Skip to comments.Another Great Depression? (Thomas Sowell)
Posted on 12/22/2008 9:07:58 PM PST by jazusamo
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.
What was so great about the first one?
I’ve wondered why it’s named the Great Depression because it wasn’t great for those who went through it.
That means Obama is going to need a war to get us out of the next depression, and save his ass.
The Great Depression was not like this one. “Great” means big.
This depression was caused by trying to create a “World Wide” Financial Network. It is world wide, and it is into our food supply, manufacturing and everything that there is.
Greenspan, Bernanke, and Henry Paulson had never done anything like this before, and they did not know what they were doing. If it were up to me, I would try them for treason. They have endangered the USA with their stupidity.
We are headed for a socialist authoritarian state. GWB planted the economic seeds and O will assure that the Constitution exists in name only.
Headed? We are already a socialist state, and the authoritarian is about to be sworn in.
Welcome to the Dark Ages!
You are SO correct...
This one will be wonderful.
(superl.) Long continued; lengthened in duration; prolonged in time; as, a great while; a great interval.
(superl.) More than ordinary in degree; very considerable in degree; as, to use great caution; to be in great pain.
The article said — “Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.”
We don’t have to have anything like Smoot-Hawley tariffs now — because the banking and financial system is doing the same thing that Smoot-Hawley did before. Look for the double digits unemployment to happen in 2009 and the Great Depression to take hold then...
Barack Obama: Re-arranging deck chairs on the Titanic...
“Look for the double digits unemployment to happen in 2009”
I’d be shocked if we don’t see 10%+ unemployment in 2009, particularly in the Northeeast and Midwest. Then, in 2010, inflation will begin it’s assent when all of this phoney money is disseminated into the marketplace by banks being coerced by Washington to lend.
I wonder who’s going to play the parts of Tojo and Yamamoto?
And, people wonder why I cried on Nov 4th.
These government interventions are scaring the heck out of me. I have no doubt if it continues, there will be another great depression. Sadly, a great last line by Dr. Sowell.
Were it so benign as that. It's more like he's ordering full steam ahead and a turn into the direction of the hole in the hull, while ordering all hatches open to facilitate movement of the crew.
Many Americans are just like small children, they have to learn the hard way. Unfortunately, they will be taking us all down with them.
I also see parallels with the huge inflation and unemployment of Germany during the Weimar Republic.
And we all know what and WHO that led to over there.......
Well get ready for the Greatest Depression!
In 1924, Calvin Coolidge’s son got a blister on his foot after playing on the White House tennis court without shoes and died after it became infected. The death took its toll on the President and he declined to run in 1928. If he had, I wonder if the depression may not have been “Great.” Coolidge never cared for Hoover’s interventionist tendencies much...”for six years that man has given me unsolicited adviceall of it bad.”
Agreed...Dr. Sowell makes it very clear the government interventions are not the thing to do and I’d take his word over anyones.
I would say the weeds were already choking the garden, but instead of spraying weed killer, he used Rapid-Gro®.
We already have double digit unemployment in this country.
Most folks don't understand that unemployment numbers didn't exist until 1941. These numbers were divided into 7 levels - with "U7" being the broadest indicator of unemployment, and the one that compared directly to the numbers during the 1930's.
In fact, U7 numbers were the "official" numbers that were reported for over two decades.
Then the government got their hands into the mix and began reporting U3 numbers so that unemployment didn't look so bad.
The Bureau of Labor Statistics reformulated the unemployment measurement in 1995 and condensed everything into 6 levels instead of 7. The goverment reports the U3 level as being official.
If we want to measures "apples to apples" with the Great Depression then we need to quote U6 levels of unemployment.
The November level of U6 was 12.2%, up from 11.1% in October.
One could argue we've been a quasi-socialist state since the days of Woodrow Wilson.
The difference between then and now is that america actually had manufacturing and a labor force then. Now we have trade deficits and undocumented workers and american owned factories all over the planet.
I wouldn’t argue with that at all.
>> ... but politicians’ attempted “solutions.” Is that the history that we seem to be ready to repeat?
“solutions” or the opportunity to implement an agenda?
TS provides, once again, reason backed by historical perspective. I pray the controlling Democrats/Liberals temper their ambition during these vulnerable and opportunistic times.
NAFTA trade with Mexico has really elevated both of our economies. /s
One sad thing is that the federal budget analysis is screaming with warnings about this...yet they just get ignored.
Why do we think Roosevelt's spending on the economy worsened the depression, but the war spending helped lift us out? What's the difference between spending on roads and spending on planes and bombs when they both create jobs and are paid for by the government? I'm under the impression that we weren't paid a lot of money by other countries even with lend/lease, etc, so wasn't the money coming out of our coffers?
Hmmm...the “Bleak Depression”? The “Horrible Depression”? The “Most Depressing Depression”? The “Awful Depression”. The “Miserable Depression”?
Nah, none of those resonate.
Wait...the “FDR Depression”? Yes, that has a nice ring to it. Let’s go with that. The new one we’ll call the “BHO Depression.”
Teleprompter Boy will sooth us via fireside chats. In high definition.
I’m surprised Thomas Sowell would write an article on The Great Depression without mentioning the fact many now consider the most damaging of all: the Federal Reserve, through their tightening policies, shrunk the money supply by 30% over about three years. That led to many of the bank failures and a slow down of all aspects of the economy.
Bernanke is a big believer that the Fed mostly caused the GD, and, of course, now the approach is to “flood the streets with money” when a serious recession or depression is possible. That’s what happening now, though the toxic debt problem complicates things well beyond any recent recession.
Sowell makes good points, but leaves out the factor many now believe was the most damaging.
I think it would be greatly beneficial to both north america and central america if we could use this economic crisis to try to persuade more manufacturing in central america and import less from asia. Also to lower taxes and knock down labor unions a peg or two. Actually, I really like to see imports from asia reduced to ZERO. Excluding japan of course. But I don’t consider them asia.
This would be my strategy if I were king of america.
I’m contemplating retirement in 8 or 10 years having lost 50% of my equity value and another 50% or more through inflation. I figure in real terms, I’ll have about 25% of what I had forecast and planned to retire on. I’m not sure what to do now except work until I drop dead...if I can find something useful besides being a greeter at Walmart.
Also agreed. Unfortunately Dr. Sowell is validating my fears about all these interventions.
For some, my parents saved enough to start a business and build a new 2,400 sq. ft. home in the Silverlake Highlands of Los Angeles and have me after they had completed the first 2 during the depression.
They also taught me from the time I could sit up in a high chair never borrow for anything but a home and that if you don't have the cash you don't need it.
I've lived by those rules and I thank them for teaching them to me.
I am no economist whereas Dr. Sowell is one of if not the best in our country, IMO. Google Thomas Sowell and The Great Depression, there are numerous articles written by him on the depression and protectionism.
History repeats itself because the average American today beleives Zer0 is coming in with a new socialist agenda.
Unfortunately it’s a replay of the failed Keynsian model embraced by the elitists of the 1930’s. An economic recovery this summer looks very weak at this point.
The vast majority thinks this economy is bad. Well how’s
14% to 19% 1930’s sustained unemployment compare to 6.7% today.
I believe he’s limited by the length of his columns and wouldn’t be surprised to see him write more on this.
I think it was in either the 60s or 70s when they started including welfare as employed to make the numbers look better.
statistics: How to lie with figures and how to make figures lie!
Many people state that banks may be forced to lend, I believe it will be in conjunction with "Stimulus checks" of monopoly money, to help consumer spending.
I think BO Depression would go over with most people better!
My pareants taught my sister and I the same thing re credit. Though they didn't save much through it they weathered it fine, my Dad was a steam engineer and had a good job in a powerhouse but it was a desert location in the middle of nowhere and that's where I was born.
Ok, what are we going to do about it?
I think the only way to prevent major credit bubbles in the future is to set interest rates to no less than what is offered as return on widely available investment. As soon as money is cheaper than the returns in a widely available “investment” people borrow (leverage) themselves so they can “invest” more and when it goes wrong, it goes real wrong...
In this case cheap money was chasing ever increasing cost real estate. As more money flowed in the demand for more real estate increased, increasing the price of what was available. As the price rose it appeared to be providing high returns on the borrowed money and so more people jumped in to get their share while the getting was good.
“Though they didn’t save much through it they weathered it fine,”
Anyone with a steady job did reasonably well. My father got a job as a substitute mail carrier, and just that enabled him to weather the GD without too much difficulty. He also had several items, watches, shotguns, and such that he bought for very low prices.