Two things we now know didn't work during the Great Depression, besides millions of willing and able bodied Americans were stimulus spending and the Smoot Hawley Tariff Act of 1930.  The failure of the first was documented by the man charged with implementing it, Henry Morgenthau Jr., FDR's Treasury Secretary who was quoted as saying; "We have tried spending money.  We are spending more money than we have ever spent before and it does not work . . . We have never made good on our promises.  I say after eight years of this administration we have just as much unemployed as when we started . . . And an enormous debt to boot!"

Now while neither Mssrs. Smoot nor Hawley were willing to risk their chances of reelection and admit fault, the act they sponsored raised tariffs on over 20,000 imported goods from which the ensuing retaliatory tariffs by this country's trading partners at the time reduced American imports and exports by over 50%.  Not exactly the environment in which you want to try to restart an economy.

If anything can be said about the current stimulus package it is that at least we survived the one FDR put in place.  As for protectionist measures; I don't think it's like a coin flip where some times it comes up heads and some times tails but it is 5:00 am and maybe I'm just not thinking clearly.

Both Goodyear Tire & Rubber (GT) and Cooper Tire & Rubber (CTB) moved higher on the news yesterday and the moves in the stock were confirmed by the CDS movement.  It is interesting that both of these moves began around 9/2 when the media first started to report the tire tariff developments.  Prior to that the CDS equity combo's for both names had been moving sideways since early August, albeit already near their highs for the year.

The downside of establishing new tariffs ahead of the G-20 would seem questionable on its own but given that tire production capacity here has already dropped by 40mm and is in the process of being cut by another 35MM one has to wonder what the marginal utility of these moves is; especially given that the tires in question are mostly of the low cost variety white labeled by big box retailers and not the kinds of tires that are manufactured in the U.S.A. to begin with.

In retribution for the tire tariff China is imposing its own tariff's on chickens and auto parts.  This is an unusually soft handed move from the Middle Kingdom as chicken imports were already blocked as a result of our blockage of Chinese poultry.

The back story here gets a bit more interesting as China produces more than 90% of the world's supply of what are known as "rare-earth" metals which are used in a number of "green" technologies and have been proven to greatly improve the efficiency of the batteries used in hybrid vehicles.

The tire tariff pleased the United Steel Workers Union who made the tire dumping claim but protecting tire production that does not happen in this country anyway seems fairly costly when you are levying that tariff on the major producer of a key element in hybrid car technology.  Green technology is a global trend and as such one that will be hard to hold back.  Cars, last time I checked, still use a fair amount of steel in the production process so the more of them that are built the better it would be for the USWU regardless of whether they are traditionally powered or not.

If, as James Carville so aptly put it during Bill Clinton's 1992 campaign, "It's the economy stupid", shouldn't the laws and policies enacted first and foremost make economic sense?