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 
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 

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

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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