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Posts Tagged ‘Hoover’

There have been many truly awful presidents elected in the United States, but if I had to pick my least favorite, I might choose Herbert Hoover.

I obviously have disdain for Hoover’s big-government policies, but I also am extremely irritated that – as Jonah Goldberg explained – he allowed the left to create an utterly bogus narrative that the Great Depression was caused by capitalism and free markets.

Indeed, the Center for Freedom and Prosperity produced a video demonstrating that the statist policies of both Hoover and Roosevelt helped trigger, deepen, and lengthen the economic slump.

Building on that theme, here’s a new video from Prager University that looks specifically at the misguided policies of Herbert Hoover.

Amen. Great job unmasking Hoover’s terrible record.

As I explained when correcting a glaring error by Andrew Sullivan, Hoover was a big-government interventionist. Heck, even FDR’s inner circle understood that the New Deal was simply an extension of Hoover’s statist policies.

In other words, FDR doubled down on Hoover’s awful record. And with awful results. We have a better understanding today of how the New Deal caused the downturn to be deeper and longer.

This Tom Sowell video is definitely worth watching if you want more information on that topic.

And here’s something else to share with your big-government friends. The Keynesian crowd was predicting another massive depression after World War II because of both a reduction in wartime outlays and the demobilization of millions of troops. Yet that didn’t happen, as Jeff Jacoby has succinctly explained. And if you want more details on how smaller government helped restore growth after WWII, check out what Jason Taylor and Rich Vedder wrote for Cato.

P.S. I’ve compared Bush and Obama to Hoover and Roosevelt because of some very obvious similarities. Bush was a big-government Republican who helped pave the way for a big-government Democrat, just as Hoover was a big-government Republican who also created the conditions for a big-government Democrat.

The analogy also is good because I suspect political and economic incompetence led both Hoover and Bush to expand the burden of government, whereas their successors were ideologically committed to bigger government. We know about Obama’s visceral statism, and you can watch a video of FDR advocating genuinely awful policy.

The good news is that Obama will never be as bad as FDR, no matter how hard he tries.

P.P.S. It’s also worth mentioning that a very serious downturn in 1921 was quickly ended in part thanks to big reductions in the burden of government spending. Your Keynesian friends will also have a hard time explaining how that happened.

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I’ve explained on many occasions that Franklin Roosevelt’s New Deal was bad news for the economy. And the same can be said of Herbert Hoover’s policies, since he also expanded the burden of federal spending, raised tax rates, and increased government intervention.

So when I was specifically asked to take part in a symposium on Barack Obama, Franklin Roosevelt, and the New Deal, I quickly said yes.

I was asked to respond to this question: “Was that an FDR-Sized Stimulus?” Here’s some of what I wrote.

President Obama probably wants to be another FDR, and his policies share an ideological kinship with those that were imposed during the New Deal. But there’s really no comparing the 1930s and today. And that’s a good thing. As explained by Walter Williams and Thomas Sowell, President Roosevelt’s policies are increasingly understood to have had a negative impact on the American economy. …what should have been a routine or even serious recession became the Great Depression.

In other words, my assessment is that Obama is a Mini-Me version of FDR, which is a lot better (or, to be more accurate, less worse) than the real thing.

To be sure, Obama wants higher tax rates, and he has expanded government control over the economy. And the main achievement of his first year was the so-called stimulus, which was based on the same Keynesian theory that a nation can become richer by switching money from one pocket to another. …Obama did get his health plan through Congress, but its costs, fortunately, pale in comparison to Social Security and its $30 trillion long-run deficit. And the Dodd-Frank bailout bill is peanuts compared to all the intervention of Roosevelt’s New Deal. In other words, Obama’s policies have nudged the nation in the wrong direction and slowed economic growth. FDR, by contrast, dramatically expanded the burden of government and managed to keep us in a depression for a decade. So thank goodness Barack Obama is no Franklin Roosevelt.

The last sentence of the excerpt is a perfect summary of my remarks. I think Obama’s policies have been bad for the economy, but he has done far less damage than FDR because his policy mistakes have been much smaller.

“Hey, don’t sell me short. Just wait to see how much havoc I can wreak if reelected!”

Moreover, Obama has never proposed anything as crazy as FDR’s “Economic Bill of Rights.” As I pointed out in my article, this “would have created a massive entitlement state—putting America on a path to becoming a failed European welfare state a couple of decades before European governments made the same mistake.”

On the other hand, subsequent presidents did create that massive entitlement state and Obama added another straw to the camel’s back with Obamacare.

And he is rigidly opposed to the entitlement reforms that would save America from becoming another Greece.

So maybe I didn’t give him enough credit for being as bad as FDR.

P.S. Here’s some 1930s economic humor, and it still applies today. And I also found this cartoon online.

And here’s a good Mini-Me image involving Jimmy Carter. I wasn’t able to find one of Obama and FDR.

If anybody has the skill to create such an image, please send it my way.

P.P.S. The symposium also features an excellent contribution from Professor Lee Ohanian of UCLA.

And from the left, it’s interesting to see that Dean Baker of the Center for Economic and Policy Research basically agrees with me.

But only in the sense that he also says Obama is a junior-sized version of FDR. Dean actually thinks Obama should have embraced his inner-FDR and wasted even more money on an even bigger so-called stimulus.

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I’ve commented many times about the misguided big-government policies of both Hoover and FDR, so I can say with considerable admiration that this new video from the Center for Freedom and Prosperity packs an amazing amount of solid info into about five minutes.

Perhaps the most surprising revelation in the video is that America suffered a harsh depression after World War I, with GDP falling by a staggering 24 percent.

But we don’t read much about that downturn in the history books, in large part because it ended so quickly.

The key question, though, is why did that depression end quickly while the Great Depression dragged on for a decade?

One big reason for the different results is that markets were largely left unmolested in the 1920s. This meant resources could be quickly redeployed, minimizing the downturn.

But this doesn’t mean the crowd in Washington was completely passive. They did do something to help the economy recover. As Ms. Fields explains in the video, President Harding, unlike Presidents Hoover and Roosevelt, slashed government spending.

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I’ve pointed out on several occasions that Herbert Hoover was a big-spending Keynesian. Heck, Hoover was pursuing failed Keynesian policies several years before Keynes produced his most well-known book, The General Theory.

Hoover’s big spending was so pronounced that it generated this cartoon in 1932.

Sadly, this cartoon applies just as well today.

Except Bush and Obama take the place of Hoover and Roosevelt – with the same dismal results.

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I had some fun at Andrew Sullivan’s expense a couple of weeks ago, mocking him for asserting that spending cuts today would be repeating the mistakes of Herbert Hoover. That was a rather odd thing for him to write since Hoover boosted the burden of government spending by 47 percent in just four years.

Since it is notoriously difficult to educate Obamaphiles, I’m guessing that he (and others) need some supplementary material.

How about the words of a key aide to Franklin Delano Roosevelt? Would that be considered a legitimate source? One would think so, which means this excerpt from a 2007 book review (the same statement was also cited by PBS) is rather revealing.

FDR aide Rexford Tugwell would claim in a 1974 interview that “practically the whole New Deal was extrapolated from programs that Hoover started.”

The fact that Hoover and Roosevelt were two peas in a big-government pod may be of interest to economic historians, but the real lesson is that interventiondidn’t work for either one of them. That’s what Andrew Sullivan and others need to learn. But since people like that probably won’t listen to me, maybe they’ll be more willing to accept the confession of Roosevelt’s Treasury Secretary.

FDR’s Treasury Secretary, Henry Morgenthau, wrote in his diary: “We have tried spending money. We are spending more 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 unemployment as when we started … and an enormous debt to boot!”

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Even though he’s become rather partisan in recent years, I still enjoy an occasional visit to Andrew Sullivan’s blog. But I was rather amused last night when I read one of his posts, in which he was discussing whether government spending helps or hurts economic performance. He took the view that a bigger public sector stimulated growth, and criticized those who wanted to reduce the burden of government spending, snarkily observing that, “The notion that Herbert Hoover was right has become quite a dogged meme on the reality-challenged right.”

Since I’m one of those “reality-challenged” people who prefer smaller government, I obviously disagreed with his analysis. But his reference to Hoover set off alarm bells. As I have noted before, Hoover increased the burden of government during his time in office.

But maybe my memory was wrong. So I went to the Historical Tables of the Budget and looked up the annual spending data. As you can see from the chart, it turns out that Hoover increased government spending by 47 percent in just four years (if you adjust for falling prices, as Russ Roberts did at Cafe Hayek, it turns out that Hoover increased government spending by more than 50 percent).

I suppose I could make my own snarky comment about being “reality-challenged,” but Sullivan’s mistake is understandable. The historical analysis and understanding of the Great Depression is woefully inadequate, and millions of people genuinely believe that Hoover was an early version of Ronald Reagan.

I will say, however, that I agree with Sullivan’s conclusion. He closed by saying it would be “bonkers” to replicate Hoover’s policies today. I might have picked a different word, but I fully subscribe to the notion that making government bigger was a mistake then, and it’s a mistake now.

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In a previous post, I commented on a Wall Street Journal column by former Senator Phil Gramm, calling attention to evidence that the economy is under-performing compared to what happened after previous recessions. This is an important issue, particularly when you compare the economy’s tepid performance today with the strong recovery following the implementation of Reaganomics. But there was another part of the column that also is worth highlighting. Much of what we are seeing from the Obama Administration is disturbingly reminiscent of the anti-growth policies of Hoover and Roosevelt, particularly the punitive class-warfare mentality. Here’s how Senator Gramm characterizes the similarities.

Today’s lagging growth and persistent high unemployment are reminiscent of the 1930s, perhaps because in no other period of American history has our government followed policies as similar to those of the Great Depression era. …The top individual income tax rate rose from 24% to 63% to 79% during the Hoover and Roosevelt administrations. Corporate rates were increased to 15% from 11%, and when private businesses did not invest, Congress imposed a 27% undistributed profits tax. In 1929, the U.S. government collected $1.1 billion in total income taxes; by 1935 collections had fallen to $527 million. …The Roosevelt administration also conducted a seven-year populist tirade against private business, which FDR denounced as the province of “economic royalists” and “malefactors of great wealth.” … Churchill, who was generally guarded when criticizing New Deal policies, could not hold back. “The disposition to hunt down rich men as if they were noxious beasts,” he noted in “Great Contemporaries” (1939), is “a very attractive sport.” But “confidence is shaken and enterprise chilled, and the unemployed queue up at the soup kitchens or march out to the public works with ever growing expense to the taxpayer and nothing more appetizing to take home to their families than the leg or wing of what was once a millionaire. . . It is indispensable to the wealth of nations and to the wage and life standards of labour, that capital and credit should be honoured and cherished partners in the economic system. . . .” The regulatory burden exploded during the Roosevelt administration, not just through the creation of new government agencies but through an extraordinary barrage of executive orders—more than all subsequent presidents through Bill Clinton combined. Then, as now, uncertainty reigned. …Henry Morgenthau summarized the policy failure to the House Ways and Means Committee in April 1939: “Now, gentleman, we have tried spending money. We are spending more than we have ever spent before and it does not work . . . I say after eight years of this administration we have just as much unemployment as when we started . . . and an enormous debt, to boot.”

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Jonah Goldberg writes in National Review that President Obama is beginning to look like the next Herbert Hoover. This is rather ironic since the left wanted him to become the next Franklin Delano Roosevelt, ushering in a new era of politically-popular statism.
…the Great Depression discredited laissez-faire economics for a generation or more. Hoover, who was hardly the “market fundamentalist” FDR made him out to be, suffered largely from the (bad) luck of the draw, giving Democrats a chance to argue for a new deal of the cards. For reasons fair and unfair, Obama, who inherited a bad recession and made it worse, every day looks more like a modern-day Hoover, whining about his problems, rather than an FDR cheerily getting things done. Inadequate to the task, Obama is discrediting the statism he was elected to restore. 
Jonah makes a compelling case, particularly from a political perspective. But if we look just at economic policy, the Obama-as-FDR analogy is more accurate. Hoover was a big-government interventionist with failed policies. That’s a pretty good description of Bush. FDR got elected in 1932 by promising to fix the mess, which is akin to Obama’s hope and change message in 2008. And, just like FDR, Obama then continued the big-government interventionist policies of his predecessor. The only difference is that Roosevelt somehow was able to remain popular even though his policies kept the nation mired in depression for another decade. Obama, by contrast, is veering dangerously close to becoming another Jimmy Carter. Tom Sowell has some key details about the timing and impact of the Hoover-Roosevelt policies.
The history of the United States is full of evidence on the negative effects of government intervention. For the first 150 years of this country’s existence, the federal government did not think it was its business to intervene when the economy turned down. All of those downturns ended faster than the first downturn where the federal government intervened big time– the Great Depression of the 1930s. …if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward. Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930. What were politicians to do? Say “We messed up”? Or keep trying one huge intervention after another? The record shows what they did: President Hoover’s interventions were followed by President Roosevelt’s bigger interventions– and unemployment remained in double digits in every month for the entire remainder of the decade. There is another set of facts: The record that was set in 1929 for the biggest stock market decline in one day was broken in 1987. But Ronald Reagan did nothing– and the media clobbered him for it. Then the economy rebounded and there were 20 years of sustained economic growth with low inflation and low unemployment. Can you imagine Barack Obama doing another Ronald Reagan?

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Citing a scholarly book by Richard Vedder and Lowell Gallaway, Tom Sowell concisely explains that government intervention caused the Great Depression.

Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must “do something” to get the economy moving again. FDR’s intervention in the 1930s has often been cited by those who think this way. …Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed– and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930. This was what happened in the market, before the federal government decided to “do something.” What the government decided to do in June 1930– against the advice of literally a thousand economists, who took out newspaper ads warning against it– was impose higher tariffs, in order to save American jobs by reducing imported goods. This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn. Within six months after this government intervention, unemployment shot up into double digits– and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started. If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.

I particularly like that Sowell compares the 1929 and 1987 stock market crashes. The market actually fell more in 1987, but Reagan wisely did nothing and the economy continued growing.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten. What was the difference between these two stock market crashes? The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment. But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash– despite many outcries in the media that the government should “do something.”

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The politicians in Washington and their enablers in the academy are wildly wrong about how to boost growth. They think more government spending is a key to prosperity, but this blog already has revealed that the Great Depression was made worse because of bigger government. Experts have pointed out that the best way to boost growth is to get government out of the way, as happened in the early 1920s when President Harding allowed the economy to adjust and thus deserves credit for quickly ending a serious downturn. Another great example of the benefits of a laissez-faire approach took place after World War II. The Keynesians all though the Great Depression would resume as government spending was reduced after the war. But as Jason Taylor and Richard Vedder explain for Cato Policy Report, less government spending was exactly the right approach:

….the “Depression of 1946″ may be one of the most widely predicted events that never happened in American history. As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that “the government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls.” After all, the belief was that the only thing that finally ended the Great Depression of the 1930s was the dramatic increase in government involvement in the economy. In fact, Hansen’s advice went unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short, the economy underwent what the historian Jack Stokes Ballard refers to as the “shock of peace.” From the economy’s perspective, it was the “shock of de-stimulus.” …What happened? Labor markets adjusted quickly and efficiently once they were finally unfettered — neither the Hoover nor the Roosevelt administration gave labor markets a chance to adjust to economic shocks during the 1930s when dramatic labor market interventions (e.g., the National Industrial Recovery Act, the National Labor Relations Act, the Fair Labor Standards Act, among others) were pursued. Most economists today acknowledge that these interventionist polices extended the length and depth of the Great Depression. After the Second World War, unemployment rates, artificially low because of wartime conscription, rose a bit, but remained under 4.5 percent in the first three postwar years — below the long-run average rate of unemployment during the 20th century. …many who lost government-supported jobs in the military or in munitions plants found employment as civilian industries expanded production — in fact civilian employment grew, on net, by over 4 million between 1945 and 1947 when so many pundits were predicting economic Armageddon. Household consumption, business investment, and net exports all boomed as government spending receded. The postwar era provides a classic illustration of how government spending “crowds out” private sector spending and how the economy can thrive when the government’s shadow is dramatically reduced.

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A great column in the Wall Street Journal explains how FDR’s policies hurt the economy. That is true, but the really interesting part of the column for me is that it explains how Roosevelt (and then Truman) were convinced the economy would return to depression after World War II unless there was another giant Keynesian plan. Fortunately, Congress said no. This meant there was no repeat of the Hoover-Roosevelt mistakes of the 1930s and the economy was able to recover and enjoy strong growth:

FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II. Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good. …His key advisers were frantic at the possibility of the Great Depression’s return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer—and on Oct. 28, 1944, about six months before his death, he spelled out his vision for a postwar America. It included government-subsidized housing, federal involvement in health care, more TVA projects, and the “right to a useful and remunerative job” provided by the federal government if necessary. Roosevelt died before the war ended and before he could implement his New Deal revival. His successor, Harry Truman, in a 16,000 word message on Sept. 6, 1945, urged Congress to enact FDR’s ideas as the best way to achieve full employment after the war. Congress—both chambers with Democratic majorities—responded by just saying “no.” No to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits. Instead, Congress reduced taxes. Income tax rates were cut across the board. …Corporate tax rates were trimmed and FDR’s “excess profits” tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945. Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call “supply-side economics.” If the tax bill “has the effect which it is hoped it will have,” George said, “it will so stimulate the expansion of business as to bring in a greater total revenue.” He was prophetic. By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. …Congress substituted the tonic of freedom for FDR’s New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.

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Art Laffer has a compelling column in the today’s Wall Street Journal discussing how higher tax rates under Presidents Hoover and Roosevelt played an important role in driving the economy into a ditch during the 1930s. The interesting question, of course, is the degree to which President Obama is going to repeat these mistakes. We already see that some of the mistakes that happened during the Great Depression are being replicated, including higher government spending (with a big help from Bush), more government regulation, and protectionism. The good news, so to speak, is that Obama is moving policy in the wrong direction in small steps, whereas Hoover and Roosevelt took giant leaps. So while it is likely that our long-term growth rate will be dampened, hopefully there will not be a lengthy period of economic stagnation:

While Fed policy was undoubtedly important, it was not the primary cause of the Great Depression or the economy’s relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy’s relapse in 1937. In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25%. (That’s not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%. But the tax hikes didn’t stop there. In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000. …The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I’d give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

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