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Posts Tagged ‘Hoover’

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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