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Repeating the Great Depression   February 2nd, 2009
Goverment response to crisis is repeating response to Great Depression... even the mistakes       

 
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There have been estimations that we are experiencing the worst economic crisis since the Great Depression. And, given that our legislators are considering repeating some of the biggest mistakes of that era, it seems we may be doomed to repeat them.

http://www.bizjournals.com/cincinnati/stories/2009/02/02/daily5.html

U.S. Sen Byron Dorgan, D-N.D., is sponsoring the 'American-made' rule for construction and other equipment that would be used in the economic stimulus program, which funds public works, water, transportation and other construction projects as well as broadband communications deployments and energy research...

The U.S. Chamber of Commerce said Friday it opposes the restriction, worrying it will spark trade retaliation from other countries.

'If our goal is to create good-paying jobs at home by selling American-made goods and services overseas -- where 95 percent of the world's consumers live -- then 'Buy American' requirements don't make sense. If we refuse to buy foreign-made goods, then our trading partners will refuse to buy from us. And since we are the world's largest exporter, who will be hurt more?' said U.S. Chamber CEO Thomas Donahue in a statement.


That is, indeed, correct. A "Buy American" provision essentially amounts to protectionism and an implicit trade barrier on imports. That is almost certain to lead to retaliatory tariffs placed on American goods by other nations.

Looking back at the Great Depression:

Although the tariff act was passed after the stock-market crash of 1929, some economic historians consider the political discussion leading up to the passing of the act a factor in causing the crash, the recession that began in late 1929, or both, and its eventual passage a factor in deepening the Great Depression.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the "beggar-thy-neighbor" policies (policies designed to improve one's own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade.


A "Buy American" provision is effectively a repetition of the same bad protectionist policies that either were a contributing factor to causing the Great Depression, or at the very least made it worst.

The Great Depression era was characterized by increasing taxes on the rich, instituting protectionist policies that significantly reduced international trade, increased government regulation, and by massive federal spending on infrastructure. And none of that ended the Great Depression... the Great Depression only ended when our attention shifted from economic concerns to the concerns about winning World War II.

Today it appears there is talk of increasing taxes on the rich, instituting protectionist trade policies, more government regulation, and massive spending on infrastructure.

Why are we even considering repeating the same failed policies of 75 years ago?

Amazing Update 2/21/2009: In an amazing revelation, it appears that Obama is planning on repeating the Great Depression... including the tax increases that were virtually unanimously determined to have made the depression worse. "President Obama wants to cut the federal deficit in half by the end of his first term. He would try to achieve that mostly by scaling back Iraq war spending, raising taxes on the wealthiest Americans and making government run more efficiently."

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