We have been told that we are in the middle of the greatest economic disaster since The Great Depression. So with that premise, perhaps we should look back at that time period, and the era before it, for insight.
This is a subject that has been written about, at some depth, for the last several years. There are generally two narratives; the first is that the “Roaring 20’s were a time of excess, Coolidge gave a greater tax cut “to the rich,” (sound familiar?) and Hoover “did nothing” until FDR had to clean up the mess. The Second narrative is that Harding, despite his corruption, restarted the economy, Coolidge cut taxes for everyone and the 20’s are an era to be emulated.
The first narrative is certainly in dispute. Hoover did more than nothing. However, most of what he did was detrimental. One little mentioned thing that Hoover did was put in a moratorium on immigration. When unemployment is over 20% percent, closing the borders sounds good, right? Here is the problem; this was a time when many Europeans were fleeing the oncoming Fascist storm. Many of them were innovators, investors, wealthy capitalists and saw the flaw in a growing State. In 1929-1930 those people would have been pretty helpful. Closed borders are also an exercise in a flawed zero-sum economic view, in that more people equals more mouths to feed. Another thing that Hoover did was implement new taxes on several sectors, not to mention the 38% Marginal Tax Rate increase. Add to those elements, large “works programs,” managed at the State level and the Smoot Tariff, a levy on nearly all imported goods. Now “nothing” is not an adequate description for Hoover’s four years.
As far as FDR’s heroic saving of the U.S. economy, there have been plenty of books on how that is not the case, From The Forgotten Man by Amity Schlaes to New Deal or Raw Deal by Burton Folsom Jr. just to name a couple, and FDR’s heroism is in question. There is certainly an argument to be made, that after four years of Hoover’s spending on jobs programs and more then twelve year of FDR, spending to create jobs has a pretty poor record.
The Second narrative of the interwar period also needs further light. Harding, while cutting taxes and restarting the economy, also repeated a policy of the Republicans of the Progressive Era. That policy was to put tariffs on agricultural products. Harding was the first Republican president to come to office with a growing scope of the income tax. So one could mak e the argument that tariffs were more necessary before the income tax was created. So in Harding’s case, there was not a finite revenue stream and tariffs could more easily be explained as a protective tax. Thus, like any tax it is a burden on someone. Furthermore, tariffs drive prices up. So in the case of an agricultural tariff, the burden is on anyone who buys produce.
Another way to look at the inter-war tariffs, is by what they did to European economies, specifically Germany. After the devastation of the Word War I, many European economies were still in recovery mode. Especially Germany, who had been saddled with massive reparation payments. The Harding/Coolidge Era tariffs, and to greater extent the Hoover Era Smoot Tariff, crippled Weimar Germany. The U.S. was a large economy, even then, and when the Germans had less of their goods purchased by American consumers it made an already miserable situation worse.
The following video briefly demonstrates one of the greater lessons of the Interwar period.
There are several lessons to be learned from the Interwar Era;
- A country can’t spend its way out of economic difficulty.
- Higher taxes harm economic recovery.
- The U.S. economy doesn’t exist in a bubble, so tariffs, while already a tax on consumer goods, harm other countries as well.
- Politicians make poor economists and vice versa.
Now for some quick house keeping and further reading on the economics of the interwar period:
Coolidge’s State of The Union 1923.
http://millercenter.org/scripps/archive/speeches/detail/3806
Here is a larger sample of Coolidge’s quote, which was actually in 1923 (not 1925 as I said in the presentation),
“No complicated scheme of relief, no plan for Government fixing of prices, no resort to the public Treasury will be of any permanent value in establishing agriculture. Simple and direct methods put into operation by the farmer himself are the only real sources for restoration.
Indirectly the farmer must be relieved by a reduction of national and local taxation…He must have organization…business is organized, and there is no way for agriculture to meet this unless it, too, is organized. The acreage of wheat is too large. Unless we can meet the world market at a profit, we must stop raising (the crop) for export”
Recommended Reading, especially on the recession of 1921
The 10 big lies about America by Michael Medved
Milestones: 1921-1936 Protectionism in the Interwar Period
http://history.state.gov/milestones/1921-1936/Protectionism
Walter Williams. 'Unemployment and 'debt to boot'
http://www.ocregister.com/articles/percent-257520-government-depression.html.
According to Williams, FDR’s Treasury Secretary Henry Morgenthau, wrote in his diary:
"We have tried spending money. We are spending more than we have ever spent before and it does not work. ... We have never made good on our promises. ... I say after eight years of this administration we have just as much unemployment as when we started ... and an enormous debt to boot!”
Thomas E. Woods Jr. Warren Harding and the Forgotten Depression of 1920.
http://www.firstprinciplesjournal.com/articles.aspx?article=1322&theme=home&loc=bexport.%94
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|2011-01-28 19:33:18 Rhant - RhantMr Grant, I welcome you to listen to our podcasts, or email me at rhant@realityslate.com. By the way, I was criticizing libertarian foreign policy stances (which are Tinkerbell-like). I have great respect for libertarian economists like Milton Friedman or Tom Woods. This distinction is not hypocritical, it is objective. Defending a purely ideological stance without question it make one an ideologue.
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|2011-01-24 22:50:05 bobby grantyou bash libertarians, then quote tom woods. well according to your logic in the other article, this is complete hypocrisy. if a selected incident disproves that the founders we libertarian, then your quoting of Dr.Woods proves you are a libertarian. once again, following your logic.
