As a college business student, I learned very little about Principles of Accounting I and II, but I learned a lot about Economics, Micro-Economics and International Economics.
The business school at my university did not especially appreciate my choice of specialization, which is why I was encouraged to change my major after two years.
“Preferably to something at which numbers are not relegated to their proper category,” my advisor told me.
Nobody appreciated my creative side in the accounting department.
But economics held my fascination and still does.
The simple foundations of economics can be illustrated with stories through the centuries and one of the more famous – infamous? – stories is about two U.S. congressmen – Mr. Smoot and Mr. Hawley.
If you have not heard of the Smoot-Hawley Act of 1930, I would suggest that you avoid the history books and watch that 1986 classic comedy movie “Ferris Bueller’s Day Off” during which an economics teacher (Ben Stein) drones on about Smoot-Hawley while students sleep.
But the Smoot-Hawley Act was a lesson in economics that should be considered today.
During the 1928 presidential race, the debate centered around all those folks leaving the farm for the hi-tech sector of…..industry. Cars, steel and industrial goods were the new jobs and farmers were left out of the mechanized march towards big money.
The new economy favored Ford and Bethlehem Steel. Rep. Smoot, from Utah and Rep. Hawley, from Oregon set out to do something about it.
The Smoot-Hawley Act started innocently enough as a tariff on wool and sugar. But by the time the protectionist measure was signed by Pres. Hoover, thousands of U.S. imports had higher tariffs. From wool and sugar to lumber, silk goods, spices….and…you name it.
It was the classic case of Congress going crazy. Hundreds of economists banded together to send a single letter to the president, begging him not to sign the bill as the U.S. began to fall into the depression.
It was the last time so many economists agreed on anything.
The bill was signed, tariffs were enacted and retaliation was swift.
Contrary to what some are taught, Smoot-Hawley did not throw the U.S. into a depression. While Smoot-Hawley was designed to save jobs, it had the effect of throwing gasoline on a fire.
Canada started the retaliation by cranking up its own tariff on wool, but extracted even more retaliation on egg farmers – cranking up egg tariffs from 3-cents to 10-cents per dozen. American egg exports were scrambled – dropping by more than half.
A European union of sorts banded together to protest and US exports decreased 61%. It took World War II and a few decades to undo all of the damage from Smoot-Hawley.
Now, it is known to college economics students as the Hindenburg of all governmental tariff acts.
Smoot-Hawley didn’t work. The depression deepened and both Smoot and Hawley were voted out of office.
Last month, Pres. Trump threw gasoline on the economist’s fire, getting them all cranked up over tariffs as much as 25% on steel, aluminum and other goods – includiung washing machines. Sure enough, on Monday China levied tariffs on U.S. goods equaling Trump’s tariffs at $3 billion.
More than 120 U.S. products – from citrus fruits to wine and pork products, the Chinese tariffs will hurt farmers from one coast to the other.
Will Trump’s protectionist policies work? Anyone?
They will not. Trump is attempting to protect many jobs which have been bypassed by technology – coal for example, being eclipsed by more cheaply produced natural gas – and other segments of the U.S. economy needs exports. Trump will learn this in the coming months.
Meanwhile, economists and economics buffs will debate the issue from every angle. History repeats itself, Smoot-Hawley lives!