We’re Living Through a Rerun of Hoover Economics

Desperate to block any spending cuts the Democrats and their media supporters are now resurrecting three myths regarding President Herbert Hoover and the Great Depression.

Economist and Progressive hero Paul Krugman, provides an example in his latest New York Times editorial:

More than three years after we entered the worst economic slump since the 1930s, a strange and disturbing thing has happened to our political discourse: Washington has lost interest in the unemployed.

What led Krugman to this conclusion?  He observed most Congressional Republicans and a few Democrats sharing The People’s alarm at the massive deficits and titanic debt being accumulated by their government.  Thus, spending cuts are at the top of the Congressional agenda.

Krugman continues, presenting the first myth:

In early 2009, John Boehner, now the speaker of the House, was widely and rightly mocked for declaring that since families were suffering, the government should tighten its own belt. That’s Herbert Hoover economics, and it’s as wrong now as it was in the 1930s.

The Left/Progressive version of Great Depression history is a series of myths.  They want you to believe President Herbert Hoover, a Republican responded to a recession with Republican strategies: smaller government, less spending, balanced budgets, thus causing the Depression.

Hoover, certainly deserves a generous share of the blame for the Great Depression, eleven years of economic misery and ruinous unemployment caused by the government.

But “belt tightening” was not Hoover’s sin.  As the upper chart shows, Hoover dramatically escalated federal spending.

Krugman implies that “belt tightening” made the Depression and unemployment worse when in reality Hoover made the Depression worse the same way Obama and the Democrats are making the current recession worse, with a spending surge financed by borrowing.

The lower chart of current era spending is eerily  similar to the Hoover model that kicked off a decade of economic misery.  The difference between Hoover and Obama is not that Hoover cut spending but that he increased spending by an even greater percentage than Obama, and the result for The People of the Thirties was 24% unemployment.

Astoundingly, in previous editorials Krugman said the high unemployment of the past two years resulted from Obama and the Democrats not borrowing and spending enough.  But had they come closer to the disastrous 1930s level of spending they might have achieved the disastrous 1930s unemployment rate

Obama’s proposed budget for 2012 calls for government to spend 25% more than in 2008.  His rationale is the same as was offered first by Hoover and again by the next President, Franklin Roosevelt:  Increased taxation and borrowing from the private economy to fund more government intervention into the private economy will – somehow – cause private businesses  to hire more employees.

The second Hoover myth is that he made the Depression worse by insisting  on balanced budgets instead of running deficits.  In the current issue of The Nation Economics Professor William Mitchell warns:

The Great Depression taught us that without government intervention, capitalism is inherently unstable and prone to delivering lengthy periods of unemployment. The Hooverian orthodoxy of balanced budgets, tried during the 1930s, failed.

But the real lesson taught by the Depression was that government intervention, from limits on crop production to drive up food prices, to draconian tax increases, scared away the investment capital that starts and expands job creating enterprises.

Once again the  actual data, displayed in the chart to the left contradicts the notion that  Hoover was guided by an “orthodoxy of balanced budgets.”  His last two budgets borrowed just under 60¢ of every dollar the government spent, more than either Roosevelt’s or Obama’s.

The third Hoover myth is that he refused to raise taxes on the rich.  The truth is Hoover inherited a top bracket rate of 25% and in 1932 he raised the top bracket rate to 63%.  So, the only Hoover policy Obama hasn’t yet been able to copy, but still promises to implement in the future, is an income tax rate hike.

The Bottom Line

The leftist folklore we’ve heard all our lives about President Hoover turns out to be disinformation.  His borrowing, spending and tax policies were the same as, not different from Roosevelt’s.  He helped cause the Depression not by shrinking government budgets but by radical expansion of government borrowing and spending.  ObamaNomics is a rerun of HooverNomics, and the results are similar to, if not yet as awful as the Depression: massive accumulation of government debt, mass foreclosures and high unemployment.

6 Comments so far

  1. Michael E. Newton on March 21st, 2011

    Great job BoomerJeff. And great charts!

    I wrote something similar 9 months ago. http://thepathtotyranny.wordpress.com/2010/06/10/113/ But your charts really add color.

  2. thousand flowers blooming on March 21st, 2011

    Hoover was a proponent of laissez faire, which had failed in 1929, plunging the nation into Depression. He never gave up on his blind loyalty to laissez faire ideology. FDR took over and installed some basic, common sense regulation over banks and corporations that were responsible for the tragedy.

    These Republicans are trying to cut investments in education! Education! How will it help the economy to have even more uneducated people?

  3. Bob C. on March 21st, 2011

    There is no point listening to Republicans. They are so out of touch their now saying the recession was caused by low income home buyers and not the greedy Wall Street corporations who got rich.

    Five retired couples on my street have lost their homes. They were the victims not the cause.

  4. Drew on March 21st, 2011

    “The leftist folklore we’ve heard all our lives about President Hoover turns out to be disinformation. His borrowing, spending and tax policies were the same as, not different from Roosevelt’s. He helped cause the Depression not by shrinking government budgets but by radical expansion of government borrowing and spending.”

    And so we have to ask ourselves a fundamental question. In light of the evidence, what are the real motivations of the left? Is it to help the Average Joe? Or create a Big Government at all costs, because the real motivation is to punish the “undeserving” well off, and to control peoples lives by “smart politicians.”

    And I would ask Bob C – even though his comment is bizarre and off topic – do you have the serial numbers of the Smith and Wesson pistols held by Wall Street execs to the heads of people who signed those mortgage agreements?? I’d like specific names and numbers. Not hallucinogenic musings…….

    As for TFB – anyone got a better example of an uneducated person??

  5. Jacob on March 22nd, 2011

    This is amazing information. Last week in US Economic History at CSU Fullerton we were told that Hoover cut spending so deep just when he should have spent more to create jobs. More liberal lies. We hear a lot of liberal lies here.

  6. Thousand Flowers Blooming on March 22nd, 2011

    The Hoover Admin­is­tra­tion and Trea­sury were dealt a bad hand but slow pol­icy response did exac­er­bate the Eco­nomic Slow­down.

    Unlike Her­bert Hoover, Obama passed Stim­u­lus Imme­di­ately and con­tin­ues to rec­og­nize that Gov’t Spend­ing curbs recession and has prevented a catastrophe like the 1930s

    And yes, the Republicans are trying to cut education. Drew the trust fund kid doesn’t understand the value of education. When your big problem is trying to decide where to spend daddy’s money on booz and caviar you dont need a lot of education.