Path to a Depression

Some interesting parallels with our current situation and the period before the Great Depression. Interestingly, it seems the Democrats are intent on not learning from history, at least not about what led us to the Depression. Or maybe they want a replay of the policies that helped drag us out of the Depression.

Schumer used the Bear Stearns collapse to call for “a greater degree of regulation” in the industry that is relevant this time, investment banking.

Hoover knew free trade was beneficial. But his party, the Grand Old Party, was the tariff party. So in spite of himself, he signed a big new tariff, the Smoot-Hawley act, triggering retaliation from U.S. trading partners.

For many decades now, Democrats have contrasted Hoover’s concession to protectionists unfavorably with free-trade legislation written by Roosevelt and his globalization guru, Secretary of State Cordell Hull.

Today it is the Democrats who are doing wrong, and they know better. Candidates Hillary Clinton and Barack Obama are both internationalists by temperament, yet they seem to be in a race to see who can repeal the North American Free Trade Agreement first.

Channeling Hull

Bush, by contrast, was channeling Hull when he called a plan to reject a new trade accord with Colombia “a terrible signal.”

Finally, there was Hoover’s tax policy. Today every fool, right or left, knows that imposing a tax increase in an economic downturn is like kicking a wounded man in the stomach.

Yet in the dark days of 1932, with unemployment at 20 percent, Hoover perversely signed an increase that reversed the multiple cuts by his predecessor, Calvin Coolidge.

Hoover more than doubled rates at the bottom of the tax schedule. He also increased the top marginal tax rate to 63 percent from 25 percent. The effect was predictable. That tax error has haunted economists ever since.

Yet today it is not Republicans but Democrats who are preparing to replicate it. Obama has suggested a payroll tax increase and an income tax increase; together they would just about offset all the breaks created by Bush. Clinton is scarcely different. Who’s Hoover now?

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