Most people don’t have a clue about what happened during the Great Depression of the ‘30s. October 29, 1929, the stock market collapsed to less than 200 from a high of over 380 two months before.
After what was called Black Tuesday, there was a five-month recovery period when the stock market regained a little over 100 points. Unemployment had also decreased in June to 6.3% from December’s 9.0% low. The trend was upwards. Then everything went haywire. Unemployment was 14.4 by December 1930.
What happened? What happened was government to the “rescue.” The “oh-so-very-smart” thought they could fix things. Instead, they gave the world years of misery. There had been economic downturns in the past, but they typically didn’t last long, two and half-years at worst. For example, there was an especially sharp decline in 1921 but it was over in 1922. Coolidge didn’t interfere, trying to get government to do what government could not do.
Often caused by government’s easy money low-interest policies, recessions and depressions are simply a misallocation of economic resources. No government can fix these misallocations although it can really mess things up. Only the market can fix itself. Government’s job? Get out of the way.
Hoover, with help, turned things upside. First, the administration’s Smoot-Hawley tariff act precipitated a trade war. Jobs disappeared. Second, he got the major companies to agree to not lower wages. As revenues decreased, their only viable option was to lay off workers. Which they did. Third, he increased taxes.
FDR, in 1932 promised to reduce spending, balance the budget, and give Americans a “New Deal.” He was vague about everything else.
In the first 100 days of his administration, they passed 15 major pieces of legislation. Three things stand out as the worst that could be done.
The first day on the job, he declared a bank holiday and closed the banks. To prevent runs on banks supposedly. Many never reopened and millions lost their life savings. There was no money available. Imagine what would have happened to our economy had Bush done that during the 2008 housing crisis or Trump with the advent of the COVID pandemic.
They could instead, have limited withdrawals as banks did during the panic of the late 1800s. They could also have changed the government’s restrictive banking laws and allowed banks to consolidate as Canadians had done. Canadian depression bank failures? Zero.
The Agriculture Adjustment Act (AAA) was another dandy. To raise farm commodity prices the “smart” decided that too much was being produced. If fewer commodities were raised and sold, then prices would go up they thought. The solution?
Government would decide how much farmers could raise. For example, “inspectors” would come to a farm and kill the government determined “excess” hogs and throw away the carcasses.
My father grew up during the depression and watched the “inspectors” slaughter some of their farm’s hogs. I don’t think he ever got over watching that.
Third, there was the National Industrial Recovery Act (NIRA) with a National Recovery Administration (NRA) that essentially eliminated the free market and created government- controlled cartels to fixed prices and production while restricting competition. They established 557 codes affecting 22 million workers. An NRA study concluded that, “(German and Italian) fascist principles are very similar to those…evolving in America. Mussolini was impressed. He said FDR “is one of us.”
Because the NRA was discriminatory, blacks called it the “Negro Removal Act, Negro Run Around, and Negros Robbed Again.”
Both the NIRA and the AAA were declared unconstitutional. Roosevelt wanted more compliant judges and tried to pack the Supreme Court. Sound familiar?
In 1939, Roosevelt’s Secretary of the Treasury, Henry Morgenthau summarized government’s useless efforts, “We are spending more than we have ever spent… it does not work… We have never made good on our promises… After eight years… we have just as much unemployment as when we started… And an enormous debt to boot!”
The worst consequence of Republican/Democrat “solutions?” It is very possible that Hitler would never have gained power had there not been a U.S. precipitated world-wide depression. And no WWII.
The depression was an unnecessary bi-partisan disaster. Sources? Shlaes, Sowell, Hayek, Folsom, Higgs, Hazlitt plus many others.