Rothbard as Prophet, Part 2 - Page 2

But, the politicians have used this pretense since the Great Depression to step in and “rescue” our economy from the “greedy capitalists.” After the stock market crash of October 1929, the Federal Reserve pumped $300 million into the reserves of the nation’s banks. It expanded its balance sheet by purchasing $1 billion of government securities and provided $200 million more to banks at discounted rates. Sound familiar? These numbers are nothing compared to what the Fed and treasury have spent on the current crisis ($12 trillion), but they were a lot, given the nation’s GDP at the time was $100 billion. The scary thought is that by the time Hoover left office, his attempt to re-inflate the bubble produced a 25 percent unemployment rate. What will $12 trillion produce?

Additionally, government works projects were used by Hoover/Roosevelt and are about to be used by Obama. Hoover raised taxes on the rich and Obama has threatened to do the same by allowing Bush’s tax cuts to expire. Fortunately, a major policy difference between then and now is that Washington has not passed protectionist measures in the current crisis, though it came close with “buy America” clauses in the stimulus bill. Nonetheless, the comparisons in policy are startling, given they didn’t work the first time.

Beyond the policy similarities, there are at least two chilling coincidences between then and now. In 1931, almost two years after the crash, the unemployment rate was only 9 percent. One and a half years after the current crisis began unemployment is 8.9 percent. But, more ominously, given Hoover’s inflating of the money supply banks didn’t lend, and consumers were not spending, in 1932. Naturally, the short term deflation that resulted improved the economy for a while, because it began to deflate the credit bubble, which the economy needed to recover. However, it was only a matter of time before all the new money hit the economy and caused havoc. One year later, the unemployment rate soared to 25 percent.

Article Author: Kenn Jacobine

Kenn Jacobine is an international educator currently teaching history for the American School of Doha, Qatar. He has also taught at international schools in Ecuador, Mali, and Zambia.

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