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Friday, April 04, 2008


This piece appeared in the WSJ the other day. It touches on some points sometimes overlooked in discussions of that era:
Around our offices, we're still recovering from the fact that Hoover was the last Presidential candidate we've endorsed. We've been trashing Hoovernomics ever since. The issue this year, however, is who is really pursuing the Hoover model.

To hear Mr. Schumer and his fellow-traveling columnists tell it, Hoover's great policy blunder was to do nothing, all the while insisting that everything was fine. But the problem with Hoover's economic policy isn't that it was passive but that it was actively destructive.

In 1930, he signed the Smoot-Hawley Tariff Act, setting off a wave of protectionist retaliation that undid the globalization of the preceding decades and did far more harm to the world economy than the stock-market crash ever did. Two years later, amid a bad recession, he undid the Calvin Coolidge-Andrew Mellon tax cuts, raising the top marginal income-tax rate to 63% from 25%. The recession became a Depression.

Note that although Smoot-Hawley was signed in 1930, contemporaneous accounts show that ideas about the likelihood of passage shifted dramatically towards the affirmative in October of 1929, just before the stock market crash. Make of it what you will. Also, dramatically raising marginal tax rates with a contracting economy, in a desperate attempt to balance the budget, is not exactly a pro-growth policy. When I first learned of that step, many years ago, I nearly fell out of my chair.


Harry Eagar said...

But, but, but . . . he tried trickle-down economics.

Ali said...

The tightening of fractional reverse banking requirements was the real killer. See Gene Smiley's book on the Depression for more.

Howard said...

There is an interesting review of the Smiley book here. There is an even larger context that's relevant which I will deal with in a future post.