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Friday, October 24, 2003

Understanding The Past

Instead of trying to understand events or policy debates on an ad hoc basis it can helpful to relate them to circumstances in the past. Of course this only helps if you have a realistic sense of the relevant history (I know, everybody has their own take). Revisionism often becomes part of the political game.
These provisos aside, anyone interested in economics eventually asks questions about The Great Depression. The most basic question is what the f*** happened?!?! In very simple terms, it was the culmination of the collapse of the old political order (monarchy)in Europe (also in China)and a turning away from the market order of economy on a global level. I said the culmination because the wave of change had its origins in thoughts and events of the mid-1800s. Two really terrific books dealing with this era and the sweep of events into more recent times are Against The Dead Hand and Heaven On Earth. Some of these thoughts were utopian, some were based on class struggle(Marx) others were purely rationalist. If large scale industrial companies were the newest part of the economic landscape, wasn't this the wave of the future for how to organize all of society? Many people thought so. Along these various paths of thought and action the move towards statism was underway on a global scale - a rather grand experiment or exploration.

The forces loose in the world were larger than anything that domestic policy makers could contend with and they did not have the benefit of lessons culled from the past century. That forgiving note aside, what do I think happened? The Smoot-Hawley Tariff raised trade barriers to global trade. Domestic "trade barriers" were raised through huge hikes of income tax rates as part of an obsession over balancing budgets. A long list of New Deal policies prevented the economy from undergoing adjustments that would have allowed a resumption of growth. The attempt at centralized overcontrol made things worse. Both Hoover and Roosevelt were responsible for these policies. Also, the damage done to the banks a financial system crimped the availabilty of capital. Much of this is given a reasonable treatment in this Robert Bartley column. I would highlight this disturbing excerpt:

The New Deal, that is, was not about economic recovery, but about displacing business as the nation's predominant elite. FDR harked back to the founder of his party. In his 1832 veto of renewing the Bank's charter, Jackson complained that its profits went to foreigners and "a few hundred of our own citizens, chiefly of the richest class." Daniel Webster replied that the message "wantonly attacks whole classes of the people, for the purpose of turning against them the prejudices and the resentments of other classes." The tradition, of course, runs strong even today in the party of Jackson and Roosevelt.

That's where my study of the matter has led me.

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