As our economic turmoil continues, I see more allusions in the media to the Great Depression. I just sorry my dad isn't around to join in the reminiscences. But oddly enough, much of what we think we know about the Great Depression is probably wrong. Much of it involves a personal hero of mine - Herbert Hoover [long story for winter].
- Where the market had failed, the government stepped in to protect ordinary people. Hoover's disastrous agricultural policies involved the know-it-all Hoover acting as his own agriculture secretary and in fact writing the original Agricultural Marketing Act that evolved into Smoot-Hawley. While exports accounted for 7% of U.S. GDP in 1929, trade accounted for about one-third of U.S. farm income. The loss of export markets caused by Smoot-Hawley devastated the agricultural sector. Following in Hoover's footsteps, FDR concentrated on trying to raise farm income by such tactics as setting quotas on production and paying farmers to remove acreage from production -- even though this meant higher prices for hard-pressed consumers and had the effect of both lowering productivity and driving farmers off their land. [More myths exploded]One parallel that needs to be watched is our trade policy from here on. Obama is not particularly encouraging on this score, from my point of view, but he also seems to capture the sentiment of many, if not most, Americans. It is important to keep in mind most middle class Americans don't view foreigners as customers, but job competitors. Not correct, but an easy conclusion to reach.
As demand cools from slowing economies, access to foreign markets is crucial to support farm prices. At the same time farmer demands for freer trade must be accompanied by something in return. we have not been good negotiators since we don't want to yield much to gain anything. But, if we haven't taken aboard the political shift that is occurring, we need to soon.
Overshadowing all will be a budget under immense pressure. In the ensuing battle between trade or subsidies, which could well be the choice, I've got a pretty good idea which farmers will choose.
Just like during the Great Depression.