WSJ :how killing free trade will lead to another global Great Depression

(Last Updated On: October 12, 2010)

WSJ :how killing free trade will lead to another global Great Depression

Here is a highlighted article from WSJ Wall Street Journal about how killing free trade will lead to another global Great Depression

“In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the—anyone? anyone?—the Great Depression, passed the—anyone? anyone?—the tariff bill, the Hawley-Smoot Tariff Act which—anyone? raised or lowered?—raised tariffs….Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression.”

his famous 1993 debate with Ross Perot over the North American Free Trade Agreement (Nafta), Vice President Al Gore claimed that Smoot-Hawley “was one of the principal causes, many economists say the principal cause, of the Great Depression in this country and around the world.”

When asked if Smoot-Hawley caused the Great Depression, the University of Chicago economist and Nobel laureate Milton Friedman replied: “No. I think the Smoot-Hawley tariff was a bad law. I think it did harm. But the Smoot-Hawley tariff by itself would not have made one-quarter of the labor force unemployed.”

Rep. Carroll Beedy of Maine insisted that “the inadequately protected American potato is a nationwide issue,” even though imports represented just 1.4% of domestic potato consumption.

Sentiment now seems to be in favor of a new round of “quantitative easing”—that is, of increasing the money supply. As Charles Evans, the president of the Chicago Fed told the Journal this week, the grim economic outlook makes him favor “much more [monetary] accommodation than we’ve put in place.” At a time of enormous excess capacity in the economy and nonexistent consumer-price inflation, additional measures by the Fed to stimulate growth should be condoned, not condemned.

Writing about Japan in 1997, Mr. Friedman observed: “The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it.”


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