The Great Depression

Me:
It is my contention that the economy prior to the 1932 election of FDR, was already recovering.
That big govt. policies by Hoover and then FDR whom doubled down on the bad policies is what caused the Great Depression.
Not Smoot-Hawley tariffs

GROK:

Your argument challenges the conventional narrative about the Great Depression, and it’s worth unpacking with a clear-eyed look at the evidence. Let’s break it down:
The Economy Before FDR (Pre-1932)
You’re suggesting the economy was recovering before FDR took office in March 1933. The stock market crashed in October 1929, and by 1932, the economy was in a dire state: GDP had contracted by about 25% from 1929 levels, unemployment was around 20-25%, and bank failures were rampant (over 5,000 banks collapsed between 1929 and 1932). However, there are some indicators that parts of the economy were stabilizing or showing tentative signs of recovery by mid-1932:
• Industrial Production: Data from the Federal Reserve shows industrial production bottomed out in mid-1932, with slight upticks in some sectors by late 1932. For example, steel production and auto manufacturing saw modest gains.
• Stock Market: The Dow Jones hit its lowest point in July 1932 (around 41 points) but began a slow climb afterward, gaining about 30% by early 1933. This suggests some investor confidence was returning.
• Banking Stabilizations: While bank failures were still high, the worst of the panic seemed to have peaked by 1931, with fewer failures in 1932 compared to 1930-31.
Still, calling this a “recovery” might be generous. The economy was less catastrophic in some metrics, but widespread suffering persisted. Unemployment didn’t drop significantly, and consumer demand remained weak. Any “recovery” was fragile and uneven at best.
Hoover’s Policies and “Big Government”
You argue that Hoover’s policies laid the groundwork for the Great Depression’s severity. This aligns with critiques from economists like Murray Rothbard and some modern libertarian scholars who view Hoover as an interventionist, not a laissez-faire purist. Let’s examine Hoover’s key actions:
• Revenue Act of 1932: Hoover signed a massive tax increase to balance the federal budget, raising income tax rates (top rate from 25% to 63%) and corporate taxes. This reduced consumer spending and business investment, arguably deepening the downturn.
• Reconstruction Finance Corporation (RFC): Established in 1932, the RFC loaned money to banks, railroads, and businesses. While intended to stabilize the financial system, critics argue it favored large institutions and did little for small businesses or individuals.
• Federal Home Loan Bank Act (1932): This aimed to support mortgages but was too limited to stem the tide of foreclosures.
• Public Works: Hoover expanded public works spending (e.g., Hoover Dam), but it was modest compared to later New Deal programs. Federal spending rose from 3.4% of GDP in 1929 to 8% by 1932, a significant shift for the time.
Hoover’s interventions were substantial for a pre-New Deal era, but they were patchwork and often poorly targeted. His commitment to a balanced budget and reluctance to provide direct relief to individuals (fearing it would undermine work ethic) limited their impact. Critics on your side might say these half-measures disrupted markets without solving the crisis, prolonging the pain.
FDR’s Policies: Doubling Down?
FDR’s New Deal (1933 onward) dramatically expanded government’s role. You argue this exacerbated the Depression. Let’s look at key New Deal policies and their effects:
• Banking Reforms: The Emergency Banking Act (1933) and Glass-Steagall Act stabilized the banking system. Bank failures dropped sharply after 1933, and deposits grew. This is hard to argue against as a positive.
• National Industrial Recovery Act (NIRA, 1933): The NIRA set price controls, production quotas, and wage floors. Economists like Amity Shlaes and some Chicago School scholars argue it stifled competition and innovation, delaying recovery. The Supreme Court struck it down in 1935, and industrial output rose afterward, lending credence to this view.
• Agricultural Adjustment Act (AAA, 1933): The AAA paid farmers to reduce output, aiming to raise crop prices. While farm incomes rose, it increased food prices for consumers and displaced tenant farmers, especially in the South.
• Public Works and Relief: Programs like the Civilian Conservation Corps (CCC) and Works Progress Administration (WPA) employed millions. Federal spending soared (deficit spending hit 5.9% of GDP in 1934). Supporters credit these with boosting demand; critics say they crowded out private investment and created dependency.
• Monetary Policy: FDR’s devaluation of the dollar (by abandoning the gold standard in 1933) boosted exports and eased debt burdens. Milton Friedman later argued monetary expansion was key to recovery, though it took years to fully materialize.
The New Deal’s impact is debated. GDP grew after 1933 (e.g., 10.8% in 1934), and unemployment fell from 25% in 1933 to 14% by 1937. But the recovery was incomplete—unemployment stayed high, and the 1937-38 recession (often blamed on tightened fiscal/monetary policy) showed the economy’s fragility. Critics like you might argue the New Deal prolonged the Depression by distorting markets and creating uncertainty for businesses.
Smoot-Hawley Tariffs: Not the Culprit?
You dismiss the Smoot-Hawley Tariff Act of 1930 as the primary cause. This aligns with some revisionist views, so let’s explore:
• Impact of Smoot-Hawley: The act raised tariffs on over 20,000 goods, prompting retaliatory tariffs from countries like Canada and Europe. U.S. exports fell from $5.2 billion in 1929 to $1.7 billion by 1933, and imports dropped similarly. Traditional narratives (e.g., Keynesian economists) argue this crushed global trade, deepening the Depression.
• Counterarguments: Revisionists like Jude Wanniski and some data-driven studies note that trade was only 6% of U.S. GDP in 1929, so tariffs’ direct impact was limited. The bigger issue was monetary contraction (the Fed reduced money supply by ~30% from 1929-1933), bank failures, and declining consumer confidence. Smoot-Hawley was a contributor, but not the driver. For example, countries with lower tariffs (e.g., Germany) still faced severe depressions, suggesting tariffs weren’t the sole issue.
• Timing: The tariffs passed in June 1930, well after the 1929 crash. The economy was already contracting, so blaming Smoot-Hawley as the root cause overstates its role.
Your view—that Smoot-Hawley wasn’t the main villain—has merit. Monetary policy failures and banking collapses were likely bigger culprits in the early phase.
Synthesis
Your argument that the economy was recovering pre-1932 is partially supported by data showing stabilization in some sectors (e.g., industrial production, stocks) by mid-1932. However, the recovery was weak and not broad-based—hardly a robust rebound. Hoover’s policies, particularly tax hikes and selective interventions, likely hindered growth, aligning with your critique of “big government.” FDR’s New Deal scaled up intervention, and while some programs (banking reforms, monetary easing) aided recovery, others (NIRA, AAA) may have delayed it by distorting markets. The evidence suggests neither Hoover nor FDR caused the Depression outright, but their policies shaped its depth and duration. Smoot-Hawley, as you argue, was a secondary factor compared to monetary contraction and financial instability.
Blind Spots to Consider
• Monetary Policy: The Federal Reserve’s tight money policy from 1929-1933 is widely seen as a primary driver of the Depression’s severity. Neither Hoover nor FDR had full control over the Fed, but its errors loom large.
• Global Context: The Depression was global. Europe’s struggles (e.g., Germany’s hyperinflation, Britain’s gold standard woes) suggest U.S. policies alone didn’t dictate outcomes.
• Data Limitations: Economic data from the 1930s is less precise than today’s. Unemployment figures, for instance, vary by source, complicating firm conclusions.
If you’re looking for deeper dives (e.g., specific data sets, primary sources, or counterarguments), I can dig further. What’s your take on the monetary angle or global factors?