Those who know their
history understand that it was not the Wall Street Crash that caused the Great
Depression but the panic reaction that followed.
In particular, the
fall in stock prices did not in itself close a single factory. What closed the
factories in the USA was the subsequent imposition of tariffs by the Smoot Hawley
Act – intended, ironically, to “protect” those same American factories from
foreign competition. Retaliation was inevitable, with the predictable result
that world trade dried up and everyone’s factories closed.
It is frightening how
easily our leaders forget their history – or ignore it – because there is a
danger of the same mistake being made this year.
We are overdue for a
recession, and it probably has to be a tough one after so much public and
private sector borrowing. However, there is no reason to assume that the
recession will become a depression... unless the politicians panic again and do
They are panicking
again – and they are talking about doing something stupid.
The engine of American
– and, to an extent, world – prosperity in the late 90s, and its cushion in
time of recession, was the North American Free Trade Agreement, NAFTA. Despite its undoubted benefits, NAFTA has
never been popular with American Trades Unions.
Some candidates in the
Presidential elections have tried to exploit that unpopularity. At a loss for
anything constructive to say about the economy, they have tried blaming NAFTA
for the economic woes brought on by excessive borrowing and by lack of
This is not only the
complete opposite of the truth – it is also about the most threatening thing
any politician can do to the prospects of recovery.