Peter Boettke makes a point about the role of tariff protection in the US leading the transition from the Great Crash to the Great Depression.
In the context of the Great Depression, one has to remember that after the stock market crash in 1929 market corrections were set in motion. Resources were reallocated, prices adjusted to the new realities. By June of 1930, the economy was recovering, when it was hit with the shock of a massive policy shift on tariffs. The Smoot-Hawley Tariff Act effectively raised the price on 20,000 imported goods by up to 50%. The consequence of this was the destruction of trade.
And an e-book of advice to the G20 leaders. Among the contributors, Dani Rodrik.
Hmm…why exactly would a tariff act that only (as far as I know) affected the importing of goods from outside the US cause the “destruction of trade” – when something like 85% of the trade and other economic activity upon which the U.S.’s prosperity dependend at that time was inside U.S. borders?
I don’t think anyone would today defend the Smoot-Hawley act as good policy, but I fail to see how on its own it could be possibly explain turning a stock-market crash into a nearly-decade-long depression.
Krugman’s recent theory – that it was largely because FDR tried to prematurely balance the budget, seems far more plausible.
Poor old Rafe doesn’t have a clue. He’s stands pathetic and alone on a street corner with his battered tambourine and belts out tunes from the libertarian hymn book.
Rafe’s got that old time religion and will not be tempted by the devil’s emissaries and their tricksy reasoning and facts:
“Bringing in the sheaves
Bringing in the sheaves
With Hayek I’ll be rejoicing while
Bringing in the sheaves”
Seems my 85% was off – imports in 1929 were only 4.2% of the US’s GNP, exports 5%.
Further, a significant reduction in tariffs in 1936 was not followed by any huge surge in trade, suggesting pretty strongly that much of the drop off in trade after 1929 would have occurred anyway, regardless of any tariff increases.
What’s more interesting is the (somewhat unprovable) idea that the discussion that lead up to the passing of the act somehow trigged the stock market crash in the first place. It certainly seems that the preliminary Senate discussion and voting on the act correlated with a period of significant business uncertainty. But sufficient to cause anything like the crash that actually occurred? Seems a stretch to me.
Give Rafe a loaf and a fish and he’ll feed thousands.
Of course there was more happening than just the increase in tariffs and the other factors would have been more important in the US. But trade barriers were on the rise around the world and every extra constraint made things worse, in addition to the “up yours” symbolism of Smoot – Hawley.
For some of the other factors.
It is important to note the anti-market moves by Hoover, before FDR turned up with a great deal more of the same.
Given the circumstances I’ve congratulated myself for showing such restraint.