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Dec 25, 2008

What Caused Unemployment in the Great Depression?

Another Great Depression?
12/23/08 - TownHall.com by Thomas Sowell

[edited] You might think:
  • The 1929 stock market crash was a failure of the free market.
  • The crash led to massive unemployment in the 1930's.
  • Roosevelt rescued the economy with the New Deal.
It is a pity to spoil this story with facts, but we should avoid repeating the catastrophes of the past.

The October 1929 crash did not create massive unemployment according to both official government statistics and new statistics by scholars Richard Vedder and Lowell Gallaway in their book "Out of Work."

Vedder and Gallaway follow unemployment month by month. The unemployment rate was 5% in November 1929, a month after the crash. It hit 9% in December, then trended downward to 6.3% in June 1930, 8 months after the crash.

Then, the Smoot-Hawley tariffs were enacted, despite dire warnings by economists across the country. Five months later, November 1930, unemployment rose past 10%.

The rise in unemployment after the crash of 1929 was a blip compared to soaring unemployment reached after a series of unprecedented government interventions by Hoover and Roosevelt. From February 1932 to December 1934 (almost 3 years), the unemployment rate was at least 20%, and was 19.3% in January 1935.

The evidence suggests that it was not the financial crisis in 1929 that caused massive unemployment, but politicians' attempted "solutions". Are we repeating that history now?

The New Deal and the Great Depression We in government don't like risks or new ideas, but we can sure spend money. That will improve things.
09/19/09 - Cafe Hayek by Don Boudreaux

Don Boudreaux [edited]:

Robert Higgs in Investor's Business Daily summarizes his research. Bad policy prolonged the Great Depression, and it did not end with WWII.

Bob Higgs [heavily edited]:

The government tried to spend us out of the Depression, as it has tried several times since. But, these policies delay recovery, rather than trigger it.

Money-losing investments must be reorganized, so good assets can be put to better use. If the government saves failed companies through investments and subsidies, this reorganization is slowed or stopped. The mistakes of the past are locked in place, hindering the creation of future wealth and jobs. Such New Deal recovery efforts had exactly these effects, as do current government policies.

Roosevelt’s recovery program spent billions of dollars with no sound economic logic. But, they made matters even worse when they threatened property rights and called private investors "economic royalists". They pushed through policies attacking the foundations of private enterprise, especially after 1935.

A recovery needs knowledge, investment, and people who can do new things and manage risk. Government can supply money, but it is taken from the entrepreneurs who are vital to the recovery, and given to the people who are in failing businesses. Entrepreneurs can do less, so recovery is slowed.

Waiting for the jobs Obama is building a new society. I'll wait until he is done.
07/02/09 - Instapundit

What is causing job losses now?

Small business owners are standing by the fence and watching, paralyzed by regulatory uncertainty. They aren’t hiring precisely because of government intervention in the economy. So-called stimulus won't change that.

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