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Half of the Great Depression was caused by tariffs.

• UncleOxidant 2y ago
  And the other half was unregulated banks?
  • hcknwscommenter 2y ago
    There were massive bank failures during the great depression. And, no FDIC type insurance. So depositors entirely wiped out. So conservative families, not speculating in the stock market or otherwise and "safely" saving their money in banks were simply wiped out. Stock investors also wiped out due to equity market downturn. Farmers wiped out due to food/commodity prices dropping. Every single asset class took its turn. Job losses quickly followed and then fed back on the stuff above to cause even more mayhem. There is no doubt that things like bank regulation and FDIC insurance made a massive difference and at least partly kept the great recession from becoming like the great depression.
    • ty6853 2y ago
      FDIC would have solved the issue of contracting money supply, but the more direct cause was the federal reserve contracting money supply in the first place assuring bank failures in a fractional reserve system. FDIC is a bandaid for having a centrally planned fed rather than free market banking with private deposit insurance.
      • mmooss 2y ago
        And lack of bank regulation to prevent their failures rather than just clean up after them. Even with all the tools, 2008 caused great harm.
        • hcknwscommenter 2y ago
          Yes the loose regulations of the Bush era led to the 2008 crisis. It took two consecutive presidential terms by the GOP, but they got there. Will Trump's speed run lead to even worse results? We shall see.
      • hcknwscommenter 2y ago
        I don't understand what you are saying. We do have free market banking. Are you suggesting totally unregulated banking would work better? Literally we tried that, it was a huge contributor to the great depression.
        • ty6853 2y ago
          We do not. A banking company recently applied for a banking license to provide full reserve banking ('narrow banking') and their license denied. The government makes it illegal to make a bank immune to failure when they contract supply. >was a huge contributor to the great depression. ... the great depression happened under a central bank system, within 15 or 20 years of this industry becoming far more regulated.
          • hcknwscommenter 2y ago
            Under a central bank system that did not have FDIC insurance. You are deliberately eliding my point. Not cool. And the idea that a completely free market banking system where "narrow banks" can literally compete with the Fed makes any sense in the modern world is insane. Go to Somalia. Have fun staying alive and keeping any of your money.
            • ty6853 2y ago
              On the contrary, FDIC encourages more reckless banking. Customers chase riskier high interest deposits knowing they cannot lose the deposit and that the 'insurance' is already baked in at a public loss if their gamble loses. The customer has little incentive to monitor underlying banking of these insured funds. This isn't just my words, the fdic has written of the moral hazards themselves. And the same principle applies to the central bank encouraging risky bank behavior by bailing them out as a lendor of last resort.
              • hcknwscommenter 2y ago
                Most people have better things to do than individually monitoring the underlying banking of insured deposits. And they lack the expertise to do so anyway (I certainly wouldn't know how to accurately price or create a CLO, some complex structured note, swap, CMBS transaction, etc.). That's why we have regulators, and the benefit/cost ratio is phenomenally high.
      • SideQuark 2y ago
        Independent central banks have such solid empirical support for making economies more stable that all 200+ countries in the world chose them. As a simple entry into the evidence start with https://cepr.org/voxeu/columns/recent-trends-central-bank-independence https://cepr.org/voxeu/columns/recent-trends-central-bank-in..., and follow up via google scholar.
        • ty6853 2y ago
          I have no trouble beleiving having a central bank that can buy government debt with newly created money, essentially taxing the populace via inflation without exposing representatives to voting on a tax, might be highly attractive to governments worldwide. It is a fairly reliable way to burden the populace under an illusion they don't well see through.
          • SideQuark 2y ago
            > I have no trouble beleiving having a central bank that can buy government debt with newly created money, essentially taxing the populace via inflation without exposing representatives to voting on a tax, might be highly attractive to governments worldwide. Then I recommend you learn some economics and how to look at past evidence. First, it's not taxing people - pretty much zero people hold all their money in cash. Without targeted low inflation, countries run the risk of a deflationary spiral, which means massive unemployment and wealth destruction. At no point did a person pay them a tax. And any govt debt they buy is exactly the result of elected officials spending more than they take in. Don't want the Fed buying govt debt - tell your politicians to raise taxes to pay for what they use, or to cut (and note - the current DOGE idiocy looks at best to cut a fraction of a percent of the budget, while the GOP looks, once again, to add trillions to the debt under the never-once-worked belief that somehow tax cuts will pay for themselves... That is sheer idiocy of the highest form: not a single time has that done it, yet they and their ignorant followers try and try and try.... - this is where your debt comes from). Assets other than cash inflate along with inflation, which is where most people hold assets (houses, stocks, pension funds, pretty much everything). Inflation also lowers payments for fixed loans, like mortgages, so inflation generally gives value to borrowers (they have less effective to pay back over time) at the cost to lenders. So most people at some point have a longer term loan (house, education), and inflation adds to their wealth by making them owe less. So your argument is both ignorant and doesn't understand basic econ or reality. It's this ignorant, self-righteous and frankly incredibly stupid view nearly unique to Americans that is right now destroying trillions in wealth for Americans through equivalently stupid, ignorant, and short sighted policy. So congrats - you are the problem for America. I do not understand how the US went from an economic powerhouse with decent policy and an educated populace to support itself to the current idiot cycle of discredited ideas and such ignorant masses thinking they understand topics they clearly do not. Good luck tanking your economy. It looks like your health system is going along with it.
    • UncleOxidant 2y ago
      Right, so as the OP said above: half of the GD was caused by Smooth-Hawley - the implication being that the other half was caused by other things - most likely the massive bank failures. By letting banks play with crypto we seem to be trying to speed-run a new great depression.
• bryant 2y ago
  > Half of the Great Depression was caused by tariffs. The downvotes might be because it's unrelated to the discussion, but it's also not really wrong. The exact impact of the Smoot-Hawley Tariff Act probably can't be quantified, but it's well agreed that it contributed significantly to the extent of the depression itself due to the retaliatory tariffs triggered and the resulting drop in global trade. (Institutional access needed - https://www.cambridge.org/core/journals/journal-of-economic-history/article/abs/where-is-there-consensus-among-american-economic-historians-the-results-of-a-survey-on-forty-propositions/A0B369E27B4B1BAFFD29AB83CC53B718 https://www.cambridge.org/core/journals/journal-of-economic-...)
  • skippyboxedhero 2y ago
    It is wrong. The paper you have linked is a survey (economic historians are like other people and believe things that do not have clear evidence too, as someone who studied economic history I can give you a long list of subjects on which opinions without evidence are common...this is one of the most notorious), it does not say that it contributed half (there is no way to know this either, it is an anti-factual statement, there is research that says it contributed to the drop in imports...but this is against the backdrop of a massive drop that was probably at least 5-10x as large caused by banking), the quantum is extremely important here because you can say something is probably negative but also probably irrelevant (true in this case, the reason why this statement is said is because tariffs are negative ceterius paribus, so it is easy to say that they were negative but this ignores all other context...the irrationality about tariffs is exposed by almost all of the growth miracles in economic history occurring in countries with extremely high tariffs), and (finally) there is massive amounts of evidence that 99% of the cause was banking. On the latter, this is knowable because you can point to failures of specific banks that coincided with the Depression getting worse in areas where those banks traded (in particular, the failure of Caldwell). This is a very different kind of evidence to the one for tariffs, in economic history terms the latter is shrug maybe (this kind of thing is not apparent to people who don't know how the sausage is made). This is why you have papers (like Eichengreen) that revolve around asking why SH is such an obsession for economists (usually not actual economic historians). Compare this to the number of papers on banking history of the period, on the failures of massive banks like Caldwell...there are very few on this because banking history is extremely unpopular and boring amongst economists because you can't use mathematical models that show how clever you are, macro is very popular but completely useless (again, most people don't know how the sausage is made). There is no evidence that it contributed significantly. This is like your house being on fire, and saying that your house collapsed because you left the kitchen door open (and, again, to repeat: there is no evidence that tariffs are bad either...because almost every country that has experienced huge growth had tariffs in the past, there is a lot of evidence that tariffs/trade barriers are bad for economically uncompetitive countries i.e. the EU today, South America in the 50/60s, and Britain 20-70s but those two things are not separable, tariffs have a context). Other comments are also mostly wrong. Issue wasn't unregulated banks in the GD either, most banks that failed were regulated. There is an argument for saying that state regulators were worse, that there was massive regulatory fragmentation (in the 20s, banks were regulated in a completely different way to today) but I am not clear why people would assume regulation automatically leads to less crises. Savings and Loans were also heavily regulated...still blew up. The issue is that heavy regulation usually causes massive concentration in the banking sectors (Canada and Australia are two examples) and this generally leads to a much lower frequency of banking crises but significantly greater severity. The assumption that regulators can just magically find this optimum is not logical (and is based on the theory that people who work at banks do not have an incentive to stop failures, this aspect was sold heavily after 2008 to support significantly more regulation...but it isn't accurate, for example Lehman's senior management lost 95% of their net worth, and ignores that regulators were overseeing the institutions that failed before too).
• tmpz22 2y ago
  It also pushed Japan to invade all of Asia because they were an island nation dependent on trade (and ironically had been an upstanding world citizen and significant member of the League of Nations).