I agree with both Pete and Jen that this is a significant development. Along with Senator McConnell’s admission today that earmarks are unacceptable to the American electorate, we’re off to a good post-election start.
The letter from the group of distinguished economists, writers, and investors reminds me of another letter, written in 1930, regarding the Smoot-Hawley Tariff. What came to be known as the Smoot-Hawley Tariff (after its Congressional sponsors, Sen. Reed Smoot and Rep.Willis Hawley) started out as a campaign promise to American farmers by Herbert Hoover to provide relief from foreign competition because of a deep and persistent drop in food prices. (Blame Henry Ford: the disappearance of horses and mules from farms and roadways caused vast area of land once devoted to fodder crops to be turned over to human food production.)
But the passage through Congress went badly out of control. Hoover had wanted reductions in industrial tariffs to offset any increase in agricultural ones. Instead, a lobbyists’ feeding frenzy erupted, and tariffs went up across the board. Even tombstone manufacturers got increased tariff protection. No fewer than 1028 economists, including many of great distinction such as Irving Fischer, wrote a letter to Hoover pleading with him to veto the bill. Thomas Lamont of J. P. Morgan & Co. wrote later that “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff. That act intensified nationalism all over the world.” Henry Ford personally went to the White House to urge a veto of what he called “an economic stupidity.”
Hoover hated the bill as it was presented to him, calling it (in private) “vicious, extortionate, and obnoxious.” But heavily pressed by his fellow Republicans and the party’s industrial base, he signed it regardless. The result was disaster. American exports declined by 78 percent in the next two years, and the tariff was one of the major government mistakes that converted an ordinary recession into the Great Depression.
Will Bernanke be a latter-day Herbert Hoover? Let’s hope not, but I wouldn’t bet against it, alas.