Some myths never die. I sent this letter yesterday to the New York Times; it addresses only one of the many flaws in David Leonhardt’s article:
Suggesting that President Herbert Hoover followed laissez-faire policies, David Leonhart writes that “we can’t rerun the past year with a Hooverite economic strategy” to see what its outcome would have been (“Theory and Morality in the New Economy,” August 19).
No need to do so, for the past year was run “with a Hooverite economic strategy.” From Pres. Hoover’s 52 percent increase in government spending to his running the third-largest budget deficit then in U.S. history – and from his creation of the Reconstruction Finance Corporation to his signing of the Federal Home Loan Bank Act – Hoover’s hyperactive intervention nearly 80 years ago was not very different from Bush’s and Obama’s hyperactive interventions today. Hoover himself, campaigning for re-election in October 1932, bragged of rejecting the advice of “reactionary economists [who] urged that we should allow the liquidation to take its course until it had found its own bottom.”
Sincerely,
Donald J. Boudreaux
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Nothing gets under my skin more than people claiming that “we can’t sit here and do nothing, like we did when Bush was in office.”
Ask them from what planet they are from…
The Reconstruction Finance Corporation started 3 year after he was in office and the same for the Federal Home Loan Bank Act. Like wise spending was not increased until 1932 coincident with increasing tax receipts there after. The tax increase… also 1932…ALL 3 years after the onset of Coolidge’s Great Depression.
Hoovers actions or lack of, newspaper headlines and Hoovers own words suggest the claim he was an interventionist is mostly a convenient re-write of history.
“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.”
Herbert Hoover
March 8, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”
– Washington dispatch.
May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”
– President Hoover
June 29, 1930
“The worst is over without a doubt.”
– James J. Davis, Secretary of Labor.
Notice how muirbot takes a few selected quotes and ignores all the interventionism that Hoover undertook. What about the Smoot-Hawley act that Hoover enthusiastically pushed? I’m sure muirbot loved that!
It’s not so much blame to Hoover or not- that has already been assigned and will never be replaced. The interesting thing about the quotes from the others is the typical political optimism seen in war, recession, depression, tragedy. The worst is almost always “over” well before it is even underway.
My god! They sound a lot like the current administration.
muirgeo, I don’t know about that. In Rothbard’s America’s Great Depression, there is abundant primary source material to document what action was performed by the State on behalf of the people. Whether it worked or not is undiscoverable i.e. there is no way to know if things would have been better or worse had things gone differently. What is not in doubt is that alot of stuff was tried- even before Keynes sanctified it.
It is pointless to suggest such things to muirgeo. AGD by Rothbard is available as a free PDF document. But then to understand that book,, you need IQ above room temperture. I serioulsy doubt if he has got what it takes.
Muirbot – actions are louder then words. Under Hoover we got:
* massive increase in federal spending
* the Smoot-Hawley act which destroyed free trade
* wage controls
* Reconstruction Finance Corporation
* Federal Home Loan Bank Act
Basically in 1932 he ran as FDR-lite which is why he lost. America in 1932 wanted a full-on socialist, not someone who’s heart wasn’t totally in it. Muirbot is ignorant about American history.
I just told you those interventions did not occur until 1932 after he responded to public pressure for not doing anything except saying “recovery is just around the corner.
Smoot Hawley did not go into law AFTER his first year of presidency. Trade fell off as more from the Coolidge lead Great Depression which went world wide then simply the Smoot Hawley Act. Finally wage and price controls were all voluntary the first few years.
By all accounts if Obama is doing TOO much intervention then why aren’t we in a Great Depression again. We should be as bad as the post Reagan economy was set up for it but were are not. And that’s because the government intervened (not nearly as efficiently as it could have) and backed us away from the economic free fall we were about to enter.
Your theory suggest things should be worse this time around but they aren’t. Another part of the reason is because we have social security, medicare, minimum wage and the FDIC. IF we did nothing and had none of those safety nets you despise we surely would be in another Republican lead Great Depression as Coolidge and Hoover lead us into.
The facts just don’t line up with your claims.
You’re so sure it’s all over.
Actually, Muirgeo, you have no idea what you’re talking about.
Hoover was an interventionist from day one. As one of his biographers title her book, he was a “Forgotten Progressive.” I could quote you up and down about his distrust of the market and his willingness to use government to promote “cooperation” among nominally private owners. As others have noted, many of his interventions predate 1932, although his “Hoover New Deal” of that year was a huge set of interventions. But they were totally consistent with his whole history as a skeptic of the market and laissez-faire.
Harding and Coolidge hated him *precisely* because he wanted more intervention than they did.
Really, Murigeo, you should read some actual history of Hoover’s life and beliefs before you go spouting off like this. Historians, regardless of their politics, know all of this (e.g., David Kennedy – no rightwinger – gets it in his history of the Great Depression). You, apparently, are content to remain very noisy in your ignorance.
“And that’s because the government intervened (not nearly as efficiently as it could have) and backed us away from the economic free fall we were about to enter.”
an Obama true believer, clearly. Do you also believe in all the jobs that were “created or saved” so far? Do you believe magically that the stimulus that was absolutely necessary to save the economy from an irreversible death spiral, but has only been minimally spent so far, is what is behind whatever improvement has occurred? These are the notions of a religious believer in liberal policy, not an objective examiner of economic facts. Good luck.
That’s not true either.
“In the years before 1929 we know that this country had completed a vast cycle of building and inflation; for ten years we expanded on the theory of repairing the wastes of the War, but actually expanding far beyond that, and also beyond our natural and normal growth.
…
“I know something of taxes. For three long years I have been going up and down this country preaching that Government–Federal and State and local–costs too much. I shall not stop that preaching. As an immediate program of action we must abolish useless offices. We must eliminate unnecessary functions of Government–functions, in fact, that are not definitely essential to the continuance of Government. We must merge, we must consolidate subdivisions of Government, and, like the private citizen, give up luxuries which we can no longer afford.”
Franklin Roosevelt accepting the Presidential nomination of the Democratic party in 1932
During the election:
“Franklin D. Roosevelt blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs and blocking trade, as well as placing millions on the dole of the government. Roosevelt attacked Hoover for “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of leading “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, accused the Republican of “leading the country down the path of socialism.”
Professor:
As a longtime observer of journalists good and poor, why do you think a reasonably competent one like David Leonhart asserts the errors that you cited?
He probably learned his history in government schools.
An organization that makes students to sweat an oath of permanent fealty to it every morning is not likely to givean honest reckoning of the destruction it causes
That article is rife with errors through and through. The past three decades were not at all a “laissez-faire” economy, nor does this market collapse “indict” free markets and “vindicate” Keynesianism.
I just read the Leonhardt article and I have to say that I think it’s really good. Really good. It may not define ‘laissez faire’ in the way that we think of it but I think it does define such things as the general way the body politic does i.e. that what Bush-Greenspan-etc did was laissez faire. That’s not Obama’s fault, it’s Bush and co.’s fault for carrying the laissez faire mantle while meddling par excellence.
That is an excellent point. One thing you can’t accuse the mises crowd of, is cozying up to Bush and Company. Many other “mainstream” type “libertarians” were at fault for not only not criticizing bush administration for it profligacy, but also for keeping silence during his years.
Amid the unending cries of Bush the Murderer, Blood for Oil, Bush did 9/11, Bush Lied People Died, Darth Cheney, Bush=Hitler, etc., any rational criticism of Bush looked like praise.
Those are all fair descriptions of the Bush administration – except of course that he did 9/11, though I question the motives of the critiques. See how they are silent on the war issue? What happened to the anti-war left? Why are they silent? Isn’t BHO escalating the war in Afghanistan and Pakistan? I am pretty sure that in 2012, we will still have plenty of troops in Iraq, unless we go broke between now and then.
“Those are all fair descriptions of the Bush administration”
Bush exterminated 6 million Jews?
Bush exterminated “unfit” citizens as part of a eugenics plan?
Bush ruled his country as an absolute dictator through a merciless murderous police state?
Bush launched a war of conquest against his peaceful neighbors?
Bush invaded Iraq to get their oil when the much more oil-rich Saudi Arabia or Kuwait would’ve been easier conquests (not to mention Bush never got Iraq’s oil)?
Cheney was the cyborgic murderous psychic henchman of a world-destroying brutal emperor?
sandre, since you believe these absurdities, you are a quite simply a nut and a fool. War is horror, but you really need to get a grip when it comes to critiquing wartime leaders. Your hyperbolic idiocy diminishes the real evils–an effect which was the purpose of my original post to you.
I enjoy most all your letters to the editor, but this one is exceptionally good.
Didn’t Roosevelt accuse him of being a socialist?
Among the tactics implemented by the left is to use language and interpret events in such a way that people will develop the impression that socialism will save them from rule by an upper class.
Unfortunately, rulers are always an upper class, even if they arise from among the ruled.
George would have it that we can use political power to keep the wealthy from ruling, but has little to say about those ruling from using that power to become as the wealthy.
The only solution is to not be ruled. That of course is completely antisocialist.
That’s a really good point. And it’s interesting how that has become more and more subtle in modern versions of socialism.
Under Marx it was explicit: the dictatorship of the proletariat. Those taking power would excercise it dictatorially. It was really the most honest version of socialism – Marx recognized it HAD to be a dictatorship to do what it set out to do.
For some reason, that gets lost on modern socialists. I don’t understand why. You can still be of the mistaken view that “this dictatorship is best” and still recognize it as a dictatorship.
Granted, perhaps it’s not that it’s lost on modern socialists at all – I suppose part of the reason why Social Democrats differentiate themselves from Socialists today is that they do reject the means of achieving their ends. After all – it’s not like they’re being sneaky or hiding anything. In countries where there is a Social Democratic party there is also a Socialist party and usually a Communist party too.
The great service of Marxism to today’s socialism is it provides an absolute model of dictatorship to which modern socialism can contrast their “softer” despotism when mendaciously declaring their own commitment to individual liberty.
We have to be explicit abut what we mean by “socialist” (as DK has caused me to note):
Because the term “socialism” fell out of favor, the left tried on different guises. Terms such as “social democracy”, communitarianism, etc. were proffered to the public. They even went so far as to appropriate for themselves favored labels such as “liberal” and “progressive”.
Then there is Fabian Socialism, proponents of which wisely realized that outright socialism could not be foisted in toto on the public, but could, bit by bit, erode resistance by increasing dependency on government control of resources.
So now, we libertarians and fellow proponents of free markets have taken to call “socialist” any form of political control of resources, knowing that some influential advocates of socialist policies hold as an ultimate goal, the complete socialization of fundamental resources.
The demonstration of the inability of central planning by the collapse of Soviet Socialism and Maoist communism has led some smarter socialists to realize that the parasitical socialist administrative body requires a host to feed upon and the demonstrated success of market oriented economies has led them to believe that some sort of “market socialism” might be their ticket to power.
Unfortunately, the system is such that no one can really “control” it and the possible balance between socialist policy implementation and sufficient market functioning is always threatened by instability due to the delayed feedback of political interventions and bleeding letting the body politic known what kind of pressure they should bring upon their democratic representative.
Collectivization results in a poorly responding system due to the replacement of individual feedback with collective feedback. Hence collectivized systems tend to surge and lag, with the cycle bearing some relevance to electoral and generational cycles.
Longtime Socialist Party of America presidential candidate Norman Thomas:
“The American people will never knowingly adopt socialism, but under the name of liberalism, they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened.”
Here are some facts – Whereas government, in most prior recessions, have cut spending. First hoover budget was 10% over the Coolidge budget of 1930( which was halfway through when hoover tookover in March 1929). from 3.3 billion to 3.6 billion. Then he increased spending by 40% again next year to 4.7 billion, another 30% increase ( revenues were only 1.9 billion that year ), even putting Barack Obama to shame. Next year increased it to 6.5 billion another 40% or so increase. Do you know how much Roosevelt increased his spending next year ? it was negative, to 6.4 billion ( and that supposedly solved the crisis ).
It is a FACT that FDR ranted against Hoover’s profligate spending, only to rescind his campaign promises and stretch the great depression out to until he left office.
To label Hoover as laissez-faire, the Left deduces that because Hoover spent more in his last year than the previous years, he therefore took a free market approach toward the recession. Of course, as you pointed out, that notion is demonstrably factually false.
It is useful to have a measure of reference to determine when a policy is laissez-faire. What would a laissez-faire policy have been? It is hard to say, since the banking system was a major cause of the problem, and freeing the banking system was not likely to be achieved–which creates a context in which changes to banking regulation cannot be assessed as free market or not.
At the very least, however, one can say that a free market approach to the Hoover recession would have been large federal spending and tax decreases.
So, do the facts show that Hoover took a free market approach?
So, do the facts show that Hoover took a free market approach?
I’ll answer for Yasafi:
Hoover was eeevil, because he has that ‘R’ after his name. So, everything he did was eeevil. But those (same) things done by St Franklin of Roosevelt were Sweetness and Light, because St Franklin has a ‘D’ after his name. See how easy it is?
For example, Smoot-Hawley is eeevil, because Hoover championed it, and Hoover could only have championed it because he wanted to enrich his rich, greedy-capitalist friends. However, if Smoot-Hawley had been enacted in 1934, exactly as it was written, well then it would have been Sweetness and Light, because St Franklin’s motive would have been to help the little guy.
You guys would understand this if you weren’t such cheerleaders for GW Bush. Especially that Sandre guy.
Sincerely,
Yasafi
I don’t think anyone on this blog has ever been a cheerleader for Bush. It seems people confuse criticism of the current president as support for the previous president.
Who claims that the first budget of FDR solved the crisis?
Besides, a decline from 6.5 billion to 6.4 billion is what, about 1.5% decrease? Since the economy was shrinking by several percentage points, that’s actually an increase in the size of government relative to the economy, not a decrease.
Plus, as anyone who defends FDR and Keynes will tell you, the important figure is the deficit, not total government spending that you’re citing. Total government spending is irrelevant if it’s all covered by taxes. Stimulus is a result of deficit spending.
muirgeo and many other leftist partisan socialsts claims it.
Hoovers second budget would qualify as a record deficits. Revenues were less than 40% of the outlays. Keynes failed again. I know, when Keynesianism fails, it is because it was too small. If government precipitously cuts budget and doesn’t cause a “wage/price spiral”, it is because of “pent up” demand. Keep on spinning.
Mr. Leonhart is trying to build a case against a laissez- faire economy. To that end he has attempted to establish a false assertion as fact and then build an inductive case around it. This is the problem of inductive reasoning you must first accept the if and only if premis. In this case that Keynes is the “indespensble economist” , and that by growing the government,and spending well beyond our means we will lift ourselves out of this depression. There is no basis in logic, or for that matter in history that would lend any credence to either assumption..
What do you mean “beyond our means”? Do you think there’s a realistic chance we won’t be able to pay this debt off?
I understand if you don’t accept the Keynesian logic that it doesn’t work how he says it will work… but I’m a little curious about your characterization of the spending itself.
Let’s discount the Icelandic experience, or the one in Argentina. And assume we can still float paper ad infinitum. And then let’s look at the Pres. Clinton experience. When the government assumes an every growing position in the economy private industry is pushed further out. And the space that would otherwise be filled with a private co. is now a government entity. And as Pres Clinton discovered when he cut the deficit by sunsetting some government programs and consolidating or closing others is that a “black hole’ is created. That is the space that was formally occupied by these entities has now created a void. And a protracted recession insued, the longest in US history, characterized by deflationary pressures. Pressures created by the existence of a “black hole”. The same aggregate demand that was created by these make work jobs created a vacuum when they were shut down. And it took time before private industry could take up this space.
Private industry theoretically can exist forever, by definition government programs are only supposed to last until they have achieved their end. Unless you believe they are merely make work endless go nowhere programs that go on forever? You can’t have it both ways.
OK, well I’m not advocating make-work jobs, floating paper “ad infinitum”. I’m more curious about your standard for considering government spending growth to be “beyond our means” (unless you were talking about all consumption???). It seems to me by historical standards it is well within our means, isn’t it?
By 2050 government debt is projected to be 350% of GDP. How will we finance that debt? We are an aging society with unrealistic entitlements. It’s not brain surgery. We have to stop kidding ourselves.
“beyond our means” means expenses greater than income
Well then isn’t all debt “beyond our means”? Are you arguing for never going into debt?
Or do you mean a stream of income… in which case the current debt is not beyond our means by that definition.
Either way, I just don’t see it.
It seems to me that both Professor Boudreaux and David Leonhardt “buried the lead”. While debating the interventions of Hoover is interesting, I’m more interested in the suggestion, in a later paragraph of the Leonhardt article, that the rich be taxed more “to reduce their appetite for risk-taking”. First, doesn’t bailing out failed businesses INCREASE their appetite for risk-taking. Second, prudent risk-taking is what creates new businesses, new jobs, and new wealth – things we want to increase not reduce.
By the way, taxing a rich man’s “luxury carriages” is a SALES tax, which is much different than increasing INCOME tax rates on the wealthy. I think most economists would agree that these two types of taxes have vastly different effects. For a modern day example, contrast the economic condition of California with its high income taxes (and also high sales tax) to Texas with high sales tax but no income tax.
I think David Leonhardt has the mission of distracting attention from the task at hand. Has he yet written anything worthwhile?
Was Hoover’s “third largest deficit in U.S. history” an absolute deficit or a deficit as a percent of GDP?
It’s very very easy for presidents to acquire a “largest deficit/debt in the history of the planet” title because the economy keeps growing.
The important thing to look at is the debt or the deficit as a percent of GDP. I’m not claiming Hoover didn’t have an expansionary response to the depression – he did. But to say that he or Bush or Obama are unprecedented in any way is a little misleading. The only reason why the Bush or Obama deficits are scary is because we’re a bigger economy now than we have been. Relative to the size of our economy, “hyperactive” is not the adjective Don should have used for either Bush or Obama.
“The only reason why the Bush or Obama deficits are scary is because we’re a bigger economy now than we have been.”
Re Bush you may be correct. Re Obama, not so much. I believe this year’s projected deficit will come in behind only WWII-era deficits relative to GDP.
Yup – and close to WWI.
http://tinyurl.com/ntpmpn
Debt isn’t even close, though – it’s no contest. And of course debt is what we have to pay off, and nobody expects the stimulus or the TARP to be permanent. This is the first time we’ve really had a recession where strong pump-priming has been appropriate since the depression, though. And in the depression, that idea was so novel that they didn’t really do much substantial pump-priming until we entered the war (inadvertant Keynesianism).
“Pump-priming” has no instances of having been an effective economic policy ever. It would appear that you agree with the likes of Krugman who acknowledge FDR did not end the Depression, but claim that is only so because he DIDN’T SPEND ENOUGH!! This, to anyone but a dyed-in-the-wool Keynesian, is ludicrous. WWII also did not end the Depression – massive deficit spending to “employ” 12 million soldiers and coopt virtually the entire industrial economy does not constitute an economic recovery. There is so much good literature out there on this now that no doubt you are aware of it; apparently you haven’t taken the time to read up, or you didn’t understand it.
If you don’t expect virtually all of the stimulus package to be made permanent, you haven’t noticed how Washington works. Since it wasn’t really a stimulus package anyway, the fact that stimulus is not “necessary” (it never was) will not prevent all that pork from being carried over. Very soon there will be some other rationale for maintaining virtually all of it; heck, what better rationale could there be than, “It worked! We can’t cut it out now and risk another crisis!”
“The likes of Krugman” – yes, what a terrible person to be associated with. I suppose it is, here.
You do hit the nail on the head, though – military spending did what the New Deal couldn’t quite achieve (or was hamstrung in achieving by Smoot-Hawley and other bad policies).
They are not Bush or Obama deficits, they are Congressional deficits.
Granted, Congress is bending over frontward to give The Won everything his little fascist heart desires, but Obama can’t spend it until Congress gives it to him.
That’s a good point to always remember. It is up to the President to propose the budget for the executive branch that he manages, but Congress is never under any obligation to accept any of it. Under the CotUS, Congress ALWAYS has 100% responsibility for Federal budgets.
The Gop has now come out with a bill of rights for seniors,to further enshrine medicare,how long will they wait until they come out with a bill of rights to enshrine medicare and social security?For those of you out there who think conservatisim or the Gop is your only hope i implore you to look else where,Becoming an independent is a good start.The gop and the dems are same in principle.I used to be a conservative but there were to many contradictions,mixed in with religion which leads to altruism,which leads to big govrnment.
The chickens have come home to Roost,thanks to both parties,each trying to collectivise us,one at the speed of sound,the other of the speed of light.
I concur about the GOP being a major disappointment vis a vis conservative or limited government principles. I am encouraged that they may to some extent be seeing the light, the Seniors Bill of Rights notwithstanding. Nonetheless, they are light years better than the Democratic Party on virtually every issue. Politics, it is said, is the art of the possible.
About religion, though, I can’t agree with you. I am a devout Catholic, and my religion does not dictate my political positions at all. Altruism belongs in the private sphere. If one is coerced into giving money, it is not charity, and it is not compassion.
You are wrong the gop and the dems are essentially the same in principle.
The fact that I left the Bush=Hitler part in that list is because I didn’t read that part carefully enough. Not because I thought Bush and Hitler are absolute equals. But I don’t think it is far off the mark.. Now, we have people with BHOs pictures with Hitler moustache going around townhalls – as far as health care is concerned, BHO’s error is theft, whereas Bush’s error is empire and murder. As far as a million iraqi’s killed in the Iraq war is concerned, it is a scaled down version of Hitler.
Saudi Arabia would have been a much more justifiable target than Iraq, given that an overwhelming majority of the 9/11 attackers were Saudi citizens. But then the Saud family are american puppets hated by most Arabs, which could be one of the reasons why large number of terrorists in general come from Saudi Arabia ( including Bin Laden ). We already had troops in Saudi Arabia, why attack them when there is a better, unfriendly target in Iraq?
Iraq war was a murderous war, what ever the motivations. Regardless of what Naomi Klein says Milton Friedman was against the Iraq war.
“Not because I thought Bush and Hitler are absolute equals. But I don’t think it is far off the mark.”
Once you decide to crack open your first book on the Third Reich, you are in for some horrors that you obviously cannot even imagine. At least I hope. Because either it is extreme ignorance on your part, or it is the more disgusting possibility that you are deliberately downplaying what happened under Hitler.
Obama is not even remotely like Hitler in any of the ways that Hitler had distinguished himself. Neither is Bush W, Clinton, Bush HW, Johnson, Truman, FDR, Wilson, or Lincoln.
Hitler analogies not only serve to diminish Hilter’s evil, but also the real evils committed by those men.
BTW, have you ever worn brown? Because, you know, Hitler wore brown sometimes.
Wow – usually the hyperbolic mistake is to compare one or the other to Hitler: and both attempts are stupid and worse they trivialize Hitler’s victims.
You don’t often hear BOTH compared to Hitler.
A second here.
I think the debt is the single most pressing political challenge of our time. But the contributors to the current deficit are wholly unrelated to the reason why debt is projected to be that high.
Sure it is ,it’s the government.
Under what circumstances would being associated with the likes of Krugman be considered a compliment? Please don’t cite his Nobel, awarded for ancient work which has no relation to the pap he peddles now.
Please note I have appended my comment specifically to refute your claims about military spending. The New Deal was hamstrung by the New Deal. It was nothing but bad policy on top of bad policy, combined with FDR’s neo-socialist attitudes toward private enterprise which crushed investment for the entire duration of the Depression (until 1946, that is). Yes, Smoot-Hawley was bad, as was the Fed’s policy for a short while, but these considerations in no way exonerate FDR for having extended the Depression by several years.