Lots of folks are tossing around comparisons between the past few weeks and the run-up to the Great Depression, while some leftists are starting to opine that a dose of depression might not be such a bad idea. As signs emerge that the Democratic leadership in Congress had no real interest in passing the Paulson Plan and the Democratic candidate for President remains coolly indifferent to its fate, one can’t help detecting nostalgia for 1932 in the air.
In the narrowest political sense, the comparison may be apt. Substantively, it is nonsense.
If the current disruption of the credit markets doesn’t push the economy into a recession, it will be the biggest economic surprise of the decade, but there’s nothing to suggest that the downturn will be out of line with recent history, that is, short and shallow. (If a Democrat is in the White House, the media may even notice the actual depth and duration.) The environment of 1932 was very different from today’s, and it took a series of disastrously misguided decisions to deepen a slump into a depression. Between the stock market crash of 1929 and Franklin Delano Roosevelt’s election to the Presidency, Congress enacted the Smoot-Hawley tariff and raised tax rates on the wealthy (the only income tax payers in those halcyon days). President Hoover jawboned employers to keep wages at unsustainable levels and refused to consider easing or abandoning the Gold Standard. The Federal Reserve Board aggravated the gold link’s deflationary impact through technical mistakes that inadvertently tightened the money supply. Other countries followed similarly counterproductive policies.
With much toil and difficulty, the world’s governments managed to push production and employment more sharply downward than in any previous period of peace. Today’s governments aren’t compelled to act the same way. They almost certainly won’t repeat some past blunders. Most notably, central bankers’ understanding of monetary economics had advanced a great deal during the past 70 years.
Some of Herbert Hoover’s missteps could, however, be made again. For example, the next President might be skeptical of free trade and favor hiking taxes on “the rich”. And when those measures somehow failed to resurrect the economy, he could adopt FDR’s program of regulation and intervention, which kept unemployment at double digit levels until World War II siphoned millions of young men into the armed forces. Reproducing the Great Depression is almost certainly beyond even the modern Democratic Party’s considerable talents, but they could give it the old college try.
Congress enacted the Smoot-Hawley tariff and raised tax rates on the wealthy.
Sounds like some one I have heard on T.V.
named B. Obama.
Posted by: jimmyk | Tuesday, September 30, 2008 at 09:14 PM