Hoover and DeLong

by Russ Roberts on August 4, 2011

in Stimulus

Brad DeLong points out that Hoover vetoed increased spending on veterans in 1931, then Congress overrode the veto. So Brad asks:

If Congress in 1931 passes a large benefit program for war veterans, and if Hoover vetoes it, and if Congress overrides the veto, and if the money is spent, does Hoover increase spending?

The title of DeLong’s post is “Fiscal Policy During the Great Depression.” Which is what I’m interested in. I’m interested in what happened to overall spending, not in cherry-picking one episode where Hoover vetoed one particular spending increase. Brad is right in that Hoover is not completely responsible for what happened to spending during his watch. It would be interesting to see how eager he was to increase spending. But there is the independent question of what happened to spending at the onset of the Great Depression. The myth is that spending went down. What actually happened is that spending went up between 1929 and 1933. As I wrote before:

Here are the levels of federal government spending (from here, Series Y 457-465) between 1924 and 1934 in billions of dollars

1924 $2.9
1925 $2.9
1926 $2.9
1927 $2.9
1928 $3.0
1929 $3.1
1930 $3.3
1931 $3.6
1932 $4.7
1933 $4.6

Hoover took office in March of 1929. FDR took office in March of 1933. The data on spending are fiscal years, that ended in June 30 for this period. So Hoover’s budgets are roughly 1930 through 1933. Of course you have to correct for inflation. Or deflation as the case may be. In those years it was deflation. Prices of government purchases of goods and services (from here, Table 41) fell between 1930 and 1933 by roughly 10%. So Hoover actually increased spending by over 50% in real terms.

I wrote loosely. I should have said government spending increased 50% in real terms during the Hoover Administration. He did not single-handedly raise spending. He needed Congress to do that, and as DeLong points out, sometimes he opposed spending increases.

Brad uses this chart to look at Hoover and fiscal policy:


The implication of the chart is that there was fiscal stimulus in 1931 despite Hoover–the red line shows what happened and the blue line what would of happened if Hoover’s initial veto had not been overridden. There are two problems with the chart. The first is that no source is given for the data so I cannot uncover why the numbers conflict with the numbers I give above. Second, the numbers are in nominal terms, they are uncorrected for changes in the price level. As I pointed out above, there was serious deflation.

I cannot help but note this wise observation about bloggers who don’t correct nominal numbers for inflation (or deflation).

And as I have written in the past, I am happy to find out that the numbers I cite aren’t the right ones for some reason and will post any corrections that show, corrected for changes in the price level, that fiscal policy was contractionary (according to the standard interpretations of government spending) during Hoover’s Administration. But the numbers I see show the opposite.

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{ 17 comments }

John Hall August 4, 2011 at 4:08 pm

It’s fairly simple to get the real numbers for total government spending (though not so easy for Federal since the BEA in their infinite wisdom does not make breakdowns available for chained data 15 years before the base on the chained series):
http://research.stlouisfed.org/fred2/series/GCECA/downloaddata?cid=107

1929: 146.5
1930: 161.4
1931: 168.2
1932: 162.6
1933: 157.2
1934: 177.3
1935: 182.2

So Federal+State -2.6% during Hoover administration.

Russ Roberts August 4, 2011 at 4:22 pm

Nice. I’m hoping to do a post soon on Fed+State+local in the current situation.

LowcountryJoe August 4, 2011 at 4:10 pm

Oh, well now that changes everything! Finally a Lefty wants to not ascribe spending level [maybe even economic health] to the president. Hey, Brad, does this mean you’ll start pinning the bailouts and the economic health of the United States on the 2007-2011 Democratically controlled congress?

Henri Hein August 4, 2011 at 4:15 pm

I don’t believe you can reasonably adjust for inflation that far back. Any attempt to adjust for inflation is going to introduce way more uncertainty than disregarding it will.

Didn’t we just have a discussion about how CPI is overstated? I realize we don’t use CPI to measure inflation that far back, but if we cannot trust CPI, why should we trust other measures of inflation?

Henri Hein August 4, 2011 at 4:16 pm

or deflation.

Bill August 4, 2011 at 4:56 pm

If you were comparing between 2011 and 1931, I would agree that there is a lot of uncertainty in the calculation. Calculating the effects between a narrow band (1929 to 1933) is a different story. If you do not adjust to real dollars, you risk confusing the roles that fiscal and monetary policies played during the GD.

Henri Hein August 4, 2011 at 6:34 pm

I’m not convinced. We don’t have as much data from 1929-1933 to try to make that adjustment. By introducing the inflation/deflation issue, you just shift the debate to what a reasonable measure of that is. Whenever a number does not agree with your theory, you can just go back to your inflation/deflation assumption and modify it until it does.

Ari August 4, 2011 at 7:13 pm

I’ve always taken the position that you should use nominal dollars when you’re talking about the time before the federal reserve started routinely inflating the currency (IOW, before Nixon was President). I think before that time, changes in the general level of prices were indicative of real changes in the economy that should not be abstracted away.

I thought that was the Austrian position on inflation.

Craig August 4, 2011 at 8:28 pm

“I think before that time, changes in the general level of prices were indicative of real changes in the economy that should not be abstracted away.”

The Fed inflated throughout the twenties. Unfortunately, we have to take it into account as best we may.

brotio August 4, 2011 at 10:58 pm

no, No, NO, NONO, UNO!!!

Hoover was a Reeplubican, and is there for eeevil personifiyed! It duzn’nt mattor that he increesed spending. He’z a Reeplubican! Whut yew dew izn’nt as importunt az whut party yew arr affeiliatud with!

Singed,
Yasafi Muirduck: Deefendur of the Progressive Faith!

J Mann August 5, 2011 at 10:03 am

It’s a shame that DeLong deletes critical comments, since I would seriously appreciate some clarification from him. I honestly don’t know what point he’s arguing for, and I would like to.

1) There’s a common belief that Hoover cut spending during the depression and/or ignored the depression, and that this made problems worse. I think even DeLong would agree that that belief is technically false, although he might quibble with whether people believe it.

2) DeLong seems to be arguing that Hoover tried but failed to restrain spending, or that he gave speeches about cutting spending that did not ultimately result in policy. Is DeLong arguing that Hoover’s statements and overridden vetos contributed to the depression, or is he just objecting to people giving Hoover too much credit for the real spending increases that occurred during his watch?

Ryan Vann August 7, 2011 at 10:25 am

DeLong himself probably doesn’t know what he is on about; he is just going into shill hyperdrive mode.

jonathan August 16, 2011 at 1:57 pm

I don’t think it is a mystery what DeLong is responding to. This is one of a series of posts in response to Megan McCardle.

Here is another one:

http://delong.typepad.com/sdj/2011/07/what-was-herbert-hoovers-fiscal-policy.html

Sean August 5, 2011 at 1:03 pm

Increased spending to what end? Where were those spending dollars going? Were they going to stimulating economic growth, i.e. small business, job creation, tax incentives, trade incentives? It absolutely begs the question, inflation or delation, was the spending productive? No doubt, Gov. spending increased during the FDR regime, but it was already at the onset of WW II and the economy would have rebounded as a result. Howevre, in absence of a World War, FDR’s economic and job programs would have fizzled fast, as they were only short term stimuli.

Warren Smith August 7, 2011 at 12:46 pm

If the Hoover Administration was using counter cylical spending as early as 1929, does this mitigate the impact of Keynes’ General Theory (1936) on the economy?

Warren Smith August 13, 2011 at 8:26 am

When Franklin Roosevelt first ran for president he still echoed (Adam) Smith. “Let us have the courage to stop borrowing to meet continuing deficits,” he said in a radio address in July 1932. “Revenues must cover expenditures by one means or another. Any government, like any family, can, for a year, spend a little more than it earns. But you know and I know that a continuation of that habit means the poorhouse.”

http://www.american.com/archive/2009/september/debt-be-not-proud-the-sorry-tale-of-america2019s-out-of-control-spending

Warren Smith August 18, 2011 at 11:44 am

Re Rachel Maddow:
I posted following to CoordinationProblem. Blog.
I felt that it might interest you in light of recent postings concerning Hoover deficit spending and Maddow’s love of FDR.

“Ms. Maddow’s TV promotional has her hard hat clad, standing at the base of Hoover Dam and extolling the granduer of the project as an undertaking of national significance.
In 1928 Mr. Coolidge signed the project legislation into law.
In 1931 Mr. Hoover began the construction.
Environmentalists abhor damning wild rivers, in particular the Colorado.
Could Rachel have picked a worse symbol for her argument?”
Youtube:
http://m.youtube.com/index?desktop_uri=%2F&gl=US#/watch?v=s0gNga6v9EY

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