Obama Talking About Making The Same Mistake Herbert Hoover Did
It’s still widely believed that Herbert Hoover did nothing to stop the economic downturn that began when the stock market crashed in October 1929, leading eventually to the Great Depression. The truth, however, is quite different.
During the period from 1929 to the time he left office in 1933, Hoover was a strong proponent of using the government to move the economy forward, in sharp contrast to his Secretary of the Treasury, Andrew Mellon, who advocated the laissez faire approach that popular versions of history falsely attribute to Hoover. Of course, none of the policies that Hoover proposed or saw enacted had any significant impact on the economic collapse, and some made it worse.
Among those in the latter category was the Smoot-Hawley Tarriff, which Hoover signed into law in 1930:
[R]aised U.S. tariffs on over 20,000 imported goods to record levels. In the United States 1,028 economists signed a petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half.
The impact of increasing trade barriers at a time of economic crisis was quite severe:
U.S. Imports plunged 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports fell 61% from US$5.4 billion to US$2.1 billion, both drops far more than the 50% fall in the GDP.
According to government statistics, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934
So, we’re all in agreement, right ? Starting a trade war in the middle of a deep recession is a really, really bad idea.
Well, somebody needs to tell Barack Obama:
The Obama administration is aggressively reworking U.S. trade policy to more strongly emphasize domestic and social issues, from the displacement of American workers to climate change.
Even as world trade takes its steepest drop in 80 years amid the global economic crisis, the administration is preparing to take a harder line with America’s trading partners. It will seek new benchmarks before supporting already-written trade agreements with Colombia and South Korea and is suggesting that it will dig in its heels on global trade talks, demanding that other countries make broader concessions first.
“I believe in trade and will work to expand it, but I also know that not all Americans are winning from it and that our trading partners are not always playing by the rules,” Ron Kirk, President Obama’s nominee as U.S. trade representative, said in confirmation hearing testimony last night before the Senate Finance Committee.
This move toward protectionist policies (and, whatever they might call it, that’s exactly what it is) mirrors what appears to be a worldwide decline in support for free trade:
The shift underscores the mounting pressures confronting any effort to expand trade during the economic crisis. Even before the global economy went code red late last year, talks aimed at expanding global trade stalled as Western countries warred with emerging giants like China and India over how to further open markets.
Those divides appear to be more unbreachable than ever as world leaders move to protect their domestic industries from the ravages of the financial crisis, embracing new trade barriers aimed at imported goods and other measures meant to restrict the flow of capital outside their borders. In the United States, more Americans are blaming cheap imports for job losses at home and congressional leaders pressed successfully to include a “buy American” provision in the $787 billion stimulus program to give an edge to U.S.-made products.
“Our consensus to advance international trade is frayed,” Sen. Max Baucus (D-Mont.) said at Kirk’s hearing yesterday. “Our faith in the international trading system is badly shaken.”
The stupidity of the Administration’s position — and it’s a stupidity that seems to be shared by many of the world’s leaders right now — is mind-boggling.
Here we are in the middle of a massive economic downturn, and their solution to the crisis is to put forward policies guaranteed to restrict exports and imports. There isn’t a surer way to guarantee that it will take longer to get out of the situation we’re in, and that things will get worse before they get better.
And, yet, it looks like the 44th President is intent on making the same mistake that the 31st President did.
Cross-Posted from Below The Beltway