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Thomas Sowell
Thomas Sowell
9 Feb 2016
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A Mind-Changing Page


Sometimes you can read a book that will change your mind on some fundamental issue. Rarely, however, is there just one page that can undermine or destroy a widely-held belief. But there is such a page— page 77 of the book "Out of Work" by Richard Vedder and Lowell Gallaway.

The widespread belief is that government intervention is the key to getting the country out of a serious economic downturn. The example often cited is President Franklin D. Roosevelt's intervention, after the stock market crash of 1929 was followed by the Great Depression of the 1930s, with its massive and long-lasting unemployment.

This is more than just a question about history. Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must "do something" to get the economy moving again. FDR's intervention in the 1930s has often been cited by those who think this way.

What is on that one page in "Out of Work" that could change people's minds? Just a simple table, giving unemployment rates for every month during the entire decade of the 1930s.

Those who think that the stock market crash in October 1929 is what caused the huge unemployment rates of the 1930s will have a hard time reconciling that belief with the data in that table.

Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed— and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930.

This was what happened in the market, before the federal government decided to "do something."

What the government decided to do in June 1930— against the advice of literally a thousand economists, who took out newspaper ads warning against it— was impose higher tariffs, in order to save American jobs by reducing imported goods.

This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn.

Within six months after this government intervention, unemployment shot up into double digits— and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started.

If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s would have been different. An economic study in 2004 concluded that New Deal policies prolonged the Great Depression. But the same story can be found on one page in "Out of Work."

While the market produced a peak unemployment rate of 9 percent— briefly— after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy. It rose above 20 percent in 1932 and stayed above 20 percent for 23 consecutive months, beginning in the Hoover administration and continuing during the Roosevelt administration.

As Casey Stengel used to say, "You could look it up." It is all there on that one page.

Those who are convinced that the government has to "do something" when the economy has a problem almost never bother to find out what actually happens when the government intervenes.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten.

What was the difference between these two stock market crashes? The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment.

But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash— despite many outcries in the media that the government should "do something."

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate web page at Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is



4 Comments | Post Comment
This is a good example of intellectual dishonesty because I know Sowell must know better than the misleading information he has written in this column. First of all, the position that one type of intervention is bad means all interventions are bad is logically absurd. Second, he is talking about the Smoot Hawley Tariff Bill which was roundly scorned by FDR and the Democratic Party and bears no relationship to what FDR did. In fact, FDR and the Democratic Congress repealed the bill quite quickly. Thirdly, I know of no one who is proposing anything like the Smoot Hawley bill now, so this is a classic case of a straw man argument. It is also a classic case of comparing apples to oranges--a tariff bill compared to government spending or regulation of financial markets (the current forms of intervention) when they have nothing to do with one another. I would expect better from a freshman in an introductory class in either econ or US history than this column.
Comment: #1
Posted by: gary page
Sun Jun 20, 2010 4:13 PM
I enjoyed how you commented on one aspect of the article but neglect the other one: that the unemployment malaise continued throughout the thirties even with increased regulation and substantially increased spending: exactly what has recently been done/proposed. You also neglect the comparisons he made with 1987. It's ok though, it's easier to accuse him of intellectual dishonesty than to actually read the article thoroughly.
Comment: #2
Posted by: T Bigler
Sun Jun 20, 2010 5:04 PM
"If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s would have been different." If the lack of government regulation of the banking industry is the magic answer that so many in the GOP seem to think it is, the whole history of our country since the 30's would have been different. Gingrich and friends pushed through banking deregulation at the end of the Clinton administration. (And yes, Bill signed it...) It took a few years for the resultant bubble to collapse into the mess we find ourselves in. Why would we not want to at least undo that bit of industry capture of congress? Not all government intervention is bad. ----
A major piece of this mess is that we don't make anything anymore. We used to sell to the rest of the world and now we have outsourced our manufacturing to other countries. The jobs that workers get retrained to do do not pay anything like the manufacturing jobs that were lost. Who knows, perhaps a bit more regulation of the corporations might have slowed this job loss. Corporations are obligated to work for shareholder interest, but governments are supposed to be working for the citizen's interest. Somehow the congress has gotten the idea that they are working for share holder interests, not that of the citizens. ----
I find that Mr. Page's comments were fair. When pointing out intellectual dishonesty, it is not necessary to show that every argument made was invalid. Pointing out the obviously manipulated ones should be sufficient. I find that Thomas Sowell the columnist frequently dips into intellectually suspect terrain in making his arguments. The irony is that Thomas Sowell the book author has frequently pointed out such dishonesty in others.
Comment: #3
Posted by: Mark
Sun Jun 20, 2010 10:47 PM
Perhaps Mark and Mr. Page should brush up on their history before suggesting that someone else is 'intellectually dishonest.' FDR did not repeal the Smoot-Hawley Tariff Act. He did in fact 'roundly scorn' the Act, but by election eve, F.D.R. had backed down, assuring voters that he understood the need for tariffs. In the great tradition of all Dems (and the GOP), F.D.R. pointed the finger at the other party while continuing with Hoover's 'relief' programs.

Perhaps you should read more carefully as well. Mr. Sowell did not compare a tariff with government spending and regulation. He merely stated that government intervention only made the Great Depression worse.

Fact is World War Two saved our economy despite the government 'help.' Neither political party had a hand in it.
Comment: #4
Posted by: Scrodee
Tue Jun 22, 2010 3:48 AM
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