(SOUNDBITE OF FILM, "FERRIS BUELLER'S DAY OFF ")
BEN STEIN: (As economics teacher) Bueller, Bueller.
KENNY MALONE, HOST:
In the Venn diagram of iconic pop culture moments and critically important economics history lessons, there is an overlap of roughly 40 seconds.
SALLY HELM, HOST:
So first, I guess I want to ask you, do you know this scene from "Ferris Bueller?"
DOUGLAS IRWIN: Of course.
HELM: Doug Irwin, economist at Dartmouth.
MALONE: Can you do it without looking? Like, do you know it by heart?
IRWIN: I can do the first part. In 1930, the Republican-controlled House of Representatives passed the - anyone, anyone?
(SOUNDBITE OF FILM, "FERRIS BUELLER'S DAY OFF")
STEIN: (As economics teacher) A tariff bill, the Hawley-Smoot Tariff Act, which - anyone? - raised or lowered - raised tariffs in an effort to collect more revenue for the federal government. Did it work? Anyone - anyone know the effects?
IRWIN: Anyone? Anyone? No, it did not work out well, and the economy sank further into the Great Depression.
HELM: Not bad.
MALONE: Not bad - almost word for word. And by the way, Hawley-Smoot, Smoot-Hawley - Doug Irwin says you can say it either way.
HELM: And at what - when it comes to Smoot-Hawley, you were kind of like the Smoot-Hawley guy. Is that right?
IRWIN: There aren't many competitors I guess would be one way of putting it. I mean, I think everyone sort of knows of them, but no one has on the deep dive like I have, I guess.
MALONE: Doug wrote a book about the Smoot-Hawley Tariffs, including an explanation of how it became the most infamously boring high school lesson in movie history.
HELM: They'd cast the actor Ben Stein.
IRWIN: Who's the son of a famous economist, Herb Stein. So they wanted him to be a boring high school teacher, but they didn't actually script what he was going to say. So they let him rip. And he starts talking about Smoot-Hawley Tariff.
MALONE: But why do you think it works as a punch line in that scene?
IRWIN: Well, first of all, his delivery mainly because I think you can make Smoot-Hawley exciting.
IRWIN: It's during this conflagration, the Great Depression. It has a lot of drama. It has a really funny name - Smoot and Hawley - interesting characters, unintended consequences.
MALONE: And I guess now it has a tremendous amount of relevance to today.
(SOUNDBITE OF MUSIC)
MALONE: Hello, and welcome to PLANET MONEY. I'm Kenny Malone.
HELM: And I'm Sally Helm. And did we all skip class on Smoot-Hawley day? Because the story of the worst tariffs ever has some eerie parallels to what's happening in the White House right now.
MALONE: Today on the show - how this big, old tariff bill with a silly name helped tank the world economy and why it means that today, 90 years later, President Donald J. Trump has the power to start what a lot of people fear is a trade war.
(SOUNDBITE OF MUSIC)
MALONE: Quick recap of where we are in the world of import tariffs.
HELM: About a month ago, President Trump walked up to a podium and followed through on a big campaign promise.
(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT DONALD TRUMP: We will have a 25 percent tariff on foreign steel and a 10 percent tariff on foreign aluminum.
HELM: He'd also put some tariffs on washing machines and solar panels.
MALONE: Now, the details of these tariffs are changing pretty much every day. Some countries will get exemptions. There may be more products taxed.
HELM: But broad strokes, this is a political move by the Trump administration, in part to punish China for what they say is dirty tactics in the trade world. And it's also partly a protectionist tax to help people who are a big part of President Trump's voting bloc aka manufacturing sectors left behind by globalization.
MALONE: Economists tend to not agree on much, but you would be hard-pressed to find one who thinks these tariffs are a good idea.
HELM: And a big reason for that is this kind of economics horror story.
HELM: It's used to scare young economists around the campfire - the tale of Smoot-Hawley.
MALONE: We were thinking, like, the best place to start is probably with the election in 1928.
IRWIN: That's the perfect place to start.
HELM: Again, Doug Irwin.
IRWIN: So in 1928, the U.S. economy was doing exceptionally well. The stock market was booming.
HELM: Employers were hiring.
MALONE: The unemployment rate was very low.
IRWIN: There was no Great Depression in sight whatsoever. And so one question is what could the parties fight about in that campaign to try to win voters? And it turns out, while the overall economy was doing well, there's one sector that was being left behind and was not doing well, and that was agriculture.
HELM: Farmers were feeling forgotten, desperate even, because they were losing their jobs. The economy is shifting away from them and towards a fancy, new-fangled techie industry benefiting the coastal elites. In this case, back then, the hot techie industry is manufacturing.
MALONE: Yeah, that's right, making things like cars and, like, sewing machines.
HELM: So this became an election issue - save the farmers, save the people who are being left behind. And the Republicans and their presidential candidate, Herbert Hoover, they win the election.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON: Herbert Hoover, now president of the United States, stood before the people. His platform had been prosperity for everyone.
MALONE: By the time Hoover was giving his inaugural address, Republicans in Congress were already trying to make good on this protect-the-farmers promise.
HELM: Most notably Reed Smoot and Willis Hawley.
MALONE: Do you want to try and describe these men for our listeners?
IRWIN: So one of them is sort of tall and lean. That would be Reed Smoot. And the other's a little shorter and a little squatter, a little fatter, and that would be Willis Hawley. Do you know "The Muppets?"
IRWIN: Do you know Statler and Waldorf?
MALONE: They're my favorite Muppets.
IRWIN: Yes, they're the guys - the old guys in the balcony who are jeering at the act onstage.
(SOUNDBITE OF TV SHOW, "THE MUPPET SHOW")
RICHARD HUNT: (As Statler) You know, they can improve the whole show if they just changed the ending.
JIM HENSON: (As Waldorf) How?
HUNT: (As Statler) Put it closer to the beginning.
MALONE: Could we do another one? Let's do one more.
(SOUNDBITE OF TV SHOW, "THE MUPPET SHOW")
HENSON: (As Waldorf) For once, they've given us something other than second-rate entertainment.
HUNT: (As Statler) What's that?
HENSON: (As Waldorf) Third-rate entertainment.
MALONE: Do you not like them? You don't like "The Muppets?"
HELM: I don't think I'm as big of a "Muppets" person as you, Kenny.
MALONE: Whatever. All right. Well - fine.
HELM: But it's OK. It's good - good "Muppets."
MALONE: Anyway Reed Smoot was a senator from Utah. Willis Hawley was a representative from Oregon. They were the heads of the committees in the Senate and the House that were in charge of tariffs at the time. That's why their names are on the bill.
HELM: And the two agricultural products that were facing the most foreign competition at that time were wool and sugar.
MALONE: So you can imagine one version of this where the politicians just say sugar and wool - OK, let's just put a tariff on imported sugar and wool. And then, you know, we could debate the benefits of that.
HELM: But that is not even how the debate went at all, partly because of something called logrolling, which is basically vote trading. So say you're a representative from a corn state like Iowa. Then you're like, wait, why would I vote for your sugar-and-wool tariff? I am not supporting that unless you put a tariff on corn.
MALONE: But then the representative from Ohio would be like, wait, why am I going to vote for your sugar-and-wool-and-corn tariff if you don't protect my goldfish producers?
HELM: And everyone's like, gold fish producers?
IRWIN: Apparently, there was one firm in Ohio that raised goldfish, and they thought that imported goldfish were eating into their market.
HELM: Are we talking, like, a little goldfish in a bag at a fair? Like, who is importing...
IRWIN: I think that's what we're talking about.
HELM: Really? Like an orange goldfish for your bowl at home - like a goldfish.
IRWIN: That's right.
MALONE: Did they get a tariff?
IRWIN: Thirty-five percent.
MALONE: Industry after industry was lining up, asking for a tariff, asking for protection, and the congressmen were overwhelmed.
IRWIN: They worked day and night. There were a lot of complaints of members of Congress saying how they had to stay up so late listening to people droning on about clothes pins and oil drums and certain types of chemicals. New York State Grain and Hay Dealers' Association - they made the plea on behalf of the humble buckwheat industry.
MALONE: And just to be clear, is humble buckwheat a quote from what actually happened then?
IRWIN: I think the buckwheat industry was portraying itself as humble, so they say we are the humble (laughter) buckwheat industry.
HELM: There were so many industries asking for protection that the Senate heard from more than 1,000 witnesses who gave more than 8,000 pages of testimony, like, when it was all printed out.
MALONE: And it's worth noting, unlike sugar and wool, a lot of these industries barely had any foreign competition. It's unclear that the tariff would even help them. But once the floodgates were open, the humble buckwheat growers, the clothes pin makers, the goldfish growers, I guess, they were like, come on. Why not us, too?
HELM: Yeah. Why can't we get a little protection?
MALONE: And so instead of this being a tariff on sugar and wool and maybe one or two other agricultural industries, the ultimate number of tariffs that increased was how many?
IRWIN: I think over 800.
MALONE: Over 800.
HELM: And look, of course, Congress has passed tariffs before - since the beginning of the country - but this particular group of congressmen seems to be going pretty tariff crazy.
MALONE: There is one group watching from the sidelines and thinking, oh, what are you doing?
HELM: Yeah, the economists. When politicians start talking about tariffs, economists get very exasperated because tariffs, it might seem like they're solving one problem, but they can cause a million other problems.
MALONE: That is true even for the people the tariffs are supposed to help.
HELM: I think we want to sort of help people understand like why this was going to potentially backfire.
MALONE: Like, imagine Sally is a wool farmer from then. So...
HELM: As a sheep farmer.
MALONE: Sheep - yeah. What are we - what should we be saying here?
IRWIN: Wool producer - sheep farmer.
MALONE: A shepherd - she's a shepherd.
HELM: (Laughter) I'm a shepherd.
IRWIN: So if you raise the tariff on wool, that's definitely going to help sheep farmers and wool producers. They definitely want that. That's why they were fighting for it. But it also raises the costs of all the manufacturers of woolen goods - trying to produce coats and pants and others for consumers.
HELM: This is known as a downstream effect.
MALONE: And so that is one problem. A tariff on wool may help Sally the shepherd, but it has these unintended ripple effects for other people. And Smoot-Hawley was not just a tax on wool. So now whatever benefits Sally the shepherd's getting, they're probably canceled out by the fact that tons of other things she needs to buy - those are going to cost more because Sally can't get these things at the global competitive price.
HELM: And another thing economists hate about tariffs is that they can cause chain reactions around the globe. Like, you can't just put a tariff on something and expect other countries to sit back and let that happen. There will be counter-tariffs.
MALONE: And this is yet another unintended consequence that lawmakers, apparently, had not thought through back in 1930.
IRWIN: They didn't anticipate that there would be retaliation.
MALONE: I mean, that's so crazy. Like, why not? Why would they not see that coming?
IRWIN: Well, because this was considered domestic legislation, pure and simple, and there would be no foreign ramifications. And that was the way it was, you know, thought about at the time.
MALONE: So those were, like, a few of the reasons that economists were screaming into their pillows about the Smoot-Hawley bill.
HELM: And before the bill made it to the president's desk, the economists tried to explain all this one more time, very clearly. A group of more than a thousand economists got together.
MALONE: A thousand economists. Adjust for inflation, that is, like, 5,000 economists by today's economists.
HELM: Easily 5,000 in today's economists. And they wrote and signed a letter begging President Hoover or Congress to stop this Smoot-Hawley nonsense.
MALONE: We have a copy of that letter right here, and it outlines all of the ways these tariffs will be a disaster for the economy in beautiful, passionate, meticulously detailed language that...
HELM: Oh, Kenny, may I see that?
(SOUNDBITE OF PAPER RIPPING)
HELM: Hoover, the politicians - they were, like, nah. These ivory tower elites - they've never worked a day in their lives.
MALONE: Hoover signed the tariffs into law, and virtually everything the economists warned would go wrong went wrong.
HELM: One of the most insane examples is eggs. American egg producers theoretically got the benefit of one of the many Smoot-Hawley tariffs.
IRWIN: So the tariff on eggs went from 8 cents to 10 cents a dozen. But Canada, they were so incensed, they raised their tariff from 3 cents to 10 cents.
IRWIN: So that was reciprocity. They wanted the same tariff as we did.
MALONE: And here is the beautiful boneheaded twist of Smoot-Hawley. American egg producers were exporting eggs. They were making a ton of money by sending their eggs to Canada. Or at least they were before Smoot-Hawley.
IRWIN: Our exports fell from almost a million dozen to 13,000 dozen eggs over the same period. So our exports of eggs really got whacked.
HELM: We lost a lot of dozens.
MALONE: And Canada was not the only country that got pissed off at Smoot and Hawley and America. This kicked off an unprecedented wave of protectionism across the globe.
HELM: Protectionism aimed specifically at the United States. There were a bunch more counter-tariffs, countries formed trade blocks against the U.S., global trade fell by 26 percent in the years after this.
MALONE: Because of Smoot-Hawley and the protectionism that followed it, but also because of a little thing called the Great Depression.
HELM: Yeah. Smoot-Hawley was in the works before the Great Depression, but it didn't pass until things had already started to go south.
MALONE: And so probably the nicest thing anyone says about Smoot-Hawley is, well, it didn't cause the Great Depression.
HELM: Yeah. Economists generally agree, you know, a lot of things caused the Great Depression - monetary policy, etc. But then, the passage of Smoot-Hawley - it sure as hell did not help. We tried bouncing some metaphors off Doug Irwin.
MALONE: So the Great Depression caused the U.S. economy to basically flail in the water drowning, and the passing of Smoot-Hawley was the equivalent of sort of throwing it a brick to help.
IRWIN: Or a line with nothing attached at the other end.
MALONE: Oh, that's so mean. That's, like, worse.
IRWIN: Because then you're giving people hope, but then you start pulling on it and there's nothing there.
MALONE: And how did Smoot-Hawley work out for the politicians involved? Anyone? Anyone?
IRWIN: Did it work out? Anyone? And it turns out both Hawley and Smoot were kicked out of Congress by their constituents ultimately, so it didn't work out for them.
MALONE: It took decades to truly undo the damage from Smoot-Hawley - to untangle the tariffs and the counter-tariffs and the counter-counter-tariffs.
HELM: But slowly, we did. The world moved away from protectionism, towards free trade. Agreements were made. the World Trade Organization was set up as a kind of referee.
MALONE: And then for years, you could shut down a conversation about tariffs by just saying Smoot-Hawley.
HELM: In fact, in the 1990s, Al Gore was debating Ross Perot. Perot was against the North American Free Trade Agreement. And Gore brought a photograph of Smoot and Hawley to the debate to be, like, see where this got us last time?
(SOUNDBITE OF ARCHIVED RECORDING)
AL GORE: Now I framed this so you can put it on your wall if you want to.
ROSS PEROT: Thank you. Thank you. Thank you.
HELM: That is the sound of Ross Perot kind of slamming this photo facedown onto the desk.
MALONE: And that's because Smoot-Hawley had become shorthand for, remember the last time we tried this? Protectionism is a bad idea. Of course, things have changed a bit since then.
(SOUNDBITE OF ARCHIVED RECORING)
TRUMP: We have to protect and build our steel and aluminum industries.
MALONE: After the break, Smoot, Hawley and Trump.
HELM: Attorneys at law (laughter).
(SOUNDBITE OF STEPHEN JOHN BERNARD KIELTY, VON HEMINGWAY AND WILLIAM RIDDIMS' "SOUL CHILD")
MALONE: So a couple of things you may have noticed about today's tariff's situation. For one, where is Congress in all of this? There were no hearings. There was no vote.
HELM: There was no goldfish lobby.
MALONE: No. It appears as though the president was able to just tariff.
HELM: Yeah. He kind of was. A huge difference between the Smoot-Hawley days and the Trump days is that the president now has a lot more power to set tariffs.
MALONE: And, you know, Trump did actually have to follow a process here. He had to come up with justification. In the case of the steel and aluminium tariffs, it was national security. He also had to jump through some other hoops as well.
HELM: But clearly, he was able to get the tariffs done. And this fact - the fact that the president can now levy tariffs - Doug Irwin says that is part of the legacy of Smoot-Hawley.
MALONE: Yeah. After Congress went tariff-crazy in 1930, they basically said, maybe we should have our tariff privileges revoked.
IRWIN: Congress delegated powers to the president to oversee the whole tariff system. So essentially, Congress said, look, we made a mess of it. This didn't work out so well.
MALONE: They were like a bunch of children who'd been let loose in a candy store and realized they couldn't be trusted to moderate their own intake.
IRWIN: They overate. They got sick. And they said they need some restraint on themselves from doing that again, so they just, you know, delegate it to another party.
HELM: Over time, they delegated that power to the executive branch and to the president. They decided that is the better system.
MALONE: And arguably, we are now watching that better system in action because when Congress dealt with tariffs, the game was stacked against narrow tariffs. You want to protect only wool and sugar, well, good luck, buddy, because it snowballs quickly. But today, President Trump wants to protect steel and aluminum - no snowballing. It can stop there if he wants it to. He doesn't have to trade votes to get it passed.
HELM: And so we're not seeing hundreds of tariffs like in the days of Smoot-Hawley. Instead, we're seeing these very targeted, very political tariffs. And it could stay that way, but these tariffs still have economists, like, screaming into their pillows again because even narrow tariffs are going to cause the same web of problems - downstream effects, ultimately shooting ourselves in the foot.
MALONE: We asked Doug Irwin, like, do you think in 20 years, someone is going to write a movie scene about a boring high school teacher teaching the lessons of the Trump tariffs?
HELM: And he was, like, who knows? Probably not. But if they do make "Ferris Bueller 2," Doug Irwin will be ready.
MALONE: Do you want to give a shot at doing the Ben Stein thing, but with the news of the day - with the Trump news?
IRWIN: I could give it a shot.
MALONE: Give it a shot.
MALONE: Ben Stein improvised it. Come on, Doug. You're...
IRWIN: OK. In 2018, the Republican administration of Donald J. Trump instituted higher tariffs on - anyone? Anyone? - steel and aluminum in an effort to protect the jobs of steel workers. Did it work? Anyone? Anyone? It did not work, and we lost jobs in downstream user industries, and it failed to revitalize the steel industry.
(SOUNDBITE OF MARIUS VAAREID'S "BUGATTI")
MALONE: That is - that was off the top of your head?
MALONE: Well done.
HELM: Well played.
(SOUNDBITE OF MARIUS VAAREID'S "BUGATTI")
MALONE: Today's show was produced by Lena Richards and edited by Bryant Urstadt. Our supervising producer is Alex Goldmark.
HELM: Also, we have a new video out this week. It's part of our new series from the NPR video team. This one is about why the price of Coke stayed the same for so long, and it's hilarious. It is seriously worth a watch. Find it at npr.org/planetmoneyshorts, or you can follow us on Facebook. We have posted it there, too.
MALONE: Doug Irwin's book about Smoot-Hawley is called "Peddling Protectionism." If you want more info on Smoot-Hawley, it is the place to go.
HELM: I'm Sally Helm.
MALONE: And I'm Kenny Malone. Thanks for listening.
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