Are We Really Facing Another "Great Depression"?
John A. Quayle
blueoval57 at VERIZON.NET
Mon Dec 29 18:04:50 MST 2008
Another Great Depression?
By Thomas Sowell
December 23, 2008
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
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
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.
Thomas Sowell is a senior fellow at the Hoover Institution, Stanford
University, Stanford, CA 94305. His Web site is www.tsowell.com.
COPYRIGHT 2008 CREATORS SYNDICATE, INC.
Note -- The opinions expressed in this column are those of the author and
do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.
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