Thursday, September 9, 2010

Russ Carnahan Representative Wants Smoot-Hawley

Congressman Russ Carnahan (D-MO) backed out of an appearance at the Lemay Chamber of Commerce luncheon and candidate forum. Michael Vogt (D-MO) spoke in his stead at the event. He had one major slip-up during the question phase of the event.

The question put to Carnahan's representative, Mike Vogt, was: "how would you stop the export of American jobs?" Vogt went with tariffs. Specifically, he said that there was a time in our history where we had government control of the import/export business in the United States.

You certainly can't fault Vogt's history lesson. We did have a sort-of tariff on tea at the country's outset; however, I think Vogt was alluding to other historical incidents like the disastrous Smoot-Hawley Tariff Act of 1930. Few would see that as an episode to be emulated particularly with our economy still struggling. Perhaps Vogt is unaware that most economists of the time blamed Smoot-Hawley for precipitating the Great Depression. Or maybe Vogt has not heard of the economic concept of gains from trade—positive externalities and side-effects resulting from exchange. Curtailing those effects by reducing trade through tariffs ensures that the economic pie shrinks as those gains are lost to what Bastiat called the "not seen". It's ironic that Russ Carnahan's chosen representative would make such a commerce-killing suggestion at a Chamber of Commerce event.

We must remember the lessons of history so that we can avoid repeating them. For an overview of how the Smoot-Hawley Tariff Act led to the Great Depression, I highly recommend Russ Robert's EconTalk interview with Thomas Rustici (listen to the mp3). It's about 85 minutes long and very informative. Rustici has looked at the newspaper reporting from the day:
On October 21, 1929, the 16 free trade Senators log-rolled; said they'd join in if you give tariffs for the industries in our states. The Senate then supported the Smoot Hawley bill. Tariff increases from 38%-60%--almost a doubling. Immediate ramifications. The day the 16 Senators switched, on October 21, is when the market began its slide; lost 1/3 of its value before the Crash on October 29, 1929. When you read the financial papers--Wall Street Journal, New York Times--they have front page stories on one side with markets decline and other side Smoot-Hawley passes; nobody connecting the dots.
There's much more. For instance, our tariffs set off trade wars around the world that killed our export market. Since much of the grain that America grows is exported, farmers were hit hard. Farm states, like Missouri, saw the first to see bank runs during the Great Depression.

As I drove home from the Chamber of Commerce luncheon I heard Mark Reardon of KMOX interviewing Claire McCaskill. They talked about the process of opening up a cargo hub to facilitate trade between China and St. Louis. One of the sticking points in the negotiations with the Chinese is that they are embargoing our beef and we are embargoing their chicken. The more things change...

No comments: