In my latest reading of Freedom from Want: American Liberalism and the Global Economy, Edward Gresser talked about the Smoot-Hawley Act, a protectionist law that was enacted during the Presidency of Herbert Hoover. Many defenders of free trade maintain that the Smoot-Hawley Act exasperated the Great Depression.
Gresser narrates that there was support for
Smoot-Hawley because businesses in America feared having to compete with
foreigners, who paid their workers less and could thus sell their goods
more cheaply. But, as Gresser notes, the Act actually reduced or
eliminated tariffs on some items, such as petroleum and coffee. This
overlaps with what I was saying yesterday----that there may be things
that other countries produce better than us, and so free trade is
probably a good thing in those areas. Moreover, it's good to get
certain things cheap. I just get scared when American workers have to
compete with foreign workers who are paid less to produce the same
things that we do, for (in my opinion) that brings down the American
standard of living. Apparently, Smoot-Hawley had the same sort of approach towards trade.
But Gresser narrates that Smoot-Hawley became extremely problematic. Smoot-Hawley
raised tariffs, and, in a time of deflation, the result was that
American consumers did not buy as many imported products. That hurt
(and in some cases even devastated) the economies of the countries that
were making those products, and so some of them retaliated by not buying
American products, which further damaged the U.S. economy.
President Franklin Roosevelt tried to repair this situation by making
trade agreements with countries on an individual basis, but it was
really after World War II that a policy of trade was dramatically
launched and that institutions were created (i.e., the World Bank) for
that. Franklin Roosevelt supported free trade, not only because of the
damage that Smoot-Hawley created, but also because he felt that it could
lead to peace (since you're unlikely to attack a nation with which you
are trading) and worldwide prosperity.
Gresser also discusses the issue of stimulus vs. austerity, an issue that confronts us today. Gresser
says that Japan during the Depression went the stimulus route----which
entailed "public works, government loans, [and] mass printing of
money"----with the result that "Japan pulled out of the Depression
before any other industrial country" (page 81). But Gresser
goes on to say that Japan was not "successful enough", for some of its
army officers sought to attack China in an attempt to "secure export
markets and raw materials for Japan's factories, employment for its
farmers, and glory for themselves" (page 82).
Germany, by contrast, went the austerity route,
as it remembered "the hyperinflation of the early 1920s" (page 82).
Its austerity route included higher taxes, reduced government spending,
and balancing the national budget. According to Gresser, this "further depressed the German economy" (page 82).
Martyn Lloyd-Jones interview
1 hour ago