Did cutting taxes and paying off the national debt cause the Great Depression?

[A18]

Coolidge caused the depression in the first place. Nobody could beat FDR, and he would get my vote.

[Richard]

The Great Depression was caused by the Federal Reserve messing up, badly.  Since then they've gotten better... marginally.

Without the Federal Reserve, a Great Depression is impossible.

[True Federalist (진정한 연방 주의자)]

Smoot-Kawley is what turned an ordinary depression into the Great Depression.  It was the stupidest piece of legislation ever to pass Congress and if only Hoover hadn't signed it, he might have gotten a second term.

[David S]

I don't know if anyone can positively identify the cause of the great depression, but in my opinion Richius is on the right track. The Fed's easy money policy caused the run up in the stock market. Later they tightened the money supply which perhaps caused the market to crash. That caused a bank run which in turn resulted in bank failures nationwide.
The Smoot Hawley tariff was passed in June of 1930, but the market crashed in September of 1929, so it could not have caused the crash. It may have made things worse though. High top tax rates didn't help either.

Its ironic that the Fed was supposed to prevent things like this, and yet only 16 years after the Fed was born we got the biggest stock market crash in history, the biggest depression in history, and bank failures nationwide. After that we got continuous inflation which has resulted in the dollar losing over 90% of its value. We also got the S and L failures in the 80's which resulted in the taxpayers getting stuck for half a trillion dollars. IMHO the fed has not done well.

[Sam Spade]

Smoot-Kawley is what turned an ordinary depression into the Great Depression.  It was the stupidest piece of legislation ever to pass Congress and if only Hoover hadn't signed it, he might have gotten a second term.

Ernest is right on this one.  1929-1930 was pretty bad, but not terrible.

1931-1933 were the hellish years when unemployment went through the roof.

I don't have numbers on this, but I'm pretty sure I'm right.

[I spent the winter writing songs about getting better]

no one said those things caused, it was HIS REFUSAL TO REGULATE THE STOCK MARKET.

[PBrunsel]

This has to be the most pointed question ever asked.

[A18]

no one said those things caused, it was HIS REFUSAL TO REGULATE THE STOCK MARKET.

I knew there are people who think regulating the stock market would have stopped the Great Depression, but I didn't know there were people who actually thought not regulating it was the CAUSE.

[David S]

no one said those things caused, it was HIS REFUSAL TO REGULATE THE STOCK MARKET.

I knew there are people who think regulating the stock market would have stopped the Great Depression, but I didn't know there were people who actually thought not regulating it was the CAUSE.

There was definitely one thing going on in the stock market which created high risk and undoubtedly made the crash much worse. People were able to buy stock on margin, by paying only 10% down and borrowing the rest from the broker.  That makes for a highly leveraged investment. If the stock goes up 10% you make a 100% return. Thats pretty nifty, but it works the other way if the price goes down 10%. In that case you lose 100% of your investment, and if it goes down more than 10% you lose more than you invested. 

Today you can only borrow about 30% of the stocks price. If the stock goes down 30% you will get  a call from your broker demanding more money or sell the stock. Personally I think margin trading is still very risky and I don't recommend it.

[opebo]

no one said those things caused, it was HIS REFUSAL TO REGULATE THE STOCK MARKET.

What do  you mean 'regulate' it?  Require people by law to pay higher prices?

[minionofmidas]

I don't know if anyone can positively identify the cause of the great depression, but in my opinion Richius is on the right track. The Fed's easy money policy caused the run up in the stock market. Later they tightened the money supply which perhaps caused the market to crash. That caused a bank run which in turn resulted in bank failures nationwide.
The Smoot Hawley tariff was passed in June of 1930, but the market crashed in September of 1929, so it could not have caused the crash. It may have made things worse though. High top tax rates didn't help either.

Uh...they didn't exist yet.

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Well, the Fed's original setup was very much faulty - basically bankers were free to make decisions they felt were good for themselves privately. The setup has changed beyond recognition since - not that I think the Fed's done a good job in the 90s.

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[minionofmidas]

Yes, if you want to put it very pointedly, the Great Depression was caused by cutting taxes and paying off the national debt - by doing so at the expense of your trading partners.
The Depression was in full swing well before the Stock Market Crash - farm incomes were declining, in real terms, all through the 1920s, and America was still a very agrarian country in 1920.
In fact, I believe Stock Market Bubbles are a crisis symptom. People won't invest like mad in stocks they hardly know anything about if there are sounder investment options nearer at hand.

[Bono]

Yes, if you want to put it very pointedly, the Great Depression was caused by cutting taxes and paying off the national debt - by doing so at the expense of your trading partners.
The Depression was in full swing well before the Stock Market Crash - farm incomes were declining, in real terms, all through the 1920s, and America was still a very agrarian country in 1920.
In fact, I believe Stock Market Bubbles are a crisis symptom. People won't invest like mad in stocks they hardly know anything about if there are sounder investment options nearer at hand.

Stock market bubbles are a symptom of artificially inflating the money supply.
http://www.mackinac.org/article.asp?ID=4026

[minionofmidas]

Yes, if you want to put it very pointedly, the Great Depression was caused by cutting taxes and paying off the national debt - by doing so at the expense of your trading partners.
The Depression was in full swing well before the Stock Market Crash - farm incomes were declining, in real terms, all through the 1920s, and America was still a very agrarian country in 1920.
In fact, I believe Stock Market Bubbles are a crisis symptom. People won't invest like mad in stocks they hardly know anything about if there are sounder investment options nearer at hand.

Stock market bubbles are a symptom of artificially inflating the money supply.
http://www.mackinac.org/article.asp?ID=4026

They're also a way to artificially inflate the money supply...the question then would be: In what circumstances is the money supply artificially inflated? And how had we previously defined "artificial" again?
Might it have something to do with "creating an imbalance"? (This one, unless the ones above, is not a rhetorical question, btw.)
If so, isn't that really the same as a crisis symptom, since it means markets won't function "properly"?

[David S]

I don't know if anyone can positively identify the cause of the great depression, but in my opinion Richius is on the right track. The Fed's easy money policy caused the run up in the stock market. Later they tightened the money supply which perhaps caused the market to crash. That caused a bank run which in turn resulted in bank failures nationwide.
The Smoot Hawley tariff was passed in June of 1930, but the market crashed in September of 1929, so it could not have caused the crash. It may have made things worse though. High top tax rates didn't help either.

Uh...they didn't exist yet.

What didn't exist yet?

[Nym90]

I think he is referring to high top tax rates. Taxes weren't all that high in 1930, were they?

[Bono]

I think he is referring to high top tax rates. Taxes weren't all that high in 1930, were they?

Hoover raised the top braket tax to 63% I think.

[David S]

The top tax rate bounced all over the place during that era. I have this on a PDF file so I cant copy it here, but it goes  like this;

Year      rate
1912  0%
1913  7%
1919  73%
1929  24%
1932  63%
1936  79%
1942  88%

The amount of income subject to the top rate also bounced all over the place  during that time. I found the data some time ago at an IRS site, but I don't have the URL now.

[Dr. Cynic]

Paying off the National Debt certainly didn't cause it. Cutting taxes almost continually helped, but I would never say it was the only cause. It was a group of things, not just one thing. It was far more complicated than cutting and raising taxes.

All markets were generally bad. Coolidge paid no attention to farmers who couldn't afford to raise crops, or industry workers who couldn't afford to keep the family going. When the European market collapsed (Mostly because of WWI debts) the US suddenly lost its form of income through exportation and importation. Coolidge was a provincial man in outlook, and a simple man, and a lucky man. He was out just before our market collapsed, leaving Hoover with little warning, and little chance of political survival.

[Bono]

Paying off the National Debt certainly didn't cause it. Cutting taxes almost continually helped, but I would never say it was the only cause. It was a group of things, not just one thing. It was far more complicated than cutting and raising taxes.

All markets were generally bad. Coolidge paid no attention to farmers who couldn't afford to raise crops, or industry workers who couldn't afford to keep the family going. When the European market collapsed (Mostly because of WWI debts) the US suddenly lost its form of income through exportation and importation. Coolidge was a provincial man in outlook, and a simple man, and a lucky man. He was out just before our market collapsed, leaving Hoover with little warning, and little chance of political survival.

The US lost the european market due to retaliations on Smooth-Hawley, not because of any european market crash. That is a myth propagated by leftists.

[ATFFL]

In fact, I believe Stock Market Bubbles are a crisis symptom. People won't invest like mad in stocks they hardly know anything about if there are sounder investment options nearer at hand.

So you would say the US economy was in Crisis thoughout Clintons' term and no one noticed until teh bubble burst in 2000?