A tale of two pundits: Sowell v. Huffington
Today, the RealClearPolitics, one of my favorite sites, offers an instructive lesson in economics, the power of myth, and the sadness evils of a mind gone rancid with ideology. To complete the course, you need simply read and digest two short and contrasting articles.
The strophe is by Thomas Sowell and is called "Another Great Depression?" One of Sowell's great gifts as a writer is the ability to articulate and then explode a piece of conventional wisdom that is all consensus and no wisdom. In this column, he takes the contention, to which "everybody" subscribes, that "the stock market crash of 1929 was a failure of the free market that led to massive unemployment in the 1930s--and that it was intervention of Roosevelt's New Deal policies that rescued the economy."
In the space of a few hundred words, Sowell shows that every piece of that nugget of conventional non-wisdom is wrong. The market crash of '29 did not lead to higher unemployment, as a look at the employment figures of the time demonstrates. After an initial spike to 9 percent, unemployment settled back down to 6.3 percent by June 1930. The skyrocketing unemployment of the mid- to late 1930s was due not to the failure of the market, but rather to government meddling in the market. Exhibit A was the Smoot-Hawley Tariff Act, passed in June 1930, and which raised duty on thousands of imported goods, thus bringing international trade to a screeching halt. Five months after the Act was passed, Sowell points out, unemployment hit double digits. "Before the Great Depression," Sowell explains,
it was not considered to be the business of the federal government to try to get the economy out of a depression. But the Smoot-Hawley tariff -- designed to save American jobs by restricting imports -- was one of Hoover's interventions, followed by even bigger interventions by FDR.
The rise in unemployment after the stock market crash of 1929 was a blip on the screen compared to the soaring unemployment rates reached later, after a series of government interventions. . . .
In other words, the evidence suggests that it was not the "problem" of the financial crisis in 1929 that caused massive unemployment but politicians' attempted "solutions." Is that the history that we seem to be ready to repeat?
That's a very good question. It saddens me beyond measure to say that the answer might very possibly be "yes." First, there was the downpayment: the $700 billion "bailout." No-one, certainly not the Secretary of the Treasury, knows why it was $700 billion. As one Treasury spokesman put it: there was no particular data point: they just wanted to pick "a really large number." Then comes Obama with breezy talk of $1 trillion "stimulus" package. ("Bailout," "stimulus": why can't we call things by their real names: deficit spending funded by taxpayers?). Then there was the preposterous gift of billions of dollars to Detroit. Washington might as well have shoveled the money into the toilet. As I've said before in this space, Chapter 11 bankruptcy was custom-made for the likes of GM: it would allow it to restructure and get relief from the impossible labor contracts and benefit obligations it has been crushed by. As Mark Steyn pointed out on NRO, GM now has a market valuation about a third of Bed, Bath and Beyond. Remind me: why is GM "too big to fail"?
General Motors [Steyn writes], like the other two geezers of the Old Three, is a vast retirement home with a small loss-making auto subsidiary. The UAW is the AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people
Article printed from Roger’s Rules: http://pjmedia.com/rogerkimball
URL to article: http://pjmedia.com/rogerkimball/2008/12/23/a-tale-of-two-pundits-sowell-v-huffington