The Hoover Analogy Flunks

The Congress appears determined to let Treasury Secretary Paulson do some speculative trading in mortgage-backed securities with $700 billion of borrowed money. Reasonable people have reasonable arguments for and against this idea. But unreasonable people prefer unreasonable arguments, like saying we're in for another Great Depression unless we "do something" right away.

The silliest argument for the plan is to compare our current situation to the Crash of 1929, and then conclude that it was simply government inaction that caused the Great Depression. Senator Chuck Schumer has repeatedly compared the current situation to the stock market crash of 1929 and blamed the Bush team--the most interventionist administration since Richard Nixon--of "doing nothing" just like Herbert Hoover. Several journalists such as Chris Matthews of MSNBC's Hardball have tried to foist some sort of Hoover analogy on both President Bush and Sen. John McCain.

In reality, the Crash of September 1929 had nothing to do with bank runs and failures, which began in October 1930. Besides, we have had little more than a dozen bank failures this year compared with more than 5,000 in the 1930s, and nearly 3,000 in the 1980s.

Far from "doing nothing," Herbert Hoover initiated a violent implosion of world trade and prices by signing the infamous Smoot-Hawley tariff on June 17, 1930. The Commercial and Financial Chronicle then observed "a renewed violent collapse of the stock market." Benjamin Anderson, the chief economist for Citibank at the time, called the draconian tariffs Hoover's "crowning financial folly" and explained why: ...........................