Not so, according to BBC economics correspondent, promoter of bastardy (and daughter of a great man), Stephanie Flanders.
The depression certainly did see a collapse in global trade and capital flows, and a descent into protectionist tariffs and laws. But a fair reading of the evidence suggests these were more the result of the global downturn than the cause.
According to Peter Temin, a distinguished economist at the Massachusetts Institute of Technology, exports were 7% of American GDP in 1929. They fell by 1.5 percentage points in the next two years.
Given the fall in world demand in those years, not all of that fall can be attributed to other countries' retaliation against the US tariffs. And even if it were - overall, GNP over the same period fell by 15%.
So, on any reasonable assumptions, Temin says "the fall in export demand can only be a small part of the story." And, as he points out, even that loss in foreign demand from the tariff would have been partly offset by the fact that the tariff diverted demand from foreign to home-made goods.
His conclusion? "Any net contractionary effect of the tariff was small."
This shouldn't come as a surprise. Even the greatest fans of free trade would admit that the benefits of lower tariffs - or costs of higher ones - are fairly small beer when compared to the kind of collapse in incomes and employment we saw during the depression.
To repeat, I'm not endorsing protectionism, or a policy of "national self-sufficiency" (though intriguingly for his modern admirers, that's what Keynes supported in 1933).
The Keynes piece is fascinating - well worth a read.
Laban's reading a lot of economics blogs at the moment, City Unslicker, Alphaville, Peston. Laban thinks it'll get worse before it gets better - but then he thinks that about everything else !
21 comments:
Oliver Kamm here
nonetheless, trade protectionism - as expressed in the 1930s in the Smoot-Hawley Tariff Act and the UK policy of imperial preference - is now widely recognised as a thoroughly bad idea.
Smoot-Hawley_Tariff_Act
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.
Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.
Kind of hard to see it as being a minor effect.
'Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.
Kind of hard to see it as being a minor effect'.
- my arse !
As anyone whose done statistics 101will tell you, 'anonymous', correlation doesn't necessarily imply causation.
In an interview on National Public Radio in January 1996, the economist Milton Friedman said: "The Federal Reserve definitely caused the Great Depression by contracting the amount of money in circulation by one-third from 1929 to 1933." How did they do it and why did they do it? This was by far the greatest cause of the Great Depression.
We have a similar situation today. Another bogus contraction of the money supply.
Japan has built up its industry partly under protectionism.
China right now operates a protectionist policy.
The cheerleaders for free trade seem to think that if they just keep outsourcing and importing eventually China will be brought in to the free trade fold. Hasnt happened yet.
Big companies like General Motors are allowed to sell cars in China. But they must be built there, in factories funded by GM which the Chinese own a partial stake. This all enables technological and skills transfer. When the time comes and they decide to rip off GM cars as they do with more mundane products GM wont have a leg to stand on.
I believe this is what happens in general. You can set up a production operation in China which you must pay for, you can knock down your factory in the UK or US and send all the equipment to China, they are happy to see it there. But the new business has to be in effect Chinese owned, so GM pay to use the factory. A non-Chinese cannot set up a wholly owned operation in China, they cant buy a controlling stake in a Chinese business either. Same happens in India too. We can sell of all sorts of companies to Indians, we cant control a business in India. The free trade is all one way.
The mystery is why westerners go along with all this.
Revolution Harry, I don't know how they did it, but there's a Wikipedia article on A.N.Field, with reference to his book 'The Truth about the Slump', which my old dad used to recommend to me.
There seem to be a few copies for sale, and as I/you have never yet read it, perhaps now's the time for us to give it a try.
Laban the JMK article is fascinating, and so's the Panarchy site it comes from.
But it starts off with Proudhon, who I always thought was a first-rate loony, though not as bad as Fourrier or Comte.
Are you a panarchist? It doesn't seem very workable, I think.
"The free trade is all one way.
The mystery is why westerners go along with all this."
And is it mysterious when the Police arrest the makers of "Undercover Mosque" instead of the ranting Muslims filmed?
It's because they are Liberals. They think if only they could purify their thoughts the world will be hunky dory. The Western elite have exchanged the Planned Economy and Revolution for Free Trade and Globalisation.
"As anyone whose done statistics 101will tell you, 'anonymous', correlation doesn't necessarily imply causation."
Oliver Kamm is an aggressive pseudo-intellectual. His religion is humanism, which means he wants global government and the end of nation states (i.e. freedom and independence) like a Muslim wants the return of the Caliphate.
When the chips are down, and reality is biting, people tend to return to the mean and look after themselves i.e. protect their industries.
Laban - there can be no question that the Great Depression was made much worse by the decline in international trade. I don't think there's any point arguing the toss about tariffs and their impact on unemployment because it is enormously difficult to disaggregate the impact of tariffs from several other variable: tariffs didn't help but a number of countries also imposed simple export quotas, which if anything were qualitatively more destructive to profits and prices. (Tariffs you can always try and cope with by reducing costs and prices; quotas stop the flow altogether.) This in turn is difficult to separate from the general decline in trade due to a collapse in demand. But I think the message of the 1930s is clear: economic nationalism benefits no-one in the long run. Protectionism is really only appropriate during crucial phases of nation-building.
Also bear in mind that it isn't only the inter-war period that vindicates the argument for trade. Look at the Stalinist outposts that either through design or embargo tried to flourish without international trade. Take also the examples of countries under sanctions, like Libya and Iraq.
Beware the discipline of economic history: for some reason it's a field where people do revisionism simply to make a name for themselves - much more than in conventional political history, for some reason.
simple export quotas
Or even import quotas...
"Also bear in mind that it isn't only the inter-war period that vindicates the argument for trade. Look at the Stalinist outposts that either through design or embargo tried to flourish without international trade. Take also the examples of countries under sanctions, like Libya and Iraq."
These are both poor comparisons. Stalinism doesn't work for reasons unrelated to trade.
Sanctions freeze all trade, especially that which would be economically beneficial to the country in question. This is in marked contrast protectionism, which only permits economically beneficial trade.
Sanctions also have the politically counter-productive effect of making the masses of the sanctioned country totally dependent on the wayward government.
"Bear in mind that it isn't only the inter-war period that vindicates the argument for trade."
Between nations, yes. But not on the basis of the EU, which is the real issue here regarding "protectionism" and the wildcat strikes. The EU, far from being a free market liberal government, presides over the most heavily regulated trade zone in the world. It's government is as secretive and as unaccountable as North Korea's. It's bureaucracy of civil servants, quango's, tranzies and NGO's is vast and of unknown influence and cost. It's ultimate project for the nations of the European continent is comparable to the Bolshevik scheme for Ukraine - utter destruction. Same intention, different method, the method is massive immigration.
Anyone who thinks the left elite in this country desire free trade needs their heads examining. They like globalism in the sense of transzi organisations but certainly not in the sense of international capitalism.
Laban you have a number of readers who occupy the silly BNP fringe. Such people rarely recognise the commonality they have with people on the left. In American the Democrats now are on the verge of implementing the same protectionism that the American left tried in the 1930s. The fact that the US depression lasted a lot longer than that in Europe seems to have been forgotten.
Your readers (apart from Shuggy who does have something to add) might like to reflect upon the fact the the UK response to the depression was to strengthen Imperial preference. Far weaker than Smoot Hawley it was anyway broadly ignored. Perhaps that was a factor in the earlier end of the UK depression.
Your other readers may prefer to read excerpts from their preferred book The Truth about the Slump. It seems to be a list of people sharing a certain religion who happened to be high in banking or government. Such correlation must be far more compelling than any silly theory about trade creating wealth:-)
"Laban you have a number of readers who occupy the silly BNP fringe. Such people rarely recognise the commonality they have with people on the left."
And with that opposition to the EU has been conflated with crude nationalism and regressive socialism. The dialectic has delivered the goods.
The EU is the real issue here regarding "protectionism" and the wildcat strikes. The EU, far from being a free market liberal government, presides over the most heavily regulated trade zone in the world. It's government is as secretive and as unaccountable as North Korea's. It's bureaucracy of civil servants, quango's, tranzies and NGO's is vast and of unknown influence and cost. It's ultimate project for the nations of the European continent is comparable to the Bolshevik scheme for Ukraine - utter destruction. Same intention, different method, the method is massive immigration.
Here's a good quote that illustrates the nature of our politics i.e. Right-wing, in opposition to the Left-wing, the revolutionary wing of the French Revolution to create Secular Heaven.
“I explained to him that . . . the Civil War was—and is—to the United States what the Trojan War was to the Greeks; the great single tragic event that continues to give resonance to our republic. “Well, to me,” said Poddy [Whig, Norman Podheretz], “the Civil War is as remote and as irrelevant as the War of the Roses.” —Gore Vidal”
An entire book could flow out of contemplation and reaction to Mr. Vidal’s words.
That point of history which in labeled “Civil War” marks so many things: the triumph of the schemes, political and financial, of Hamilton, Marshall, Webster, Clay and Lincoln over the principles associated with Jefferson and Calhoun, among others; the triumph of the nascent empire as made manifest in Lincoln’s creedal or propositional nation over the union of constitutionally federated republics; the victory of the New England mindset over the rest of the country; the advent of a Jacobin revisionism of the American War of Independence, the Declaration of Independence, and the Constitution; the victory of the abstraction of nationalism over patriotism, the latter being a natural expression of the sets of personal loyalties to home and hearth and to the other intimate commonwealths in which real people relate; the destruction of a region, its people and its culture; and the end of republican institutions replaced by “democratic” movements which are the handmaidens of empire."
It seems to be a list of people sharing a certain religion who happened to be high in banking or government
Happened to be...Hmmm we could have good old debate about those words.
Merely sharing a religion eh? This is religion as adopted by skimming through a catalogue. As in "Oh thats a nice religion. I'll sign up to that one." And what luck, it turns out many other influential people have just happened to sign up the same way!
Because obviously shared ethnicity has got nothing to do with anything ever, got that? Good job you were here to remind us anon.
THE JEWS ARE RESPONSIBLE FOR ALL WARS IN HISTORY
GET INFORMED!!!! L0LOL0L!1!
THE JEWS ARE RESPONSIBLE FOR ALL WARS IN HISTORY
GET INFORMED!!!! L0LOL0L!1!
Now youre just being plain silly. Some maybe, but all...?
Also you might want to look out for the Caps Lock key, it tends to be over to the left of the keyboard.
Shuggy: This in turn is difficult to separate from the general decline in trade due to a collapse in demand. But I think the message of the 1930s is clear: economic nationalism benefits no-one in the long run.
If it is not possible to separate the effect of these other factors from the effect of the general collapse in demand, then the message of the 1930s is by no means clear. In the long run, it does appear that economic nationalism loses it benefit; but then again, in the long run it also appears that in the real world, free trading nations also eventually crash and burn. (Look out the window.)
I suspect that all the wrist-flapping about the imperative need to avoid "protectionism" may be a form of magical thinking - we invoke conventional wisdom about Smoot-Hawley to pretend to ourselves that we can affect forces that in reality have already slipped out of our control. E.g., the trade relation between China and the U.S. - that is, an export strategy where demand can now be sustained only by ever-increasing debt in the importing nation - must collapse, regardless of whether the U.S. avoids or implements protectionist policies. At this point in the game decrying protectionism is just a form of shamanism.
Protectionism is really only appropriate during crucial phases of nation-building.
It can be "appropriate" if the developing nation is small enough (say, South Korea), or gets in early enough (Japan), that its strategy doesn't too badly distort the existing order. The economies of more open nations can tolerate that without getting too buggered. But when enormous economies like China and India come online pursuing these same strategies (even as earlier entrants maintain them to a considerable degree), it defies reason to believe that dogmatic adherence to former policies will not be harmful to developed nations.
Anon: The mystery is why westerners go along with all this.
There's no mystery why some westerners go along with all this - they and their companies are making out very handsomely indeed. Producers who would prefer not to re-locate to China are outcompeted and are forced to either join the race to the bottom, or fold up shop - also not mysterious. The mystery is why the rest of us sit around sucking our thumbs while our own countries are wrecked by this process.
If it is not possible to separate the effect of these other factors from the effect of the general collapse in demand
I said difficult - not impossible. It's the quibbling about the exact figures that is fairly pointless.
In the long run, it does appear that economic nationalism loses it benefit; but then again, in the long run it also appears that in the real world, free trading nations also eventually crash and burn.
All fail in the end so nothing to choose between the two really? You can't be serious.
These are both poor comparisons. Stalinism doesn't work for reasons unrelated to trade.
'Stalinism' is less efficient - usually - but it's a simple before and after measurement. GDP per capita declined sharply in both countries as a result of sanctions. We can attribute this to sanctions because fundamental changes in the structure of the economies cannot be considered variables. No-one - or I should say no-one until now - seriously doubts this. These are countries that depend very heavily on the exports of primary products (oil) but you're actually trying to suggest that trade is of no consequence here? What utter rot.
It seems that China, India, Japan and S.Korea do pretty well on an economic nationalist regime.
Its almost as if its another thing that non-white folks are allowed but we are not.
It seems that China, India, Japan and S.Korea do pretty well on an economic nationalist regime-good point. However South Korea's economic nationalism was (largely on US advice)diluted in the early 90s- with the consequence that in 1998 the Won was slaughtered in those wonderfully efficient 'capital markets', and Wall Street banksters made another killing buying up Korean assets at fire sale prices(as they did after after the Thai bhat and other SE Asian currencies tanked in 1997).
The difference between sanctions and protectionism: "Sanctions freeze all trade, especially that which would be economically beneficial to the country in question. This is in marked contrast protectionism, which only permits economically beneficial trade."
I'm sure this Propaganda will be much more to your liking.
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