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Friday, June 18, 2010

"How 'Protectionist' Became An Insult"

Following up on Paul Krugman's belief that the recent "turn to austerity as a huge mistake," a belief I share, it's worth noting that bad thinking about economic policy can be very costly:

How 'Protectionist' Became An Insult, by Douglas Irwin, Commentary, WSJ: Eighty years ago, on June 17, 1930, President Herbert Hoover signed the infamous Smoot-Hawley tariff, significantly raising the duties on imported goods. Hoover and his congressional allies thought that reducing imports would strengthen the economy. Instead, it contributed to a collapse in world trade and the spread of protectionism around the globe. ...
The Smoot-Hawley tariff, conceived as a Republican ploy to gain the farm vote in the 1928 election, was a bad idea from the start. A tariff could not help farmers ... because most of them depended on exports. The nation sold one-half of its cotton, one-third of its tobacco, and one-fifth of its wheat and flour abroad. ... The farmers who did compete against imports—sugar and wool—were already protected with high duties. ...
More than a thousand American economists signed a petition against the tariff bill. ... No matter. Proponents such as New York Republican Congressman Frank Crowther pooh-poohed fears of reprisals and claimed the tariff would "raise the standard of American labor and American wages."
While most economists do not hold the Smoot-Hawley tariff responsible for the Great Depression itself, it contributed to a sharp decline in world trade. ... Even worse, it spawned protectionism abroad. ... The tariff helped ruin Cuba's sugar economy, which led to the overthrow of Cuba's pro-American government.
The damage wrought by this tariff had only one silver lining. Ever since, the ghosts of Reed Smoot and Willis Hawley (a Republican congressman from Oregon) have stood in the way of anyone arguing for higher trade barriers. They almost singlehandedly made the term "protectionist" an insult rather than a compliment. ...

    Posted by on Friday, June 18, 2010 at 12:15 AM in Economics, International Trade | Permalink  Comments (11)


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