I hate politics. I happen to believe that whenever someone writes about political issues they actually care about, their IQ drops at least 35 points before they put the first word on the page. This is why most comments on political YouTube videos are fragmented and incoherent: Someone with an IQ of 110 decided to jot down a thoughtful political opinion, and was temporarily deprived of the ability to form sentences. This is simple emotion clouding over reason and intellect. It's just human nature.
To therefore write effectively about politics, you've got to either not care at all, or just not have human emotion to begin with. This is why most professional political pundits are actually sociopaths. The pundit's ability to look apocalypse in the face and say "Fuck it." is the secret to readable copy. It's not that these people are especially smart, it's that they're emotionally distant enough to keep their heads on straight when writing about the metaphorical rape of all their espoused beliefs.
I, on the other hand, can't even be in the same room with a TV with a talking head on it without getting acid reflux and foaming at the mouth. I had to stop watching televised news years ago for the sake of my physical health. And that is the reason why this article is going to suck. I did it anyway though, and I may never know the reason why.
The problem with the vast majority of voters is that they know a sum total of "dick" about history. This is one of the many reasons it's totally pointless for any intelligent person to vote (less intelligent people may enjoy the free stickers, so it's a good deal for them). In the case of economics, the US has made so many ridiculously idiotic mistakes that we have plenty of past experiences to draw wisdom from, provided we look at history through the right lens. The Great Depression should have been the end of economic intervention. Unfortunately it's apparently become the beginning. Part of this stems from the total distortion of the history of the Great Depression, which is what will be addressed here.
Popular History
The popular view of the Great Depression is as follows: It started with the crash of 1929 and lasted up until World War II. According to the history books, our economy was "unequally distributed" to rich people and the crash of 1929 was the culmination of the inequity of the "bubble" in markets such as luxury goods (think dot com era). Moreover, our president at the time, Herbert Hoover, was against interference in the markets and therefore passed up his opportunity to save the day through intervention, which lead to the deep depression that lasted "over a decade." After Hoover's beleaguered term ended, idle government gave way to FDR's promises of interventionism and reform. FDR's activities, combined with that of the Federal Reserve and the seemingly fortuitous entrance of the US into WWII lead to the end of the depression.
To be clear: The above paragraph is total bullshit, with a few spacklings of horseshit and "WTF".
Pseudo-Austrian Theory on What Went Wrong
First of all, the Great Depression didn't start in 1929, it started in the credit bubble of the 1920's. A "credit bubble" is where lenders, on a massive scale, lend too much money without taking proper care to see that the borrower can pay it back. Giving more money to people who are going to waste it means that the useless goods that these people buy are going to have an "increase in demand" (DEMAND = more will be sold, and they will be sold at a higher price). Investors will see this rise in prices (caused by the artificially-inflated demand) and think this is an exploding market and haphazardly stuff their money in as fast as they can, maybe even borrowing to do so. This will further drive up demand until such time as the supply of credit goes away. 1) Lower supply of (inflated) credit -> 2) Higher interest rates ---> 3) less borrowing -----> 4) less money for buying (overvalued) crap -------> 5) less demand for crap ---------> 6) price of crap declines -----------> 7) investors cash-in to avoid losses -------------> 8) Go to 5 and repeat for a while ---------------> 9) investors go bankrupt, can't pay back loans -----------------> 10) Lenders lose money -------------------> 11) Go to 1 and repeat until prices are normalized.
This violent return to normalcy is referred to as a "crash." As you can see, interest rates are a key component of normalization, and that's exactly what the Fed messes with.
The stock market crash of 1929 was not what started the Great Depression, it simply signaled the start of a market correction. The crash of 1929 was the solution to the bubble. The falling prices and the deflation were necessary forces in stabilization of the economy. These forces were fought tooth and nail by the Hoover and FDR administrations (I'll talk about this later), because they meant a decline in economic activity over the short term.
Where did this credit bubble come from? Well something happened during the 1920's that had never happened before in American history. A massive, mismanaged lending force came into play that would haunt the American economy the next 90 years (and counting). Of course I'm talking about the Federal Reserve. Though the Federal Reserve was founded in 1913, they did not participate in open market operations until 1922. The stated objective of "The Fed" is to stabilize the economy by injecting money when markets are down, and deflating when markets are up. They do this by printing money that doesn't exist and loaning it to banks, which it trickles down in a massive, cascading manner (through loan after loan after loan) to consumers who use it to buy crap with. This sounds simple enough, except that in doing this, they flatten out the market corrections which are necessary for normalization. It also makes the arrogant assumption that a handful overeducated academics can make God-like pontifications based on whatever criteria they feel like. All The Fed seems to be able to do is create credit bubbles, which lead to bubbles in everything else. This is exactly what happened in the years prior to the market crash of 1929.
Think about it: It's true, by 1929, the US had seen a few depressions and recessions over its ~150 year history. However, just 7 short years after the Fed starts tinkering with the money supply, we see the largest and deepest depression ever...?? That's coincidence in the same sense that 90% of lung cancers being found in the bodies of smokers is coincidence. What's also not coincidental is the biggest economic intervention in US history (at the time) occurred right at the beginning of this--the longest depression in US history. [Did you see that segue? Was that not awesome?]
Herbert Hoover: The Interventionist
The next myth I'mbout-ta-bust about the Great Mf'ing Depression is that President Herbert Hoover was some kind of coward who refused to intervene. This is almost certainly a case of politics totally f'ing up history. Pay attention boys and girls: this is what it looks like. These 'Court Historians' [*cough* Paul Krugman *cough*] want to blame the "free market" for the Great Depression, and to do that, they have to paint Hoover as a slimy, good-for-nothing, free market Republican (to be fair, he was a Republican, and he looked pretty slimy). Presumably, they're distorting history so they can blame the depression on Hoover and also so they can attribute this country's salvation to FDR's "economic reform." This lends credence to the government power-grab ("bailout") that's going on right now, since conceptually FDR's stimulus was the same thing. Luckily, the claims about Hoover's "non-interventionism" are so ridiculously false that the debate ends in the 2 seconds it takes to load the Wikipedia article.
One thing the pop-historians like to point out (apparently to further this myth) is that the chairman of the fed at time (Andrew Mellon) was pushing to let the recession run its course. Can you imagine? After years of tinkering with the economy, the Fed acknowledges it had 'screwed the pooch' and clamors for natural free market correction. Amazingly, that's totally true. At first, the fed was quite reluctant to intervene*. In fact, according to Hoover's memoirs, Mellon (Fed guy) strongly suggested to Hoover that he stay out of it. Not to be swayed by little things like reality, Hoover ignored Mellon and promptly embarked on the largest ever peacetime increase in government spending. He even brags about it in a speech he made near the end of his term:
We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. - Herbert "Give Me a Kiss, Krugman" Hoover
Convinced yet? Too bad, I'm not done! To pay for this "fiscal stimulus," Hoover ran huge deficits until 1932, at which point he doubled the income tax (Revenue Act of 1932) and instituted a tax on checks (this is a lot worse than it sounds, by the way). He even pushed forward a bill to force the Fed to inflate the money supply. Finally, not content to leave it alone, Hoover rammed through congress the largest import tax of the 1900's, the infamous "Smoot-Hawley Tariff." Non-interventionist my ass! Hoover's plans were basically slightly less ambitious versions of "The New Deal" (which would occur later, under President Roosevelt).
If you want to place some blame on Hoover for the Great Depression, you can't blame him for doing too little.
Franklin Delano Roosevelt: The Non-Interventionist ... What?
Sort of a fun facet of the whole Hoover Vs FDR thing is that history remembers it as a standard run-of-the-mill socialist Vs free-market debate. The reality, of course, is slightly more complicated.
By the end of Hoover's presidency, it seemed that voters were pretty fed up with all this progressive interventionist hogwash. They knew what Hoover did, they knew it didn't work, they wanted "change," and they wanted it in the form of economic freedom. It seems strange then that they elected FDR--probably the most "progressive" president of all time, according to the history books.
How we explain these ostensibly contradicting facts is not actually all that complicated: FDR was a liar.
FDR ran on a platform of economic non-interventionism. During his 1932 campaign, he berated Hoover for his stimulus actions. FDR's own running mate in 1932 (and later Veep), John Nance Garner said that Hoover was "taking the country down the path of socialism." In fact, the stated Democratic party platform of 1932 was to reduce federal spending by an astounding 25%. No wonder FDR won by such an enormous landslide (57% to 39%)!
Heck, I would've voted for him. Did you know FDR publicly referred to Hoover as a "fat, timid, capon" (a capon is a castrated rooster which is fattened up and raised for eating)? How awesome is that!?
Naturally, the first thing he did was ignore his campaign promises. Starting the very same year he was inaugurated (1933), FDR started creating hundreds of different massive government programs designed to 1) extend government's control over the economy and 2) stimulate it back to health at the same time. Only one of those goals ended up coming true, can you guess which? Hint: the depression continued for 13 years after that, so that leaves...
This package of economic clusterfuck is what is commonly referred to as "The New Deal."
As an aside: In a particularly despicable "dick move," a disproportionately larger amount of the New Deal money was poured into the swing states, which kept them relatively fat and happy while the depression trotted along. FDR effectively bought his first two re-elections this manner. As the New Deal raged on, FDR lost some control over it (legislators found their balls and got in on the money train), which directly correlated with a wider distribution among the other states. Funny how that all works.
Yeah, These Clowns Raped the Free Market, but... Did it Work?
Of course it worked! Why wouldn't it? It's so brilliant: I'm going to inflate the currency through printing, suck tons of money out of the economy through taxes, pour it into wealth-destroying projects, and I'm going to do it all while we're in the heat of a freakin depression!... I mean, where's the problem, am I right guys? WHAT COULD GO WRONG?
Well, what ended up going wrong is that our depression lasted roughly from 1929 to 1946. Popular history says our numbers were turned around at the start of WWII (1941), but that's totally ignoring the fact that you can't ship 11 million unemployed men out of the country and call the ensuing fall in the unemployment rate a "turn-around."
By that notion, Obama could just wait until midnight tonight, use his Santa Claus magic, jump in his reindeer-driven Escalade, and do a drive-by on every unemployed household in America, killing at least half the unemployed in one fell swoop. Wouldn't it be great if it were just that easy? Too bad it isn't (though that may not stop him from trying...). Yeah, it'd make that particular economic indicator jump back into the green, but the smell would be horrendous after a few weeks, plus it wouldn't exactly restore consumer confidence.
No, by most relevant measures, our economy did not reach pre 1929 numbers again until 1946, and this was due to one reason and one reason only: Our shit didn't get fucked up during the war.
Imagine: all of europe and lots of Asia, even including some of the shitty little islands (England), had planes flying over it for YEARS bombing factories used to make war toys as well as necessary consumer goods. What happens after the war when trade barriers are lifted and everyone needs to buy shit? They turn to the one country who still has factories all clean and shiny with no unexploded munitions lodged in the roofs: America. We exploited the living crap out of these countries who needed stuff they couldn't build, it was awesome.
There's a reason why the US forgave most of the loans they made to Europe to rebuild: They made out like bandits.
The production capacity of Europe was shot to shit by the end of the war. By the time everyone had caught up to speed, the United States had become an economic superpower. They would remain that way until idiotic politicians of latter half of the 20th century (and 21st, it seems) could mess all that up. Way to go!
Good Thing This is All Ancient History... Right?
If you accidently leave your TV on for any length of time these days, you probably know that what they did back then to try and "fix the problem" are the exact same types of things they're doing now. You hear about a new Bailout plan just about every month now, and every idea they have isn't exactly new.
You'd think that maybe they would've learned something.
* UPDATE/CORRECTION [Dec. '09]: I left this passage as it was originally for simplicity's sake. I recently completed Bob Murphy's Politically Incorrect Guide to The New Deal (which, btw, can be used as a source/reference for all the material in this article). Subsequently, I found out that the advocates for monetary intervention (eg Krugman, Bernanke, and yes, Milton Friedman) have twisted history and I had been unwittingly duped by it. They would have you believe that The Fed did essentially nothing to correct the MASSIVE monetary contraction at the beginning of the Great Depression. In fact, the Fed of 1929 and the 1930's expanded the money supply more than any American central bank ever (until Greenspan/Bernanke). Krugman, Bernanke, and Friedman basically either deny this or pretend like the actions of the Fed at the time were "too little, too late." The facts, however, speak for themselves. (237,579)
Occupation: Daniel is Medical Resident from the southwest US. Prior to medicine, he worked in IT as a consultant, programmer, web designer/developer, and technician.
To therefore write effectively about politics, you've got to either not care at all, or just not have human emotion to begin with. This is why most professional political pundits are actually sociopaths. The pundit's ability to look apocalypse in the face and say "Fuck it." is the secret to readable copy. It's not that these people are especially smart, it's that they're emotionally distant enough to keep their heads on straight when writing about the metaphorical rape of all their espoused beliefs.
The next myth I'mbout-ta-bust about the Great Mf'ing Depression is that President Herbert Hoover was some kind of coward who refused to intervene. This is almost certainly a case of politics totally f'ing up history. Pay attention boys and girls: this is what it looks like. These 'Court Historians' [*cough* Paul Krugman *cough*] want to blame the "free market" for the Great Depression, and to do that, they have to paint Hoover as a slimy, good-for-nothing, free market Republican (to be fair, he was a Republican, and he looked pretty slimy). Presumably, they're distorting history so they can blame the depression on Hoover and also so they can attribute this country's salvation to FDR's "economic reform." This lends credence to the government power-grab ("bailout") that's going on right now, since conceptually FDR's stimulus was the same thing. Luckily, the claims about Hoover's "non-interventionism" are so ridiculously false that the debate ends in the 2 seconds it takes to load the Wikipedia article. 
By the end of Hoover's presidency, it seemed that voters were pretty fed up with all this progressive interventionist hogwash. They knew what Hoover did, they knew it didn't work, they wanted "change," and they wanted it in the form of economic freedom. It seems strange then that they elected FDR--probably the most "progressive" president of all time, according to the history books.
By that notion, Obama could just wait until midnight tonight, use his Santa Claus magic, jump in his reindeer-driven Escalade, and do a drive-by on every unemployed household in America, killing at least half the unemployed in one fell swoop. Wouldn't it be great if it were just that easy? Too bad it isn't (though that may not stop him from trying...). Yeah, it'd make that particular economic indicator jump back into the green, but the smell would be horrendous after a few weeks, plus it wouldn't exactly restore consumer confidence.
If you accidently leave your TV on for any length of time these days, you probably know that what they did back then to try and "fix the problem" are the exact same types of things they're doing now. You hear about a new Bailout plan just about every month now, and every idea they have isn't exactly new.
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