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Did Government Meddling Bring About the Great Depression?

 

The above video says yes, and attributes the bad policy to Herbert Hoover.  Considering the cycle of boom and bust that America had long seen, the Great Depression stands out for both its length and severity.  Perhaps this is not the answer, but it it is certainly more accurate than the historical myth that says that Hoover did nothing in the face of the Great Depression.

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Donald R. McClarey

Cradle Catholic. Active in the pro-life movement since 1973. Father of three and happily married for 35 years. Small town lawyer and amateur historian. Former president of the board of directors of the local crisis pregnancy center for a decade.

7 Comments

  1. Interesting post. As far as length and severity a book published in recent years claims that FDR was responsible for that. Unfortunately I don’t have the title in mind.
    I do know that my MN grandparents, great grandparents, grand aunts and uncles turned Republican
    because of FDR. One relative of my mother’s generation didn’t change over until high interest rates in Carter’s administration seriously affected his small business. My second cousins are conservatives with the exception of one who was graduated from the liberal U Wisconsin in Madison.

  2. If not the Great Depression, it clearly set the stage for our near-permanent Nanny State mentality. “The government will save us” is the most pleasurable of all aphrodisiacs.

  3. Interesting post. As far as length and severity a book published in recent years claims that FDR was responsible for that. Unfortunately I don’t have the title in mind.

    The Forgotten Man?

  4. No. Inflexible monetary policy turned an ordinary business recession into a severe Depression. The gold standard wasn’t an initiative of the Hoover Administration and the academic and policy mentalities which promoted its maintenance were not Hoover Administration initiatives, either. The British government went off the gold standard in September 1931 and began to recover within a matter of months. The succeeding 18 months were horrific for American business. Our recovery began when the Roosevelt Administration was able to engineer a devaluation of the currency in the Spring of 1933, as well as some salutary measures to stabilize the banking system.

  5. The inflexible monetary policy combined with a policy designed to keep nominal wages high (as described in the video) would have worked in tandem to make the situation must work. Both would have combined to cause real wages to rise, cutting any chance at recovery.

    The video doesn’t cover this but there was a pretty strong recovery that started in 1933 following the removal from the gold standard. However, that stalled and we had a second recession during the Great Depression (1937). Ohanion attributes this to wages being kept high through the strengthening of unions. Also to keep businesses happy the government cut back on antitrust regulation to appease businesses. So again prices and wages couldn’t fall to allow the recovery to continue. This combo was exacerbated by a shift back to tighter monetary policy.

  6. The inflexible monetary policy combined with a policy designed to keep nominal wages high (as described in the video) would have worked in tandem to make the situation must work. Both would have combined to cause real wages to rise, cutting any chance at recovery. The video doesn’t cover this but there was a pretty strong recovery that started in 1933 following the removal from the gold standard. However, that stalled and we had a second recession during the Great Depression (1937).

    There were no policy tools to prevent nominal wage cuts during the period running from 1929 to 1933. I’m not sure if the literature in labor economics has settled on an explanation for the resistance to nominal wage cuts during that period (as opposed to 1920-21). Hoover did promote nominal wage maintenance, but that was hortatory. As for the 1937-38 recession, it was a modest affair compared with 1929-33. The year-over-year decline in production (comparing 1938 to 1937) was 3.5%. That comparing 1933 to 1929 was 30%. Conventional Keynesian accounts of that secondary recession attribute it to contractionary fiscal policy. A more recent thesis has concerned monetary policy. The thing is, empirical studies of the effect of fiscal policy suggest weak multipliers are the norm, so the fiscal explanation is not the most plausible.

    The economy resumed rapid growth in the latter half of 1938.

    The trouble with the Roosevelt Administration was that they adopted a series of measures which damaged the labor market, and made a hiring recover (as opposed to a production recovery or an income recovery) quite slow.

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