The Forgotten Not-So-Great Depression of 1920
As my colleague Andrew Syrios has made abundantly clear, he thinks Glenn Beck is a royal douchebag. In Andrew’s eyes, Beck comes in second place only to Keith Olbermann for the king of douchbaggery. This puts Andrew in quite a bind. Namely, if he ever runs across opinions from either douche that he agrees with, it’s sure tough to use them in his articles now. So goes the cost of exposing the two biggest douches going. And this is sure to happen as he has pointed out areas of general agreement with both talking heads: much of Beck’s take on domestic issues, and Olbermann’s take on foreign policy.
I think I have found one such video that Andrew could get behind, unfortunately for him, the man in the video is none other than Glenn Lee Beck. I can see Andrew now, gritting his teeth as he sits through this, swallowing his flagrant disgust of GLB. Sometimes, though, when you’re right, you’re just right. The Depression of 1920, and the government’s response, is something more people should be acutely aware of.
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The whole piece is full of innacuracies, distortions, and outright lies. Beck draws the conclusion that higher taxes were the sole factor that led to the dowturn in the early 1920s but economists don’t agree with him. Beck doesn’t even try to make a case for his argument. Most economists believe that one of the leading causes was deflation, which is a major drawback of the gold standard and ultimately the biggest reason we eventually abandoned it. Other reasons include mistakes made in monetary policy like raising interest rates to record levels as the Fed was still in its infancy and not yet fine tuned to the needs of the country’s monetary policy.
Beck makes another odd assertion when he states that the New Deal both prolonged the Great Depression AND is still largely with us today. Well we haven’t had a depression since, although this recent recession has been particulary bad. Regardless, 70 years without a depression is a much better record than less than a decade. If the New Deal is the cause of the prolonged depression instead of cure then what ended the Great Depression?
The prolonged nature of the Great Depression was actually caused by precisely the opposite of what Beck claims. Initial New Deal projects helped so much that FDR cut back because some people were worried about the debt. This cut back forced another downturn that was not fully corrected until spending was increased again, and accelerated later with the war effort.
I find it quite interesting how you don’t even mention any reason we got out of the Depression of 1920, why is that? Is it because the Keynesian analysis has no answer for it? What got us out of that depression? Or the one in 1907 that lasted a year, or 1893 that lasted 3? In 1987 we did almost nothing and the recovery was extremely swift.
Deflation doesn’t necessarily lead to a depression (see http://mises.org/daily/1583), it can when wages are artificially kept high (i.e. the government CREATES sticky wages) like when Hoover put enormous pressure on businesses not to reduce wages or when FDR created the NRA to institutionalize such price controls.
The depression did not really start with the stock market crash, in fact unemployment never went above 9% and was down to 6% when Smoot Hawley was put in, unemployment didn’t go below 10% for a decade.
Some of the policies in the New Deal were simply insane, such as slaughtering 6 million pigs and plowing under 10 million acres of wheat to raise prices while people were starving. Unemployment remained high and the stock market remained low (not getting back to 1929 levels until the early 50′s). This is unparalleled in American history. So yes, we never had a depression like it since, we also never had one like it before. And we’ve had plenty of recessions, as well as the huge crash we’re going through now and the stagflation of the 1970′s.
I will agree with you on one thing, it wasn’t taxes that started the depression, it was, in my opinion, a stock market bubble created by an expansive monetary policy. But it was Smoot Hawley and other government measures that continued the depression (I write more about that here: http://www.swifteconomics.com/2009/08/03/if-only-barack-hoover-obama-was-barack-harding-obama/)
If the New Deal is the cause of the prolonged depression instead of cure then what ended the Great Depression?
World War II ended it. Now, you are going to say that it was the government taking over the economy and spending more money than the New Deal spent. WRONG!!!
The U.S. got in the war on Dec. 7th. It was the production and exporting of supplies to the participants that got in the war in 1939.
Also, it was the saving and pent up demand that occured during WWII because very few consumer goods were made once we got in the war. Business in the U.S. had very little competition for consumer goods from the fall of 1931 to the December of1941.
Also, the rest of the world’s infrastructure and factories were destroyed at the end of WWII which gave us a big advantage after the war and helped us pay down our debt.
There isn’t one place on this entire website which would suggest I advocate government taking over the economy and spending taxpayer’s money to guide us out of an economic downturn. Quite the opposite. So I have no clue what gave you that idea.
Most economists agree that war is good for the economy, for some of the reasons which you mentioned. This is the collective wisdom. Rarely do you hear the other side of the argument. War may not be all that great for an economy: http://www.swifteconomics.com/2009/03/21/war-is-not-good-for-the-economy/
Pay particularly close attention to the unemployment rate and GDP information in the piece during WWII, the primary points of “evidence” for the war effort propelling us out of the Depression.
An excerpt:
I’m pretty certain artificially propped up wages and prices (partly due to slaughtering pigs and burning crops while people were starving in “Hoovervilles”) was not the catalyst for getting us out of poor economic times.
Uhhhhh, no. But keep trying.
UHHHH….. Yes…..You don’t have common sense……Andrew.
The problem of too much debt is not cured by taking on a lot more debt. If that were true, we could just pretend to have a WWIII. Unemployment was already well under double digits when the Japanese attacked us on Dec. 7th, 1941.
Fighting the Nazis and the empire of Japan was not good for the economy. It was a burden for the economy. Why don’t we spend trillions on war machines and supplies and spend trillions moving troops around the world if that were true. Problem solved according to the twisted logic of some people. Debt fianance consumption by the goverment will only serve to keep the factories in Asia busy while we wait for the day we have a funding crisis
“There isn’t one place on this entire website which would suggest I advocate government taking over the economy and spending taxpayer’s money to guide us out of an economic downturn. Quite the opposite. So I have no clue what gave you that idea.”
I was talking about comments made by Chris because he was the one who said it was the spending during WWII that ended the depression.
OK Dan, Chris’ comment is 3 months old, so I thought you were talking about the original post. I agree with you, I even wrote a short article on how stupid the idea of using a world war to fix the economy is: http://www.swifteconomics.com/2010/07/21/maybe-a-world-war-will-fix-the-economy/
O.K….My Bad…..I’ll should of made it clear I was talking about the comments made by chris.
Excellent, we can all be friends again, except Chris of course