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Herbert Hoover was an awful president. He caused economic disaster. Everyone agrees on that. Beyond that, many seem to argue he caused disaster by what he didn't do. In other words, he was a free marketeer who wanted to just let everything run its course, and that's how we got economic disaster. In reality, he was largely an interventionist, and the problem was caused by much of what he did.

John Nance Garner, FDR's running mate, said Hoover was,

leading the country down the path of socialism

and FDR accused Hoover of

"reckless and extravagant" spending and for thinking "that we ought to center control of everything in Washington as rapidly as possible,"

Source: FDR's Disputed Legacy, P. 4

FDR and Garner were largely correct, for the following reasons:

  1. Smoot-Hawley Tariff Act: Passed in 1930, it raised tariffs a fixed number on certain items, not by a %, but by a $ amount. The argument was tariffs would force people to buy more things made domestically, and solve the unemployment problem. The problem is, trade is a two-way street, by definition. When we enact tariffs, consumers lose (higher prices, and less money to spend on other things), the company the consumer would have bought from with that extra money loses, the workers of that company therefore lose, the foreign exporters lose from less business (obviously), and the American exporters whom the foreign exporters (or people in that country) would have bought from lose. Exports and imports are directly related; if one goes up, the other goes up, and the other way around. Just as we stopped buying their products, they stopped buying ours, which not only exacerbated unemployment, but continued directing our capital and labor to uses less efficient than if we had open trade. That alone makes Hoover an interventionist, but he did more
  1. Subsidy programs. In just a year, he increased federal government spending as a % of GNP by a whopping 5.1% (and ran a $2.2 billion deficit. $31.36 billion in today's dollars). The Agricultural Marketing Act established subsidies to stabilize crop prices, the Reconstruction Finance Corporation gave billions more in subsidies. When these subsidy programs were not working, he doubled, redoubled, and expanded them; see Emergency Relief and Construction Act

Subsidies, by their very nature, take money from what people value more and put it toward what people value less (excluding positive externality subsidies). When people do not buy from somewhere, they are sending a message: you're wasting resources. Sell us what we want, or get out and someone else will. To subsidize the company wasting resources is to prevent capital and labor from going to more efficient uses.

Rex Tugwell, one of the New Deal's architects said practically the whole New Deal was

extrapolated from programs that Hoover started

Other source for 2: A History of the American People (pages 740-1)

  1. Revenue Act of 1932: A huge tax increase, increased the top bracket from 25% to 63%. The estate tax was doubled. A 13.75 tax was put on corporations' net income.

Much is talked about taxes reducing productivity, and in counter, much is said about no one refusing extra money because of the tax bracket they will enter. They are both true. If, saying the top rate was 65% for simplicity, I was given a $1,000 raise when in the top bracket, I'd accept it, because I'd still have $350 more. That only applies to situations when the money is guaranteed. An example that applies less: would I be willing to work longer to get $1,000 more but only keep $350 of it. Is the extra sweat that produces $1,000 more worth it if I only get $350? That is hard to decide

Then the next degree, we have the question of risk. If I wanted to start up a new company, or invest in a company and help create jobs in it, would I be willing to risk my time, money, and energy, if I have to bear 100% of the losses, but only get 35% of the return? In those cases, the money is uncertain, and I likely would not make that investment when I would have if I got to keep more of the return. When reducing returns without reducing risk, we end up with less investment.

Hoover was not a free marketeer. He was an interventionist, he caused the economic disaster with much of what he DID.

Originally posted to The Silent Consensus on Thu Mar 11, 2010 at 06:37 PM PST.

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Comment Preferences

  •  "Dam" nice to be remembered... (1+ / 0-)
    Recommended by:

    if alive today he might say.

    " It's shocking what Republicans will do to avoid being the 2012 presidential nominee."

    by jwinIL14 on Thu Mar 11, 2010 at 06:43:21 PM PST

  •  It must be getting late... (1+ / 0-)
    Recommended by:
    Alice in Florida

    When I first glanced at this, I saw "Hooter" and "Free"

    Then the correct diary title appeared when that moment from the glance went away...

    Anyway, the next question is (in regard to the content), what should he have done instead? Reaganomics?

    Also, if the ND was an extension of Hoover's policies, then, under today's guidelines (given to us by the lamestream media), shouldn't Hoover be given credit for that as well?

    •  Answers (0+ / 0-)

      What should he have done instead? Well, definitely not enacted tariffs, which would have reduced the argument for the subsidies (the wheat and cotton farmers were being wiped out by the tariffs), and not imposed taxes either. I think Reagan was awful too.

      I would have suggested tax cuts and spending cuts (Reagan increased military spending while enacting tax cuts, bad idea) while keeping the budget balanced, on the fiscal side. On the monetary side, I would have stopped toying with interest rates and allowed them to reflect people's time preferences

      Much of recessions are caused by the liquidation of malinvestments, which are usually caused by an artificially low interest rate (make certain investments seem economical when they are not). As painful as letting a recession run its course can be in the short term, we are best off doing that. Letting it run its course gets the malinvestments out of the economy and allows capital and labor to move to more economical uses. Similar to a crash after a caffeine high: we are better off letting the crash run its course so we can be back to normal later, than if we tried delaying it with more caffeine.

      As for the New Deal, he should be given credit for it, but it's not something to be proud of. The economy was no better off after the New Deal than before, and actually, much of the recovery began when the biggest parts of it were struck down (NIRA and AAA), and the Revenue Act of 1945 reduced taxes.

      •  That's simply not true (3+ / 0-)
        Recommended by:
        wytcld, yella dawg, sulthernao

        25% unemployment under Hoover vs. 10% unemployment as the New Deal programs were put into place. While it did not solve the problem entirely, it was certainly a vast improvement. Unemployment spiked up when FDR started cutting spending and increasing taxes in a premature attempt to balance the budget in 1937. Indeed, what finally ended the Depression was the massive military spending increase, which actually dwarfed the New Deal in terms of scope and dollars spent. After all, what was the military buildup buy Keynesian economics on a massive scale? Balancing the budget is a good thing to do in times of prosperity. It's a foolish idea when the economy is in recession or depression. The money has to come from somewhere. Individuals and corporations don't have the cash to invest during a depression. States and localities don't have the money (as they're required to balance their budgets). Who else but the Federal government can bring influence to improve the situation?

        •  Point by point (1+ / 0-)
          Recommended by:

          The unemployment numbers are misleading. What else is going to happen when you remove a great number of those currently unemployed and send them to war?

          When FDR increased taxes as high as 90%, no wonder unemployment spiked. As for cutting spending, money and jobs don't come from the tooth fairy. The money spent on those jobs was acquired first from individuals, and we don't see where those jobs would have been had the money been left in individual hands

          As for WWII spending, no it didn't. That is another myth. Destroying people and resources doesn't improve the economy. Trade was reopened during that time, and that's what helped. Keynesianism leads to worse situations in the long run

          As for balancing the budget, Ireland tried what you are suggesting for decades, and it didn't work. The economy started rapid growth when they began cutting spending and taxes.

          As for individuals and businesses not having the cash, unless they're hiding it all under their mattress, the money is in the economy somewhere. If they are saving, they are making the money available for investment. Just because people aren't consuming now doesn't mean they will not consume in the future. In fact, people save now so they can consume more in the future. This provides opportunity to invest in earlier stages of production (raw materials, manufacturing, etc...).

          •  Dude..FDR came into office with high unemployment (2+ / 0-)
            Recommended by:
            yella dawg, Notus


            90% top marginal tax rate was on the richest of the rich...I agree it's not effect policy, but it also didn't cause the unemployment.

            FDR really wanted to balance the budget so he increased spending but also increased taxes. While technically, this increases GDP, you are right that a 90% top marginal tax rate isn't productive or revenue generating. That being said, it was not the cause the unemployment. END OF STORY.

            The New Deal program worked...or why else would there be a spike in unemployment and GDP in 1937? The Great Depression was also over regardless of WWII.

            •  It did help cause (0+ / 0-)

              unemployment. That money, if not taken by government, would have been spent or invested elsewhere, and created jobs those ways. Now end of story.

              As I said, the unemployment stats are misleading. As for GDP, it's also misleading. I know I'm being unconventional when I say that, but it's true. If, for example, the government is going to buy 1,000,000 eggs, and set the price for $12 each, that's $12,000,000 for the GDP, but I would not say that's good for the economy. Much of that happened during FDR

              If you are going to argue for New Deal working, try something other than the "after this, therefore because of this" logic

              •  MULTIPLIER, MULTIPLIER, MULTIPLIER (2+ / 0-)
                Recommended by:
                yella dawg, Notus

                plus it was deficit spending and was basically an injection of G into Y=C+I+G+X.

                Seriously...the markets weren't clearing during the Depression and the was deflation. The government injected demand into the system. If that means buy crops from farmers just so that they would throw it the garbage, so be it.

                You can't seriously be arguing that the New Deal was "bad for the economy" because it was the Government effecting markets....

                •  It was bad (1+ / 0-)
                  Recommended by:

                  the multiplier is the wrong focus. The only reason we had deflation was we had massive inflation (not rise in prices, but massive money injected) leading up to it. We're better off letting it run its course, even though it's more painful in the short term, it's like caffeine. Let the crash run its course and get the junk out of your system, or face a worse crash later

                  As for increasing aggregate demand, government spending doesn't increase aggregate demand (broken windows fallacy) but you don't better the economy by expanding aggregate demand. Wants and needs are unlimited. Amount of stuff is limited. Increasing the amount of stuff (that people want) betters the economy.

                  Government has no resources except that which it takes from people. It only shuffles resources around, it doesn't create them

                •  I forgot to address (1+ / 0-)
                  Recommended by:

                  deficit spending. Deficit spending is not free money. If the money is borrowed, it's reducing the availability of loans for private investment. If printed, it's devaluing everyone's money.

              •  No, this is 90% bracket on personal incomes (1+ / 0-)
                Recommended by:

                This is not money that's being reinvested into the economy. Now, I'd agree with you if we'd taxed everyone at a 90% tax rate, that would probably destroy the economy. But the vast majority of people, who put money into the economy, were not taxed anywhere near that.

          •  The 90% tax bracket.... (0+ / 0-)

            ....which in reality didn't take 90% of income, applied to very few Americans, so it wasn't going to have a net negative economic effect.

            When we sent soldiers to war, we were paying them wages and our massive arms buildups opened good factory jobs for people. My great-grandfather was doing okay working as a butcher during the Depression, but then, his son, my grandfather, got a factory job making 45% more than my great-grandfather. Essentially, the military buildup and war effort was a massive employment program. Now, I don't advocate a war economy and, in fact, I support big cuts in military pork, but I do support big jobs programs. We weren't destroying people or resources here, that was the Civil War. We certainly tore up much of Asia and Europe, but this country was almost completely untouched, save for Pearl Harbor.

            Frankly, there are some situations that private industry is not equipped to handle. One of those situations is an economic depression. I think we'd be better off under an anarchy, but since that's not about to happen, I'll support social democracy.

            Also, without a decent welfare state and other social democratic programs, we sow the seeds of extremism.

            •  Simple fact (1+ / 0-)
              Recommended by:

              Government is not the tooth fairy, or Santa Claus. Government has no resources, it only has that which it has taken from everywhere else. Government spending, with jobs, amounts to zero, at best. Usually it amounts to less, because instead of spending it based on economic calculations, they are spending it based on political calculations.

              Take a read of the broken windows fallacy. I don't mean what Giuliani supposedly did with New York, I mean the economic fallacy.

              As for who that tax affects, irrelevant. That money was now not going to be spent or invested, and we don't see what jobs those two activities would have created with that money left in private hands, so we ignore it, to a fault

      •  Smoot-Hawley (0+ / 0-)

        was a Republican bill passed by the Republican Congress that Hoover faced.  Hoover was a Democrat who decided to run as a Republican for political expediency.  I expect Hoover did not really want to sign the S-H bill, but did so also for political expediency (he wanted to get several progressive measures passed into law).  Much of the New Deal is, indeed, attributable to Hoover.  He just couldn't get it through the GOP Congress (Senate only the second half of his term).

  •  While it's true.... (2+ / 0-)
    Recommended by:
    Notus, sulthernao

    ....that Hoover dipped his toe into Keynesian economics, it wasn't nearly enough. It wasn't until FDR realized just how serious the situation was and brought about the New Deal did things start getting better.

    •  I like FDR (1+ / 0-)
      Recommended by:

      Having said that, it didn't happen that way. Focusing exclusively on the New Deal, it actually made the problem worse:

      1. Minimum wage: priced the youngest, least experienced, least skilled, and least advantaged out of the market
      1. Agricultural Adjustment Act: Higher taxes and higher prices on food
      1. NIRA: Increased cost of doing businesses an average  40%. Industrial production dropped 25%. Actually, factory employment and payroll increased around that same amount leading up to the act taking effect
      1. Tax increases even more, top bracket to 90%
      1. CWA and WPA: moved jobs from productive to subsidized jobs
    •  FDR had the benefit of letting the Hoover (4+ / 0-)

      depression get a good head of steam before taking office. In Obama's case, the blowout had only begun when he was elected, and the populace hadn't time to realize who was responsible.

      FDR had 3 years of allowing the people to see how the Republican party responds to a bursting bubble, which is basically a policy of denial.

      In some ways, I wish that the economy had bottomed out a year earlier than it did, but another sense tells me that it only crashed at all because Wall Street understood early in 2008 that McCain was not going to prevail in November, and decided to go "all in".

  •  Disagree (0+ / 0-)

    Coolidge caused the economic disaster.  Same cause as the current economic disaster - fraud in the finance industry.  Hoover merely didn't help.  Not sure why he signed the Republican Smoot-Hawley bill.

    •  The Fed (0+ / 0-)

      during the Coolidge years caused the disaster, with the rapid money expansion (analogous to a rapid caffeine ingestion), then the big money contraction

      •  The Fed, the gold standard, the run on the banks (2+ / 0-)
        Recommended by:
        yella dawg, FG

        are all cause the Depression.

        1. The Fed didn't know what it was doing. Just to clear up what you are saying: The Fed expanded to create a bubble and then had a huge contraction during the depression that made it what was a recession into a "depression."
        1. The gold standard and its effects on the money supply was another cause of problems. Many economists note that FDR freeing us from the gold standard helped alleviate the depression.
        1. Runs on the banks caused them to completely fall down. Since we are on a fractional banking system actual cash for money holdings doesn't exist. Lack of financial safety absolutely prolonged the depression.

        Coolidge is definitely a main culprit for the Roaring 20s bubble. Hoover gets a bad rep, but most of the financial undoings happened under Hoover. Hoover, perhaps limited by his time, just didn't act - making a recession into a depression.

        •  I'm against gold standard (0+ / 0-)

          but, getting off it was not a help against the depression. It allowed for more caffeine highs, and therefore caffeine crashes. Part of the financial insecurity was caused by the confiscation of gold

          I don't have a dispute for your other points

          •  Are you an Austrian? (0+ / 0-)

            Because you keep repeating the "caffeine high" ala

            But the point is monetary contraction during the depression just made it worse. That was a problem with the Gold Standard as foreign entities started to claim gold lowering the countries monetary supply.

            •  Some of my ancestry (1+ / 0-)
              Recommended by:

              is from Austria. But no, seriously, I ascribe to the Austrian School more than to any other economic school. I break with the Austrian School mostly on the Gold Standard (I'm for government printing money, only for population growth, and spending it directly into circulation), and on Pigovian taxes (I'm for them)

              I agree with you about the contraction making it worse. Similar to holding a shark by the fin: holding on is unpleasant, letting go is worse

        •  actually (0+ / 0-)

          I do on your Hoover point. Hoover made the situation worse, by what I said in my entry

  •  Trade Was Only 7% of the Economy Then nt (2+ / 0-)
    Recommended by:
    Nimbus, yella dawg

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Thu Mar 11, 2010 at 07:12:43 PM PST

  •  Logical Fallacy alert! (1+ / 0-)
    Recommended by:
    metal prophet

    You are making the assumption that the riskiest investments are the best investments for society and our present economic problems refute that idea.

  •  Why did you miss his refusal to leave gold (0+ / 0-)

    standard? That was a huge thing.

    •  I'm against the gold (0+ / 0-)

      standard, as I said before on here, but leaving the gold standard did not help matters in the context of the Depression

      •  Not sure if it's true. Recoveries usually (0+ / 0-)

        started earlier in the countries that left gold standard earlier. For example, Britain left GS in 1931 while France did so only in 1936. Britain recovered much faster.

        •  After this (0+ / 0-)

          therefore because of this?

          Explain why that would happen?

          •  If there are multiple examples, correlation is (0+ / 0-)

            meaningful. See graph:


            You can explain it by saying that fiat currency allowed more government spending.

            •  Allowing more government spending (0+ / 0-)

              would have made the situation worse, not better

              •  I guess we have a fundamental disagreement here. (1+ / 0-)
                Recommended by:
                yella dawg
                •  It's not a "disagreement" (0+ / 0-)

                  it's facts. Government has no resources except that which it first takes from someone, and spends them with political considerations, while individuals are likely to economize

                  •  It's applying microeconomic principles to (0+ / 0-)

                    macroeconomics. During the recession all citizens begin saving money at the same time and it leads to a huge crash. In the end it will indeed return back to normal but it's going to be less painful to everyone if the government steps in in the interim and minimizes the extent of the crash. 'Rottenness' gets purged out of the system anyway so no need for particularly severe recessions to do that.

                    •  Actually (1+ / 0-)
                      Recommended by:

                      The recession IS the purging out rottenness. Government intervention just delays the inevitable.

                      As for saving money, that's fine. Savings indicates people's time preferences. People's time preferences indicate what part of production is best to invest in (if savings are low, best to invest in retail or wholesale. If savings are high, best to invest in raw materials, or manufacturing). People increase savings now so they can consume more later than if they had not increased savings.

                      When people buy less, they are telling certain retailers their services are no longer needed, because consumers have changed their preferences. Government intervention would be taking money from consumers and giving it to those failing retailers to "prevent unemployment" when we'd be better off if the retailer found work elsewhere

                      •  Ok, I think you're the only proponent of ABCT (1+ / 0-)
                        Recommended by:
                        yella dawg

                        on this site. Obviously, I think this theory is wrong but I have no desire to have an extended argument about it. I have to mention though that Hoover's treasury secretary (Andrew Mellon) was a proponent of it so saying that Hoover was completely against it is not quite right. Although to be fair Mellon was a Coolidge holdover. This quote: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." sounds pretty much like what you're saying.

  •  Aslo... (0+ / 0-)

    ....quoting John Nance Garner is not exactly a liberal perspective. He was basically a conservative Democrat and eventually split with FDR over the New Deal. He was replaced by the far more progressive Henry Wallace, for two terms, and then the moderately lefty Truman for the fourth term.

    I did like Garner's line about the Vice-Presidency not being worth a pitcher of warm piss, though. That good Texan wit.

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