Sowell on the Great Depression
Here is Thomas Sowell’s latest:
To this day, there are people who believe that the market economy failed when the stock market crashed in 1929 and that the Great Depression of the 1930s that followed required government intervention.
In reality, the stock market crashed by almost exactly the same amount on almost the same day in 1987 — and 20 years of prosperity, low inflation and low unemployment followed.
What was the difference?
Politicians — first President Hoover and then President Roosevelt — decided that they had to “do something” after the stock market crash of 1929.
In 1987, President Ronald Reagan decided to do nothing — despite bitter criticisms in the media — and the economy recovered on its own and kept on growing.
To people who think the government should “do something” — and this includes most of the media — it would never occur to them to compare the actual track record of what happens when the government does something and what happens when it lets the market adjust by itself.
“the stock market crashed by almost exactly the same amount on almost exactly the same day in 1987″… Tell me if you think if the phrase sounded better the first time he used it when he actually attributed it to the guy who said it. But that’s a quibble… everyone forgets things nowadays – I wouldn’t be surprised if he forgot where it came from. I’m also not going to quibble with the differences between the stock market crashes in 29 and 87.
Instead, I want to note something else. Sowell, as he always does, is arguing that the gubmint makes things worse, and the best thing the gubmint could have done after the Crash of 1929 was sit on the sidelines. By failing to do so, Sowell believes, the gubmint made things worse. And he presents a completely dissimilar situation as a comparison to make his point. Which is understandable, because its not possible to run a counterfactual and see precisely what would have happened if the gubmint had done nothing.
But… there is another comparison that Sowell could have done. See, the issue is not a drop prices in the stock market. The issue is… what do you do to get out of a slump, perhaps even a really big slump like the Great Depression. (And I’m not going to discuss the question of whether the market crash caused the Great Depression – J. K. Galbraith and others much more qualified than I have gone back and forth over that one.)
So bearing in mind the question is one of what to do about the Great Depression, Sowell could have noted that the Great Depression struck a lot of countries, not just the US. In some of them, the government decided to “do something.” In some of them, the government did very little. I believe, for instance, that among the developed countries with the most non-interventionist governments were the Netherlands (yup, the Netherlands) and Australia. My knowledge of economic history of this time, particularly when we’re talking about them foreigner people who speak funny sounding languages, is pretty limited – so y’all feel free to correct me on this – but I’m under the impression that the most non-interventionist countries were also the ones where the Great Depression dragged on for the longest.
From my limited stores of knowledge of the situation and a few minutes on google, I imagine that there is a pretty direct comparison to be made between Australia and New Jersey, make that New Zealand – the economies were similar, the hit from the Great Depression was (initially) the same, and the response in the two countries was very different.
Perhaps Sowell will illuminate us about that in a future column. Or perhaps not.