To the many reasons I have to envy Paul M. Krugman (his high profile perch as a New York Times pundit, his Nobel Prize in economics, his surely stratospheric income), one more can now be added: As strongly indicated by his latest column for The Times, he works for folks who allow him to publish any claim he’d like without being fact-checked or even questioned in any way.
In that piece, Krugman sought to debunk President Trump’s recently tweeted claim that “TARIFF is a beautiful word indeed” by showing that “the actual history of U.S. tariffs isn’t pretty.” One major example he used: Because America “took a sharply protectionist turn before the infamous 1930 Smoot-Hawley Act,” the country’s farmers “spent the 1920s suffering from low prices for their products and high prices for farm equipment, leading to a surge in foreclosures.”
“Part of the problem was that U.S. tariffs were met with retaliation; even before the Depression struck, the world was engaged in a gradually escalating trade war.”
Sounds pretty convincing, right? In fact, not even close. And not least of which because the only two sources cited by Krugman contain absolutely no mention of low farm prices or foreclosures or unaffordable farm equipment stemming from any trade-related developments. In fact, there’s not even a mention of “high prices for farm equipment” at all.
The sources – articles on the Economic History Association’s website on the 1920s tariffs, and on the U.S. economy in the 1920s (you can read them here and here) – demonstrate that agriculture’s woes during this period (not surprisingly) resulted from many cases. But tariffs don’t make the list.
Simply put, the main culprits were excessive borrowing by American farmers late in the previous decade based on the assumption that agricultural output in war-torn Europe would remain long depressed, and that this market would for many years be importing ever greater amounts of U.S. farm products; and a subsequent price-depressing glut in American supply when European output recovered faster than expected once World War I ended.
A a result, U.S. farmers were left with lots of new acreage and machinery that suddenly became superfluous even though their new owners still needed to pay off the debts they incurred to buy them. No wonder so many weren’t able to meet their mortgage payments.
Adding to American agriculture’s problems during this period were a productivity boom triggered by surging mechanization and other advances that permitted agricultural production to rise much faster than domestic (and foreign) consumption; and an economy-wide depression in 1920 and 1921 that primarily resulted from excessive monetary tightening by the Federal Reserve. Again, nothing about tariffs.
Importantly, the 1920s economic history article in particular is a gold mine of information about many developments of that time that shed considerable light on today’s major economic challenges – as I’ll be describing in some future posts. In the meantime, I’d strongly recommend that anyone with an interest in the American economic invest the time needed to read it – starting with Paul Krugman.