Some weeks ago, I spelled out why the much-maligned "supply side" economics are in fact very beneficial to--well, most people, as evidenced by the booms of the '20s, '80s, and so on. Of course, the obvious liberal comeback would be "yeah, but after the Roaring Twenties, there was a Great Depression!"
The implication, of course, being that conservative economic policies may cause a short-term boom, but in the end they always screw you over, because greed and overspeculation cause market crashes and so on and so on. Sounds plausible enough on the surface, I guess, but only because people don't spend a lot of time picking it apart. Several good writer-historians--Amity Shlaes' The Forgotten Man, for one, Burton Folsom's New Deal or Raw Deal?, for another--have done a good job in recent years of condensing the economics and fiscal issues involved, however, and the events of the 1920s and '30s are much easier to understand now.
So with that in mind, let's take a look at the beginnings of the Great Depression, by exploding some popular myths associated with it. For example:
1. The Wall Street crash caused the Depression.
Well, it certainly didn't help anything, but in the immediate aftermath of 1929's "Black Tuesday," no one seemed to regard the crash as a big deal. Neither the government, nor the media, nor the business leaders, all of whom regarded it as a momentary fluke irrelevant to the national economy. Maybe a lot of wealth had been lost on paper, in stock certificates and the like, but contrary to what liberals later claimed, that was not the only kind of wealth being generated in the '20s. Consumer goods and utilities had expanded drastically during the decade, and even after the crash, every economic indicator suggested that as remote parts of the country were electrified, introduced to cars, etc., this ongoing wealth-production would inevitably drive stocks back up. Which might well have happened within a year or so, except....
2. Herbert Hoover was a "rugged individualism" laissez-faire guy.
....the POTUS just couldn't stay out of things. (Sound familiar?) It's true, Hoover was a self-made man who made his wealth in the private sector, he did believe in the necessity of individual action and self-reliance, and as a public official, he consistently argued that the central government was constitutionally prevented from taking a direct hand in the economy. But he had also built a reputation as "The Great Engineer," and was always consumed with the need to do something, and to be seen doing it. His first reaction to the Wall Street crash and subsequent downturn was to decide that runaway inflation was the problem (he wasn't the only one) and to combat it by having the Fed drastically reduce the money supply. Plus, he undertook what may have been the first major "stimulus" program, increasing spending on public buildings by over $400 million, persuaded major businesses not to cut wages, and even suggested, as early as December 1929, the need for public health management and regulation of the electric industry. So, definitely not a "do-nothing" executive. Which leads me into....
3. The Republican Party opposed doing anything to help the country.
(Okay, I could have wrapped this into the last one but I wanted three headings.) Oh yes, the GOP did want to take action to protect the country--and that was the trouble. One key aspect of the Republicans until the mid-20th century was their commitment to a protective tariff to bolster home industries, a position dating back to their formation in the industrialist North. Hoover and his Republican Congress were no exceptions, and their tendency was strengthened by demands from farmers and businessmen alike that they be protected from foreign competition right now. The result was the God-awful Smoot-Hawley Tariff of 1930. Native and foreign observers predicted that the tax would prove disastrous, and it did. The international economy was completely broken up; many countries, seeing their American markets ruined, retaliated by raising their own tariffs on U.S. exports, or boycotting them altogether. The cost to our productivity was probably incalculable, but certainly it ran into the billions. Not for the last time, trying to control events from Washington proved disastrous. And the same could be said of Hoover's other attempts--restricting the money supply and preventing businesses from cutting wages played well initially, but they also took away the market's flexibility and did more harm in the long run. Again.
----
Long story short--no one denies that there would have been a nasty recession for the U.S. to go through no matter what. But there was no reason, at the beginning, for it to have been any more than that. We'd had lots of economic "panics" before, and they lasted only a year or two with little long-term damage. What made things worse was the intervention by the Hoover administration, or at least the ways in which it intervened. Sinking your own country's economy is bad enough, sinking the international economy--now that's quite an accomplishment. At any rate, I think we can put to bed this idea that the boom of the '20s somehow caused the Depression, and that a government refusal to respond made it awful.
Unfortunately, voters and elites alike drew exactly the wrong conclusions from the 1929-32 period, deciding things were now so bad because government hadn't done enough. That's how we got FDR and the brand-spanking New Deal. Exactly how and why that failed, I'll get to later. To be continued....
The implication, of course, being that conservative economic policies may cause a short-term boom, but in the end they always screw you over, because greed and overspeculation cause market crashes and so on and so on. Sounds plausible enough on the surface, I guess, but only because people don't spend a lot of time picking it apart. Several good writer-historians--Amity Shlaes' The Forgotten Man, for one, Burton Folsom's New Deal or Raw Deal?, for another--have done a good job in recent years of condensing the economics and fiscal issues involved, however, and the events of the 1920s and '30s are much easier to understand now.
So with that in mind, let's take a look at the beginnings of the Great Depression, by exploding some popular myths associated with it. For example:
1. The Wall Street crash caused the Depression.
Well, it certainly didn't help anything, but in the immediate aftermath of 1929's "Black Tuesday," no one seemed to regard the crash as a big deal. Neither the government, nor the media, nor the business leaders, all of whom regarded it as a momentary fluke irrelevant to the national economy. Maybe a lot of wealth had been lost on paper, in stock certificates and the like, but contrary to what liberals later claimed, that was not the only kind of wealth being generated in the '20s. Consumer goods and utilities had expanded drastically during the decade, and even after the crash, every economic indicator suggested that as remote parts of the country were electrified, introduced to cars, etc., this ongoing wealth-production would inevitably drive stocks back up. Which might well have happened within a year or so, except....
2. Herbert Hoover was a "rugged individualism" laissez-faire guy.
....the POTUS just couldn't stay out of things. (Sound familiar?) It's true, Hoover was a self-made man who made his wealth in the private sector, he did believe in the necessity of individual action and self-reliance, and as a public official, he consistently argued that the central government was constitutionally prevented from taking a direct hand in the economy. But he had also built a reputation as "The Great Engineer," and was always consumed with the need to do something, and to be seen doing it. His first reaction to the Wall Street crash and subsequent downturn was to decide that runaway inflation was the problem (he wasn't the only one) and to combat it by having the Fed drastically reduce the money supply. Plus, he undertook what may have been the first major "stimulus" program, increasing spending on public buildings by over $400 million, persuaded major businesses not to cut wages, and even suggested, as early as December 1929, the need for public health management and regulation of the electric industry. So, definitely not a "do-nothing" executive. Which leads me into....
3. The Republican Party opposed doing anything to help the country.
(Okay, I could have wrapped this into the last one but I wanted three headings.) Oh yes, the GOP did want to take action to protect the country--and that was the trouble. One key aspect of the Republicans until the mid-20th century was their commitment to a protective tariff to bolster home industries, a position dating back to their formation in the industrialist North. Hoover and his Republican Congress were no exceptions, and their tendency was strengthened by demands from farmers and businessmen alike that they be protected from foreign competition right now. The result was the God-awful Smoot-Hawley Tariff of 1930. Native and foreign observers predicted that the tax would prove disastrous, and it did. The international economy was completely broken up; many countries, seeing their American markets ruined, retaliated by raising their own tariffs on U.S. exports, or boycotting them altogether. The cost to our productivity was probably incalculable, but certainly it ran into the billions. Not for the last time, trying to control events from Washington proved disastrous. And the same could be said of Hoover's other attempts--restricting the money supply and preventing businesses from cutting wages played well initially, but they also took away the market's flexibility and did more harm in the long run. Again.
----
Long story short--no one denies that there would have been a nasty recession for the U.S. to go through no matter what. But there was no reason, at the beginning, for it to have been any more than that. We'd had lots of economic "panics" before, and they lasted only a year or two with little long-term damage. What made things worse was the intervention by the Hoover administration, or at least the ways in which it intervened. Sinking your own country's economy is bad enough, sinking the international economy--now that's quite an accomplishment. At any rate, I think we can put to bed this idea that the boom of the '20s somehow caused the Depression, and that a government refusal to respond made it awful.
Unfortunately, voters and elites alike drew exactly the wrong conclusions from the 1929-32 period, deciding things were now so bad because government hadn't done enough. That's how we got FDR and the brand-spanking New Deal. Exactly how and why that failed, I'll get to later. To be continued....
52 comments:
What is it they say, history repeats itself... the first time as tragedy, the second time as farce.
I think there is a big lesson here, which is to never let the world define you because once you are defined as something bad, then it doesn't matter what you truly were.
I have both the books you mention on the Great Depression. There is a business cycle, to be sure. On a very basic level, attempts by politicians to manipulate them and mitigate the pain almost always end up prolonging and worsening the impact of the economic correction that is taking place. The Fed is a prime offender by keeping interest rates superficially lower than what the market actually dictates. I read an interesting post at Zero hedge (an economic blog i frequent ) last week. I don't agree with all of the authors prescriptions, but there are a lot of similarities between where we were at the start of the G.D. and where we are today. Many of Obama's proposals are frightening similat to policies by FDR that didn't work.
Andrew, unfortunately we don't know what it is the third time around. Personally, I'm going for docudrama.
T-Rav, Third time around strikes me as "Just more Democratic SOP."
"Many of Obama's proposals are frightening similat to policies by FDR that didn't work."
Joke's on you, Jed! Obama doesn't have policies! ;-)
You're right, it seems very clear now that with different leadership, the Great Depression could have gone down in history books as "The Panic of 1929-30." At some point, there is just going to be an economic downturn, and the best you can do is avoid making it worse.
I wonder if mass communication isn't partly to blame. Note that this was also the first time when DC politicians could reach a national audience with their image and voice thanks to the movies and radio. The more a public official feels he has the attention of an audience, the more he feels the need to do something dramatic to impress them. So it was with Hoover (and a lot of others).
Joke's on you, Jed! Obama doesn't have policies! ;-)
LOL! Isn't that the truth. "Do stuff while I golf" really isn't a policy.
On what caused the misperception about what caused the Great Depression, I would say it's probably a steady pounding of FDR's PR efforts to "blame Bush."
T-Rav: I wonder if mass communication isn't partly to blame.
Wondered the same thing myself, and not just for Hoover and Roosevelt, but Hitler and Mussolini as well.
Andrew:Never let the world define you because once you are defined as something bad, then it doesn't matter what you truly were.
Given the MSM, the present day Republicans are already hosed on that count.
T-Rav...Who was the 'global economic power' at that time? Seriously.
"Sinking your own country's economy is bad enough, sinking the international economy--now that's quite an accomplishment."
Was it the US? Germany? Great Britain? I've never really thought about those times in that sense......but your comment appears to make the US the dominant player at that time.
Great article but a depressing read. At least we're mostly past protectionism. We are not perfect but even during a severe recession (or depression, whatever one wants to call it) modern Americans are bright enough to realize that walling ourselves off isn't the answer. Now we just need to learn the other half of the lesson.
But the Great Depression has many more factors involved that just the Wall Street crash. It was more a convergence of many bad things. The dustbowl creating drought in the Midwest caused farmers to not be able to grow crops to pay their mortgages they held on heavily leveraged farm land. The banks that before could float the loans until the crops came in, now couldn't afford to and had to seize the farms and thus the collapse of the rural areas as well as the urban areas.
When history repeats, it goes like this: 1st tragedy, 2nd farce, 3rd reboot with more special effects, CGI, and lens flare. Steinbeck gets replaced with Michael Bay.
On mass communication, I contend that we are still learning culturally to cope with it. In several more generations, people won't be as easily manipulated by it as they are today. But as it is, the AV media landscape hasn't settled since it was introduced. A 100-year old medium still in it's infancy.
Andrew, what can I say? FDR liked to be proactive. :-)
K, it's hard to get your message out when one side has most of the microphones.
I don't want to harp on this point too much, as there was a lot more going on than just the newfangled technology. But people do often forget how much the dictators, as well as the populist loudmouths here at home, were able to take advantage of those mediums and manipulate them to broadcast their preferred image. I'm not saying their couldn't have been a Hitler or a Mussolini in the 19th century, but it would have been more difficult for them to seize power.
Patriot, there wasn't one totally dominant power, but on balance, yes, I would say the U.S. was a greater economic power than any other. Especially after World War I, when it loaned so much money to Europe, a lot of countries were dependent on its economic decisions; hence why so many people were upset about the tariff and so on. But it wasn't strong enough to get along without their goodwill, so.
Thanks Anthony. True enough, the Republicans did gradually jettison protectionist policies over the latter half of the century, although they're not completely absent even now. Hopefully this is a lesson we don't have to relearn.
T-Rav: So is it a coincidence that we have a near monopolization of the media by the left and are essentially re-running FDR-lite?
= third term Clinton
T-Rav, True. And ObamaDR likes to be Noactive.
K, You can't be painted as anything you don't open yourself up to.
tryanmax, I hope people get better at not being fooled because right now they are. The current response is to be cynical of things we don't want to believe and then to seek reinforcement of our prejudices from sources willing to cater to it. In effect, a big chunk of the electorate like to think they are skeptics, but they really have just chosen the person to brainwash them rather than having it chosen for them.
T-Rav, good stuff. Sadly, we learned the exact wrong message from the Great Depression. First, that a policy of "Somebody! Do something, anything!" is always good in times of economic turmoil. Second, that the stock market is any indicator of economic health.
We've now evolved to the point where the Fed's interventionism is directly inflating the stock market so we can pretend that the US is economically sound. It's the direct manipulation of a meaningless indicator so the government can have a talking point. This isn't a Democrat only problem, of course, I think this started during Nixon's term as a method of supposedly controlling the unemployment rate and expanded from there.
Like Tennessee Jed, I too frequent Zero Hedge, and it's tough to stomach their All Gloom, All the Time viewpoint. But I don't see much to counter that viewpoint, either.
Bev, very true, and that's what I'm saying. It's a myth that the stock market crash was immediately followed by the Depression and breadlines and all that. No one worried about it much when it happened, because everyone understood that there were other, more important sectors of the economy. And weakness in those other sectors, much of it brought on by government policies, was what really made things so bad.
tryanmax, Michael Bay? That's preposterous. No one does the lens flare like JJ Abrams.
I'm glad someone's optimistic about the future of mass comm, because I sure couldn't be. It's hard for me to believe that people will stop having their values decided by what they watch on TV anytime soon, but maybe they'll wise up eventually.
K, I've often wondered whether the media as an institution just naturally veers left. I think they do, for a variety of reasons--not least of which is, they rely on ginning up crises to keep their audiences, and of course, crises always have to be solved by direct and collective action. So in many cases, I think they just convince themselves that the government always ought to be doing something. That's my take on it, anyway.
Andrew, I'm trying to think up a term for HillaryDR, but--I just can't do it. Unless you can make "Pantsuitactive" fit. I bet you could create some appropriate (and also unprintable) appellations for BillDR, though.
wahsatchmo, thanks for the compliments, and I think we had ample proof of the second lesson yesterday, when the stock market, hearing some indicators that the economy might be improving slightly, promptly nosedived, out of fears that this would cause the Fed to stop propping them up. Wall Street as an indicator of anything is utterly useless.
All Gloom, All the Time isn't so bad, really. It's like eating gravel: eventually, you get used to it. I jumped on the "everything sucks" train a long time ago.
The current response is to be cynical of things we don't want to believe and then to seek reinforcement of our prejudices from sources willing to cater to it.
I'd say that's a step forward from complete credulity. I only wish I could be alive to see a fully developed media culture.
tryanmax, I'm not sure we will ever have that. As far back as we can look in history, the media has always been biased and people have chosen what to believe, not based on truth, but on what they prefer to be true.
T-Rav, It's hard to imagine HillaryRD. She just seems to bland, so useless, that I can't imagine her winning at this point. Nor can I imagine what she would do as President that would be different than Obama... just different set of cronies.
A fully developed media culture doesn't mean that human nature will be usurped by god-knows-what. But just to liken it to another culture that did fully develop--at some point agrarians eventually stopped worshiping the sun, the rain, and the soil and got down to the business of farming. Then they got really good at it.
We may not exactly worship the media as the agrarians worshiped the weather and seasons, but we do regard it with a strange reverence and undue awe. What we have going on right now with the fracturing of media is probably corollary to when the sun worshipers broke off from the earth worshipers. I imagine the next phase is some assemblage of pantheons.
OT: LOL! That was easy. Colorado just released their insurance rates under Obamacare. For a 40-year-old individual customer, monthly premiums will range from $177 a month to $774 a month.
That works out to somewhere between $2,124 and $9,288. So odds are that it will be around $4k or $5k for most people.
So assuming I get the magic rate, then I'm better off paying the tax unless I make $212,400 or more... assuming they can make me pay it.
There is a 0% chance I'm buying their crap.
Nice analogy on the media.
Tryanmax - Very nice! Your agrarian/media analogy fits perfectly and gives me hope. I maintain that human nature does not change, it is just technology that changes. The manipulators just adapt to the next new technology to manipulate the masses. And the next new technology comes along just at the same time the masses catch on to being manipulated. [Okay, you just found out how many times can I used "manipulate" in a sentence...I need a drink!]
Bev, no fair, you're an hour ahead of me. That means if we start drinking right now, it will be one hour less socially acceptable for me. LOL
As long as the sun is over the yard arm, it's okay by me. But, since I am not really clear as to what a "yard arm" is exactly, I hereby suspend "time zones" for 1 hour.
And just to be double-plus sure, as the great philospher Jimmy Buffet says "It's 5 o'clock somewhere!"
Andrew:You can't be painted as anything you don't open yourself up to.
When you are locked into governing with the opposition party it's near impossible to avoid blame - especially when the press operates as a wing of the Donk party. According to Morgenson's book "Reckless Endangerment", the Democrats had far more fingerprints on the economic collapse. Nevertheless, if you get your information from the MSM it's the Republicans whom the narrative paints as the new Hoovers.
T-Rav - see Fox news for example of non-left leaning info-tainment.
My view is that the left's use of the press as "educational" comes from the collectivist worldview that people are perfectible if you just give them some bread and a phamphlet to read. So if you want to do good and "change the world" you go into reporting. If you are conservative individualist, programming people into your mindset is anathema so there's much less of a motivation to do so, particularly from a political POV. Unfortunately, if individualism wants to survive in an environment of media overkill that will have to change.
But Andrew! Then we'll have a woman president, and women are naturally so much smarter than men she can immediately solve all our problems! Seriously! (eyeroll)
*I only say that because some people already are.
Re Obamacare costs, I have some health coverage through the university as it is, although I know of at least one medium-sized school that's suspending coverage for its students altogether this school year. So who knows what the future holds. Either way, if I get told I have to pay up, I'm telling them to shove it. Not that I can play that game very long, of course; I just want to drag it out and make things difficult for the bureaucrats on the other end.
Bev, just two? That's not very impressive. Try and work "manipulate" into an adverb next time.
Physicians recommend that you never start drinking until the sun has crossed the yard-thumbnail.
Then we'll have a woman president, and women are naturally so much smarter than men she can immediately solve all our problems! Seriously! (eyeroll)
Excuse me?? {{eyebrows raised while staring intensely over glasses}}
Careful T-Rav, Bev has laserbeam eyes... or a large mallet, I don't remember which. But either way, tread carefully! LOL!
Bev, Those aren't hipster glasses are they?
Of course they are hipster glasses...I live in NYC, for goodness sake! Titanium frames. And the mallet is made of the only the best eco-friendly Liberian hardwood...
LOL! Hipster glasses are cool.
And eco-friendly Liberian hardwood? Nice. I didn't know there was anything eco in Liberia. LOL!
Oh, yes. Since Liberia ran Charles Taylor out of the country and all of those pesky child soldiers, everything has gone all green and eco-friendly!
Bev, Ah yes. Liberia is a real model for mankind these days. Nothing but unicorns and conflict-free pixie dust.
At first I thought you were talking about a mullet. There is nothing eco friendly about a mullet. (Bev, I hope you don't have a mullet.)
Hey, don't knock Liberia. It's one of the last places you can actually FIND unicorns and conflict-free pixie dust!
Tryanmax - You can sleep easy. I haven't had a mullet since the late '70's!
Kids, We joke around a lot at Commentarama, and tonight is one of those nights. But everyone here is a trained adult. So don't try any of this at home. Mullets may seem funny, but they are no laughing matter. Don't get a mullet. It will ruin your life.
I apologize, Andrew. I only HAD a mullet in the '70's because I was impetuous and everyone else had one. I thought I knew better than adults and my hairdresser said it would make me "cool". I was wrong, but maybe my shame can be a lesson to others.
Bev, LOL! The 70's were a bad time for hair for the most part. I have many childhood pictures that make me want to ask my parents, "What were you thinking?"
Mullets didn't even arrive in my neck of the woods until the late '80s or thereabouts; and they never left. They're just somewhat less common at the moment, due to an uptick in the explosion of nearby meth labs.
Well, when you move the business into the back, there's no place left to party.
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