Amity Shlaes Forges Historic Sequences
The Washington Post editorial page gives us another classic piece of hackitude.
In Five Ways to Wreck a Recovery Amity Shlaes explains how certain policies made, in her view, the Great Depression worse than it could have been:
[F]ive non-monetary missteps were important in making the Depression great, and the same missteps damaged the global economy as well. While many are thinking about the Depression, few seem concerned about replicating these Foolish Five today: ..
First one wonders why she writes the piece at all. Only last month she claimed that the U.S. is not in a recession at all. Then why is she now worried about a recovery? (As experts then pointed out, Shlaes used a wrong definition of recession to make that claim.)
But let us take a look at the "five non-monetary missteps" that as Shlaes says made the depression great.
She lists:
- protectionism, i.e. the Smoot-Hawley Tariff Act
- the investigation of the stock market crash by the Pecora commission and the creation of the SEC
- tax increases "during a downturn" like done by Hoover and FDR
- big government programs like the new deal
- some unspecified "inconsistencies" she attributes to the Roosevelt administration
If these non-monetary policies made the depression great or greater, than we should see some relation of their implementation to the Gross Domestic Product development that followed them.
Now take a look at this graph.
GDP numbers according to the Bureau of Economic Analysis (bigger graph)
The first misstep according to Shlaes was the Smoot-Hawley Tariff Act which increased tariffs on imports to the U.S. by up to 50%. It was put into law in June 1930 by the Republican congress under Hoover. That would be at point A on the GDP chart. Smoot-Hawley was indeed bad. Other countries followed the U.S. tariff policy and U.S. exports to them contracted. The U.S. GDP went down further. I agree with Shlaes that this was bad policy that deepened the depression.
Shlaes point two is banking regulation. In March 1932 the United States Senate Committee on Banking, Housing, and Urban Affairs established hearings to investigate the causes of the Wall Street Crash of 1929. It was more or less a Republican sham to show that they were doing 'something'. The commission only started to really investigate after the Democrats took over Congress in November 1932 and in early 1933 appointed Ferdinand Pecora as commission counselor. Pecora found many malpractices on Wall Street and his investigation led to the creation of the Securities and Exchange Commission. We can put these events at point B of the GDP chart. They were followed by steep GDP increases.
The third "misstep" for Shlaes are tax-increases implemented by Hoover and FDR. Here she supresses historic events.
Hoover initially slashed income taxes and this was an important reason that started the Great Depression. At the end of his rule, Hoover increased taxes which helped to get out of the Great Depression. Wikipedia:
Prior to the start of the Depression, Hoover's first Treasury Secretary, Andrew Mellon, had proposed, and saw enacted, numerous tax cuts which cut the top income tax rate from 73% to 24%. As the depression worsened, Congress, desperate to increase federal revenue, enacted the Revenue Act of 1932. The Act increased taxes across the board, and the percentage increased with income, to near pre-1928 levels for top income earners. It also implemented a 13.75% tax on corporations.
Hoover's tax decrease in 1929/30 was followed by four years of decreasing GDP. His "misstep" tax increase was enacted in 1932 and took effect only in 1933, point C in our graph. From there on GDP went up.
Now onto the New Deal programs which Shaes finds bad. The first New Deal package was legislated in 1933, the second one in 1935/36. They are marked D on the above chart. With the implementation of these points GDP went up further.
Shlaes, according to her Wikipedia entry "has no formal economic training." That certainly shows. She also seems to have zero training in history as she is unable to organize the sequence of events in a coherent way. Events and policies that obviously led to increases in GDP are attributed as having deepened the depression.
Shlaes uses the false history she creates and promotes to warn against certain policies the Democrats plan to implement. These policies are related to some that were implemented in the 1930s and were helpful to get the U.S. out of the Great Depression.
Because Shlaes is unwilling to admit such, she simply forges historic sequences. That is Great Hackitude just as the Great Depression was great for the people living through it.
Posted by b on August 18, 2008 at 9:29 UTC | Permalink
One of our readers linked to you. I have two posts on her stuff, one today from pgl. Another from an Australian, OSO. Nice presentation and graphic. In the style we try as well. Trade links?
Dan
You know that facts has a well-known leftist bias...
Posted by: a swedish kind of death | Aug 18 2008 14:15 utc | 3
The Washington Post achieves its objectives. It publishes provocative writers who then generate discussion thus creating the kind of buzz WaPo wants.
I'm not suggesting that outright lies and distortions should be left unanswered, just that in doing so you are furthering the Post's agenda.
This is not unique, the NY Times does it as well with clowns like Ben Stein and wackos like Tyler Cowen.
Posted by: robertdfeinman | Aug 18 2008 14:43 utc | 4
The FT sacked her after the patently ridiculous post-Katrina articles Shlaes wrote that were mentioned in the Wikipedia entry.
Yale magna cum laude or not, from the quality of the journalism produced by Shlaes it would appear that her FT stint was the only one that wasn't received on the basis on ethnic nepotism.
This is the issue that dares not speak its name but it has been the ruin of the US MSM.
Remember the run-up to the invasion of Iraq? Why do we read so little about conditions in beseiged Gaza or the occupied West Bank? Does Iran really pose such a threat to the US? How is it that we must turn to spaces like MoA to get the skinny on Georgia?
What saddens me is that I don't see any solution in sight. Most don't know and most of rest are too cowed by accusations of anti-semitism to speak out.
Walt & Mearsheimer and Jimmy Carter made tentative attempts to do so, to their everlasting credit. Equally, Joe Klein and Glenn Greenwald have begun to address the matter of bias in the media, and, erm, confused loyalities. Witness the substance and the tenor of the response from the Commentary crowd. Witness the silence from the MSM.
The US is at a watershed in its modern history. The blogosphere is serving an important function but without a properly functioning MSM, there will not be the critical mass of informed citizenry needed to deal with the many problems it faces including, but not limited to, its misguided foreign, energy, climate and economic policies.
Posted by: concerned observer | Aug 18 2008 17:10 utc | 6
What about the conventional wisdom (engraved in every economics text book I have had to use) about the Second World War generating the demand that eventually lifted the world out of the Depression?:
The New Deal programs did not end the Depression. It was the growing storm clouds in Europe, American aid to the Allies, and ultimately, U.S. entry into World War II after the bombing of Pearl Harbor that revitalized the nation's economy.
(Granted, if one looks closer, there really is no consensus)
Posted by: D. Mathews | Aug 18 2008 17:47 utc | 7
Shales probably lifted her five points from a Herbert Hoover tribute website or from the Hoover Institution itself. I have also seen the same five points listed over at Road to Ruin several months ago. The war on FDR and the New Deal is not over, especially now when a fair amount of the population will probably need some sort of economic help in the next few years. The Rethugs are ready to sabotage CCC camps and public works projects to restore infrastructure that St Ronnie the Drooler's tax cuts weakened and ruined.
Buzz Meeks
Posted by: Buzz Meeks | Aug 18 2008 18:51 utc | 8
@robertdfeinman - The Washington Post achieves its objectives. It publishes provocative writers who then generate discussion thus creating the kind of buzz WaPo wants.
It is even worse. As caught in Concerned Observers post the blogsphere gives the media an excuse to be partisan instead of informing.
Editor: "What, you say there is no opposition to our reporting in the media? Look how the bloggers are taking us apart!"
Us bloggers actually give them that false excuse. Our readers here and at many other useful blogs are less than thousand while WaPo has millions.
I am not sure how to grapple with that yet. Should I shut up about nonsense in WapO or should I scream louder? Maybe I should plant potatoes?
The really amusing thing about Schlaes is that although she continually trumpets that she graduated Magna Cum Laude from Yale, she never ever mentions that her degree is in English.
I'm a big believer in the liberal arts education as the ultimate intellectual luxury. But there's a big difference between being able to BS about something in a newspaper column and being a subject matter expert, much less mastering rigorous analytical tools.
She is, in the end, a hack. Has been, will continue to be. It is the duty of thinking people everywhere to shout her down, lest her misinformation seep into the public consciousness.
Posted by: Anonymouse | Aug 18 2008 18:57 utc | 10
Why not do the chart in real GDP terms - not nominal GDP.
Posted by: pgl | Aug 18 2008 19:19 utc | 11
What are "real" GDP terms in U.S. econ speak - chained dollars of what value? "Inflation adjusted" while the "hedonic" "core" inflation numbers that are used for adjustment are a bad joke?
Sorry - I didn't had time to make "better" numbers than to take the ones BEA suggested. How "real" those are may be a point of view discussion.
But I doubt that the discussion would move the trend I suggested. Four of the five measures Shlaes explains as "missteps" led to higher growth and better conditions for the people no matter on how it is measured. Show me numbers, "real" or not, that refute that judgment.
angrybear.blogspot.com/2008/08/real-gdp-and-components-of-aggregate.html
provides the chart called for by "b" and more.
Posted by: pgl | Aug 18 2008 19:51 utc | 13
Clickable links gets more visitors: Angry Bear: Real GDP and Components of Aggregate Demand: 1929 to 1940
Often when the topic is economics, I feel the sphere of discussion gets limited to factors inside the economical system (including political decisions on taxes, tariffs etc). What I miss is the external factors. I am not saying that the tariffs and the New Deal and the armament did not matter, but I wonder what role was played by the Dust Bowl and in general what the Wikipedia calls:
1932 to 1937 — Exceptional precipitation absence in northern hemisphere exacerbated by human activities causes the Dust Bowl drought of the US plains and the Soviet famine of 1932-1933 (harsh economic damage in US and widespread death in USSR)link
Also other factors like access to cheap energy (cheap in terms of EROEI) and such matters. Just checking around I found this:
Saudi Arabia - Wikipedia, the free encyclopedia
Abdul Aziz's military and political successes were not mirrored economically until vast reserves of oil were discovered in March 1938. Development programmes, which were delayed due to the onset of the Second World War in 1939, began in earnest in 1946 and by 1949 production was in full swing. Oil has provided Saudi Arabia with economic prosperity and a great deal of leverage in the international community.
So maybe the history of the great depression could be written: "The 19th century boom and bust cycle in the empirical core of the world economics continued until the 1930ies when a bust coincided with exceptional precipitation absence in northern hemisphere exacerbated by human activities. The restoration of previous weather patterns together with energy inflow from the middle east restored affluence to the core. Steps were taken to avoid the previous boom and bust cycles."
Now, I am not suggesting that two factors I found at wikipedia would be answer to all questions, but merely that we tend to forget that the really fundamental thing in economics is this planet we are living on.
Posted by: a swedish kind of death | Aug 18 2008 23:24 utc | 14
Dumenil and Levy's 1995 paper, THE GREAT DEPRESSION: A PARADOXICAL EVENT?, might interest you as they discern phases and bring out multiple causes rather than some magical 'the' cause, all in an apolitical fashion.
The chart needs to show real GDP instead of nominal, but the narrative stays the same. See spencer's post at AB.
http://www.nber.org/databases/ma.../ chapter07.html
Also more ups and downs here.
Posted by: rdan | Aug 19 2008 2:42 utc | 16
let's go to the basics
The Crash Course (great and disturbing graphs, ie, the empire will fall, soon)
- recently linked by tangerine
"The most powerful force in universe is compound interest", Albert Einstein
"The greatest shortcoming of the human race is our inability to understand the exponential function", Dr. Albert Bartlett
The Story of Stuff (there's no such a thing as a linear system)
- recently linked by annie
as a sister of mine taugh me other day: life and its perception move in spiral ways
Alan Moore (recently linked by lizard... ufs, lots of recents, sorry...) thinks magic is linguistics and religions are the lenguages.
I think magic is what's been studied here.
Namastê.
Posted by: rudolf | Aug 19 2008 6:16 utc | 17
b.,
Real dollars in a chart make for more accurate comaprisons, but as pgl noted in his post it does not change the narrative. What do you use to make your charts?...blogger insists on jpg or equivalent, so a conversion is needed from exel.
Posted by: rdan | Aug 19 2008 13:42 utc | 18
How is Smoot-Hawley so terrible when your own chart shows a downward trend even steeper before it is passed into law? As Gus Tyler once pointed out about 20 years ago in The New Leader, I think it was that magazine, the whole Smoot-Hawley attack is misplaced as it affected relatively few goods and US trade internationally was not significant at that time. Even Schumpeter, in his book, Economic Cycles, dismissed the argument that S-H was a significant factor in worsening the Depression.
Mitchell Freedman | | Email | Homepage | 08.19.08 - Comment at AB
Schumpeter is a marvelous econ professor. Welcome to the world. Can you prove Smoot Hawley was bad as a cause? or a correlation with the decline?
Posted by: rdan | Aug 19 2008 14:25 utc | 19
The comments to this entry are closed.
Shlaes uses the false history she creates and promotes to warn against certain policies the Democrats plan to implement.
Bypassing that WaPo article, I came to MoA only to find your comments on it. Reading the 5 point list, I thought the same thing: There they go again with their preemptive warfare, this time against Obama/Dem economic recovery plans, poisoning the well. Hacktacular!
Posted by: Hamburger | Aug 18 2008 11:38 utc | 1