Our Smoot-Hawley Moment

So, as we seem to purposefully plunge into a second Great Depression, we should see why.

First, we have cut stimulative spending across the developed world.  The "Austerity" movement has reduced demand by sucking money out of the economy at a time when monetary policy alone is insufficient to get the economy going again.

Stimulus didn't work, you say?  Charts and graphs, baby:

Yeah, just a coincidence that the economy started tanking as soon as the GOP's austerity measures started kicking in.

And let's not forget the Fifty Little Hoovers:

Barbara Tuchman wrote a book called The March of Folly, where she defined folly as being the taking of actions that were self-evidently wrong at the time, to people who were privy to the same facts as the people who made the mistake.  Her first example was the Trojan Horse.  Her second example was the Renaissance Popes.  Her third, British Imperial policy leading up to the Revolution and finally there is Vietnam.

Austerity is folly.  It's self-evidently wrong.  While you can find at least one economist to say almost anything you want him to say, the overwhelming opinion if that this is stupid and that becomes unanimous when you ask economic historians.

Now, we are apparently priming for a trade war with China.

One of the acts of folly in the Great Depression was the Smoot-Hawley tariff, which choked off international trade, which helped stifle demand and accelerated the downward spiral.  If we take actions against China's currency devaluation, they have promised some sort of unnamed retaliations.

Awesome. Let's pick a fight with one of our biggest creditors.

The only thing that speaks FOR this is Paul Krugman.  Krugman acknowledges that this could spark a trade war, but he says it is worth the risk.

Now, I respect Krugman's predictive ability.  He's scarily right most of the time.

But he's not a China scholar.  If China really sparks a trade war, I can't imagine that will help our economy.  I can also imagine them flooding the markets with US bonds, which would have God knows what effect on the currency.

I can't help think that this is an act of folly, even with Krugman's imprimatur.

I want to be optimistic about things, but the actual world keeps letting me down.