing the Vedder and Gallaway stats for the article.  Good point to bring up, and I admit it escaped my mind, but he should have used how WWII impacted the economy if he really wanted to drive the point home to readers. +1 to you for bringing that up. I don't know how bad things would be if not for the WOT being conducted. Of course I am no economic guru (although I am certified to teach economics in AL high schools). Anyways, I know that if not, military funding would be less than it is now, and here in Huntsville we wouldn't have some of the contracts and jobs that we do have here in town. I know that the fear of having the military budget cut, has cost me an opportunity for a better paying job with another company.  Most contracts and contractors are on holds and that government customers are reluctant to release any money until the new admin takes office and they can see what they are going to do.  That is just here at home and all I can attest to, there is no telling what it would be like in other places if not for the WOT being conducted.

You can lump me in with those who have not overreacted. I haven't gone and cleared out my 401K, rat holed any money instead of putting it in savings or anything like that. I have seen people here at the office go into a panic here lately.  I don't believe that it is as bad as the liberal media would have you think.  If they can make you fear it is bad, and make you believe it is bad then their agenda is accomplished.  They get their Socialist cohorts elected.  For the life of me, I don't understand why people can't see the light and understand the Socialist agenda for what it truly is.