Sarah Palin Falsely Blames Big Government For Great Depression

November 17, 2009 1:43 pm ET

In her book, Going Rogue: An American Life, former Alaska governor Sarah Palin makes the claim that the Great Depression was caused by government spending.  She writes, "Massive government spending programs and protectionist economic policies actually helped turn a recession into the Great Depression."  However, her understanding of the causes and consequences of the Great Depression are not grounded in an understanding of economics, but rather, her disdain for government.

Sarah Palin Blames Government Action For Great Depression

In a chapter titled "The Way Forward," Palin lays down her vision for the future.  Citing the legacy of Ronald Reagan, Palin blames government for many of the problems we now face.  On page 389, she notes that government action prolonged the Great Depression.

Economists Disagree With Palin's Assessment

Protectionism Had Little Impact On Depression.  The Economist asserts that the Smoot-Hawley tariff had little impact on the Great Depression.  "In fact, few economists think the Smoot-Hawley tariff (as it is most often known) was one of the principal causes of the Depression. Worse mistakes were made, largely out of a misplaced faith in the gold standard and balanced budgets." [The Economist, 12/20/2008]

  • Smoot-Hawley Tariff Act of 1930 Was A Protectionist Measure That Raised Tariffs To Historically High Levels. According to the State Department, "The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports...Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history." [State Department, accessed 11/17/2009]

"New Deal Policies Substantially Ameliorated The Effects Of The Great Depression." The New Deal had a positive impact until FDR was forced to balance the budget and scale back projects.  According to Dean Baker, Director of the Center for Economic and Policy Research: "[A]ny careful reading showed that the New Deal policies substantially ameliorated the effects of the Great Depression for tens of millions of people. The major economic failing of the New Deal was that President Roosevelt was not prepared to push the policies as far as necessary to fully lift the economy out of the Great Depression.  Roosevelt was too worried about the whining of the anti-stimulus crowd that he confronted. He remained concerned about balancing the budget when the proper goal of fiscal policy should have been large deficits to stimulate the economy."  [CEPR, 1/5/2009]

Government Regulation Actually Curbed Market Insecurity.  According to Christina Romer, Chair of the Council of Economic Advisers and an expert on Great Depression era economics, swift government action brought forth market stability.  "In many countries, government regulation of the economy, especially of financial markets, increased substantially during the Great Depression.  The United States, for example, established the Securities and Exchange Commission in 1934 to regulate new stock issues and stock market trading practices.  The Banking Act of 1933 (also known as the Glass-Steagall Act) established deposit insurance in the United States and prohibited banks from underwriting or dealing in securities.  Deposit insurance, which did not become common worldwide until after World War Institute, effectively eliminated banking panics as an exacerbating factor in recessions in the United States after 1933." [Great Depression, accessed 11/17/09]

Gold Standard Had Much To Do With Prolonging Depression and Stagflation. According to Ben Bernanke, who is himself a monetarist, the gold standard made it difficult to escape deflation.  "Countries that left gold were able to reflate their money supplies and price levels, and did so after some delay; countries remaining on gold were forced into further deflation.  To an overwhelming degree, the evidence shows that countries that left the gold standard from the Depression more quickly than countries that remained on gold.  Indeed, no country exhibited significant economic recovery while remaining on the gold standard."  [Essays On The Great Depression, 2004 page 8]