Monday, February 21, 2011

Challenge to Wanniski's Smoot-Hawley theory.

From Economic Principals, David Warsh claims a new book overturns Jude Wanniski’s Smoot-Hawley/Great Depression hypothesis.

From the archive, Wanniski explains his theory.

At his blog, Paul Krugman applauds Warsh.

From Econtalk last year, Thomas Rustici supports Wanniski’s view.


  1. Sean

    I think it is important that place by your own comments on the front page that Jude only connected Smoot-Hawley with the stock market cash. For the depression, on the fiscal side he was quite clear that its length a breadth was due to high marginal tax rates, put in place by Hoover, then expanded on by FDR. Note the last paragraph of Jude's SS University lesson.

    "Most one-term Presidents only have time for one truly disastrous decision. Herbert Hoover squeezed in two. Having crimped international trade, he proceeded in 1932 to squeeze the domestic economy directly by pushing through Congress a measure to boost the income-tax rate back to 63% from 25% and piling on business taxes too. His aim was to reduce the budget deficit of the preceding 18 months, caused by the gathering slowdown. With ample help from the Democrats, Congress approved the tax increase. Under Roosevelt, economic management was only slightly improved, for even as he and his party chipped away at Smoot-Hawley, they again and again added to internal taxation during the following eight years, and the depression lengthened into war."

  2. Ed,
    Good point.
    Rustici's argument is quite interesting too, if you haven't listened to it yet.
    Here's an interview with him:

  3. Sean, I have an unpublished honors thesis that won the Middlebury College history and economics award for 2006. The paper contains an econometric study of a newly created data base of daily stock market moves and press releases regarding the progress of the Smoot-Hawley tarriff. The paper also catalogues all the tax effects and credit effects that took place during the 1920's to show how the tariff would effect both debt and equities. The paper shows conclusively that the Market Crash in 1929 was caused by the progress of the Smoot-Hawley bill. The paper confirms, with an economitric study, the validity of Jude Wanniski's theory. It was vetted by the Middlebury History and Economics faculty that was hostile to the Wanniski Theory.

  4. Ed, I would love to take a look at it, and maybe publish it here. Alternatively, if you'd like to write an op-ed summarizing your analysis, I would be happy to post it.

  5. Sean, the paper has been posted on the website for several years. Go to the site and look under Related articles. The paper credit Irwin for his scholorship which the author reviewed, but it undercuts Irwins criticism purportedly emerging now,and it shows the shoddiness of Warsh's musings and Krugman's absurdity. Read chapter 6 beginning on page 114.

  6. Will take a look. Thanks Ed.