Worst Economy Since The Depression?
By Gary Wolfram
February 29, 2008
Page 2 of 2
One of the major causes of the Depression was Congress's passage of the Smoot-Hawley Tariff, which was signed into law on June 17, 1930. Smoot-Hawley placed tariffs on more than 20,000 imported goods. It halted the recovery from the 1929 downturn and resulted in retaliatory tariffs from U.S. trading partners and a decline in U.S. imports and exports of more than 50 percent.
American agricultural products were particularly hard-hit by retaliatory tariffs. Farm prices fell, with a bushel of wheat falling from $1 in 1929 to 30 cents by 1932. Some economists believe that the effect of Smoot-Hawley actually began earlier, since some foreign governments retaliated when the bill passed the House in May of 1929.
Tax policy during the Depression kept the economy from recovering as well. President Hoover persuaded Congress to enact the Revenue Act of 1932, which raised income taxes across the board. The top marginal rate rose to 63 percent from 24 percent, with the estate tax doubling and corporate income taxes rising by 15 percent. Roosevelt continued in this fashion, raising the top marginal income tax rate first to 70 percent and eventually to 90 percent.
Today's candidates for the presidency are calling for tariffs on Chinese goods, repeal of the North American Free Trade Agreement, and raising income tax rates on the highest earners. These, along with unstable monetary policy, are policies that contributed to the Great Depression. Perhaps we should realize that our current situation is far from an economic disaster -- but repeating old policies of inflation, trade barriers, and tax hikes are capable of leading us in that direction.
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Dr. Gary L. Wolfram, a Business & Media Institute adviser, is the George Munson Professor of political economy at Hillsdale College in Hillsdale, Mich.
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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA. >> Back -- Page 1 2
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