Doug Irwin is one of my favorite economists, and David Beckworth’s recent interview of him is well worth listening to. Here are a few points that caught my attention:

1. Special interest groups create inertia, which makes it hard to liberalize trade. But Doug pointed out that this same inertia also makes it hard to reverse liberalization, as Trump is finding out.

2. There was an interesting echo of the Laffer curve debate back in the late 1800s. Government revenues were twice government spending, and the Federal government didn’t know what to do about the “problem”. (And note that this was during a period when there was no personal income tax, corporate income tax, or payroll tax—the three big taxes today.) The Dems wanted to reduce revenue by cutting tariffs. The GOP also wanted to reduce revenue, but used “Laffer curve” arguments in favor of raising tariff rates as a way of reducing revenue. Who knew that the GOP liked Laffer curve arguments back in the 1800s?

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3. In many cases, the trade policy was driven by purely political considerations, not special interest groups.

4. They also discussed the 1937 recession. Doug pointed to the policy of gold sterilization by the Treasury, which increased global demand for gold, reducing the price level in gold terms. (The dollar was fixed to gold at $35/oz. at the time.) I do think that’s an underrated factor. Here are some factors that I’d point to, in order of importance:

a. The switch from massive private sector gold dishoarding in late 1936 and early 1937 to massive gold hoarding in late 1937 and early 1938.

b. Gold sterilization in the US.

c. The Fed raising reserve requirements.

d. A 1% increase in the employer-side payroll tax (a supply shock)

e. Punitive anti-business policies by FDR.

f. Fiscal austerity (reducing AD)