hb -
mises.org
"...This writer agrees with the reasoning of his Austrian colleagues. But he is at a loss about some of the conclusions they draw from their theories. Kurt Richebacher, for instance, comes to the conclusion that "the stock market crash was the most important, immediate cause" of the Great Depression. Surely, we readily agree that the crash generated a "poverty effect" which depressed consumption and promoted savings. But that's no cause of depression.
On the contrary, while the consumers' goods industries may feel a pain of readjustment and the producers' goods industries may stagnate for a few months, the new savings tend to reduce interest rates, which may hasten the needed readjustment. The rapid recovery from the post-World War I decline (July 1920-July 1921) clearly demonstrates the point. Surely, all readjustments are painful and take time; they entail business losses, capital writeoffs and temporary layoffs. They may lead to short recessions, but are incapable of enmeshing a market economy in a long and deep depression. Only government intervention can turn a market readjustment into a Great Depression.
President Herbert Hoover and the Republican Congress managed to do just this when they enacted the Hawley-Smoot Tariff Act of June 1930 which raised American tariffs to unprecedented levels. It practically closed U.S. borders and caused the immediate collapse of the most important export industry, American agriculture. In the depression that followed, the U.S. Congress struck another blow which shattered all hope of recovery.
The Revenue Act of 1932 doubled the income tax, raised estate taxes, and imposed several new taxes. When state and local governments faced shrinking tax collections they, too, joined the federal government in imposing new levies. In 1933, in Hoover's footsteps, President Roosevelt placed the government in the driver's seat. The National Industrial Recovery Act led to the development of codes of prices, wages, hours, and working conditions. It pursued the old daydream of prosperity through less work and higher pay. And finally, we must not overlook the Wagner Act of 1935 which took labor out of the courts of law and raised the costs of labor, which again deepened and lengthened the Great
Depression.
Only when more than 10 million able-bodied men had been drafted into the armed services in World War II, unemployment ceased to be an economic problem. And only when the purchasing power of the dollar had been cut in half through vast budget deficits and currency depreciation, did American business manage to adjust to the oppressive costs of the Hoover-Roosevelt Deals.
It is unlikely that the George W. Bush Administration will repeat the fateful blunders of the Hoover and Roosevelt Administrations. We know of no plans for closing American borders, for doubling the income tax, codifying business activity, or significantly boosting the costs of labor. Guided by Keynesian and Monetarist thought, both major parties undoubtedly will want to inflate more, create credit at faster rates and, above all, increase government spending. But contrary to Keynesian and Monetarist doctrine, such measures may actually hamper the business recovery.
Massive budget deficits and near-zero interest rates may actually impede economic activity, as the Japanese recession throughout the 1990s so clearly demonstrates. Or they may precipitate an international run from the U.S. dollar, which would rekindle the price inflation of the 1970s and 1980s. Blinded and dulled by Keynesian and Monetarist thought, the politicians in power probably will act as they always have acted: they will spend and spend and make matters worse. ..."
Regards, Don |
