Invalid. Hoover did essentially nothing and the Great Depression got worse for years. All this shows is that the stock market can crash without there being a recession bc the stock market is not the economy.
1929 and subsequent depression and one day [stock.market](http://stock.market) crash are not remotely comparable
1981 is better comparable.. But not great
Lastly, FDR wasn’t president until 3 years after crash. Reagan criticized days later
Lastly Hoover did nothing, as noted
Sowell of course knows all this
The old economy use to have crashes and recessions constantly.
For those unaware, the Great Depression was caused by loose banking/broker regulations/laws. Customers could borrow on margin up to 9x their deposits (for context, under current rules, you can borrow 2x your deposit amount.) Due to the insane over-speculation, when the sell-off started, millions of people had to suddenly post collateral that they didn’t have, or force-saled their shares. If you remember the Gamestop situation a few years back, it was very similar, except it was market wide and in the other direction.
Because many customers were unable to post collateral before market close, many banks found themselves holding shares worth pennies on the dollar. Many of them were unable to meet their obligations and went under. This domino effect reverberated through the economy.
Their biggest mistake (which likely prolonged the Depression by years) was cutting the monetary base in 1933. https://www.garynorth.com/public/6153.cfm. But it must be understood that the Fed’s only primary objective at this time was to prevent inflation. The economy had begun recovering, and they didn’t want to risk inflation taking off, so they cut the monetary base. (A significant reason the employment mandate exists now).
The 1987 stock market crash was also a situation of over-speculation. When the US went off the Gold Standard (and bonds became less attractive) and free market policies went into effect during the Reagan administration, owning company shares became attractive. After defeating late 70s inflation, the Fed began lowering rates. Then, in 1987, the Fed chose to raise rates. However, at this time, the Fed was not transparent about their rates and thought it was best for the market to figure it out (which is why the Fed now signals to markets its rates and its future intentions). When investors suddenly saw the cost of borrowing go up, they panicked. This again caused a sell-off.
Sowell is very right about the problems that the Fed has caused. But he ignores the good the Fed has done. The fact that we shut down the world economy for several months, and the only price to be paid was a couple years of higher (but sub-10%) inflation is tantamount to how much we have learned. Im highly critical of the Fed because there are very often specific winners and losers when they make big decisions. However, bringing stability to the economy that didn’t exist during the Panic of 1837, 1857, 1873, and 1907, all occured largely due to not having a central bank.
In my opinion Sowell is a sack of farts
That is a remarkably bad take. 1929 was a time of the wild West of capitalism. We had a vast stock market bubble banks had massive exposure. Without reserve requirements, many of them had no chance and failed immediately. There was no FD insurance, so bank runs happened immediately. Worse, the world economy was a mess to the reparations and hyper inflation from World War I. Congress just passed a vast tariff program that led to a trade war. Our central bank didn’t have a clue how to manage the recession never mind a depression. Harding administration did the exact wrong thing the pushing tight fiscal policies policy at a time when they should’ve been loosening policy.
1987 was a market crash in a much more stable world. Central banks had tools for managing downturn. The analogy is completely wrong.
Sowell isnt intellectually honest. He is a great story teller though because, without the context of this thread, you would believe that a popularly recognized economist would do the due diligence before making these claims.
Sowell is a disingenuous economist
Sowell thinks global warming isn’t real because weather forecasts are wrong sometimes.
9 comments
Invalid. Hoover did essentially nothing and the Great Depression got worse for years. All this shows is that the stock market can crash without there being a recession bc the stock market is not the economy.
1929 and subsequent depression and one day [stock.market](http://stock.market) crash are not remotely comparable
1981 is better comparable.. But not great
Lastly, FDR wasn’t president until 3 years after crash. Reagan criticized days later
Lastly Hoover did nothing, as noted
Sowell of course knows all this
The old economy use to have crashes and recessions constantly.
For those unaware, the Great Depression was caused by loose banking/broker regulations/laws. Customers could borrow on margin up to 9x their deposits (for context, under current rules, you can borrow 2x your deposit amount.) Due to the insane over-speculation, when the sell-off started, millions of people had to suddenly post collateral that they didn’t have, or force-saled their shares. If you remember the Gamestop situation a few years back, it was very similar, except it was market wide and in the other direction.
Because many customers were unable to post collateral before market close, many banks found themselves holding shares worth pennies on the dollar. Many of them were unable to meet their obligations and went under. This domino effect reverberated through the economy.
The Federal Reserve did do an extremely poor job by modern standards. They didn’t lower their benchmark lending rate below 1.5% until 1932…..3 years after the start of the Great Depression! Furthermore, they didn’t bottom until 1938 https://newworldeconomics.com/the-federal-reserve-in-the-1930s-2-interest-rates/.
Their biggest mistake (which likely prolonged the Depression by years) was cutting the monetary base in 1933. https://www.garynorth.com/public/6153.cfm. But it must be understood that the Fed’s only primary objective at this time was to prevent inflation. The economy had begun recovering, and they didn’t want to risk inflation taking off, so they cut the monetary base. (A significant reason the employment mandate exists now).
The 1987 stock market crash was also a situation of over-speculation. When the US went off the Gold Standard (and bonds became less attractive) and free market policies went into effect during the Reagan administration, owning company shares became attractive. After defeating late 70s inflation, the Fed began lowering rates. Then, in 1987, the Fed chose to raise rates. However, at this time, the Fed was not transparent about their rates and thought it was best for the market to figure it out (which is why the Fed now signals to markets its rates and its future intentions). When investors suddenly saw the cost of borrowing go up, they panicked. This again caused a sell-off.
Sowell is very right about the problems that the Fed has caused. But he ignores the good the Fed has done. The fact that we shut down the world economy for several months, and the only price to be paid was a couple years of higher (but sub-10%) inflation is tantamount to how much we have learned. Im highly critical of the Fed because there are very often specific winners and losers when they make big decisions. However, bringing stability to the economy that didn’t exist during the Panic of 1837, 1857, 1873, and 1907, all occured largely due to not having a central bank.
In my opinion Sowell is a sack of farts
That is a remarkably bad take. 1929 was a time of the wild West of capitalism. We had a vast stock market bubble banks had massive exposure. Without reserve requirements, many of them had no chance and failed immediately. There was no FD insurance, so bank runs happened immediately. Worse, the world economy was a mess to the reparations and hyper inflation from World War I. Congress just passed a vast tariff program that led to a trade war. Our central bank didn’t have a clue how to manage the recession never mind a depression. Harding administration did the exact wrong thing the pushing tight fiscal policies policy at a time when they should’ve been loosening policy.
1987 was a market crash in a much more stable world. Central banks had tools for managing downturn. The analogy is completely wrong.
Sowell isnt intellectually honest. He is a great story teller though because, without the context of this thread, you would believe that a popularly recognized economist would do the due diligence before making these claims.
Sowell is a disingenuous economist
Sowell thinks global warming isn’t real because weather forecasts are wrong sometimes.