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  • The Left is the Real Party of Hoover

    Professor of European Political Economy at the London School of Economics, Willem Buiter, writes at the Financial Times:

    I used to be optimistic about the capacity of our political leaders and central bankers to avoid the policy mistakes that could turn the current global recession into a deep and lasting global depression. Now I’m not so sure.

    I used to believe that the unavoidable protectionist and mercantilist rhetoric would not be matched by protectionist and mercantilist deeds. Protectionism was one of the factors that turned a US financial crisis into a global depression in the 1930s.

    The odious US House of Representatives has tagged a Buy American clause onto the Obama administration’s $819 bn (or more) fiscal stimulus bill. If this were to become law, US federal spending would, wherever possible, be restricted to goods and services produced by US companies. The main promotor of this act of global economic vandalism was the US steel industry, but other import-competing industries have lobbied also. It is quite likely that the Buy American net will be cast even more widely when the Senate gets its turn at the fiscal stimulus act.

    There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly.

    We can go down in history as the generation that created the Great Depression of the Noughties. Just keep on beating the protectionist drums. Keep on the footdragging that prevents effective qualitative and quantitative monetary policy easing in the Eurozone and the UK. And go ahead with unsustainable fiscal stimuli in the US, the UK and elsewhere that will spook markets, push up long-term interest rates and raise the spectre of sovereign default by countries not belonging to the group of usual suspects. Yes we can! I hope we won’t.

    Our own Daniella Markheim adds:

    The devastating economic effects of such protectionist measures are well-documented. The Smoot-Hawley Tariff Act of 1930, for instance, raised U.S. tariffs on more than 20,000 imported goods to record levels. Introduced as a means to reduce imports and protect American businesses and jobs, Smoot-Hawley did cut the amount of imports between 1929 and 1933 in half. At the same time, exports dramatically declined, and unemployment grew from 3.2 percent in 1929 to 8.7 percent in 1930 and peaked at 24.9 percent in 1933–the heart of the Great Depression. Large majorities of economists and historians now say that Smoot-Hawley played a significant role in worsening the Great Depression. While not the same, the expansion of the Buy American program represents a step toward the same type of destructive protectionism instituted by Smoot-Hawley.

    With countries’ economic vitality linked through trade and investment, the need for all nations to protect open markets is crucial to helping the global economy recover and return to a path of growth. Therefore, given the effects of previous protectionist schemes, expanding the Buy American program as part of a stimulus package is perverse.

    Posted in Ongoing Priorities [slideshow_deploy]

    5 Responses to The Left is the Real Party of Hoover

    1. John Theobald, Marietta, GA says:

      The Professor professes some excellent points, but only focuses on what should NOT be done rather than what should be done.

      If we REALLY want to see this Country flourish, we need to accomplish two simple goals:

      1. Sell the USA … not in the sense of someone buying us, but in the sense of demonstrating through TAX policy that there is absolutely nowhere else on this planet that business should locate. Drop the Corporate tax rates to 15% permanently and eliminate capital gains taxes permanently.

      2. Enable the Fair Tax to forcably strip power from Washington. How do we get them to do this? We elect individuals based on a litmus test. If you are not for the Fair Tax, you are not worthy of our vote.


      There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad against whom this army and navy are to protect us.” –Thomas Jefferson

    2. jm says:

      After Smoot-Hawley tariffs trade declined from 6 percent of GNP to 2 percent of GNP. While that is, as free trade advocates like to point out, two thirds it was, as free traders avoid saying, two thirds of a small amount. Much too small to justify free trade. Much too small to have been the major player it is claimed to have been. Also before it was passed tariffs were already high and the Depression was long underway when it went into effect. Unemployment went up after it was passed but when tariffs were increased in the previous decade unemployment went down. The 1920s had their version of the Bush/Paulson/McCain “fundamentals of the economy are strong” but in reality things had been getting bad for several years. When you look at the data instead of the rhetoric the case that Smoot-Hawley caused our problems is weak at best. At the time of the Great Depression we had been a tariff protected economy since 1828 with tariffs just as high at times. If Smoot-Hawley like tariffs cause economic impairment how did we ever become so successful in the first place?

    3. Lynn Alton says:

      Yea!!!! to Mr. John Theobald with his insights herein . . .he is SPOT ON !!!!

    4. GENE BOWMAN says:


    5. Hilary Smith - USA says:

      If instead of “Buy American” we imposed “Buy Democracy” restrictions on the use of the stimulus, that would be alright with me. Our quality of life suffers when we try to compete with undemocratic countries using unethical labor practices. It would be fine with me if the stimulus money were spent on goods produced in democratic nations. We should be careful not to drive our democratic allies into the arms of the Chinese. And we definitely need to put the kibosh on the flood of cheap Chinese imports. Also, what were our exports as a percentage of GDP during Smoot-Hawley versus our exports as a percentage of GDP now? If our exports are way down now, the Buy American protection might not have the same negative effect that Smoot-Hawley had.

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