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.