Economics

Repeating the Hoover Mistake: Paul Krugman and The New Republic

Paul Krugman once wrote a column called “Fifty Herbert Hoovers,” in which he blasted state governors for cutting spending during a recession. “No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession,” Krugman wrote. John Judis, in his cover story for The New Republic, recounts what he believes is a gotcha moment on the campaign trail with Mitt Romney in which he said to the candidate:

I want to ask you something about history. You know, when Herbert Hoover had to face a financial crisis and then unemployment, his strategy was to balance the budget and cut spending, and that made things worse. When Roosevelt came in, unemployment was twenty-five and went to fourteen percent by 1937. With deficits. Aren’t you repeating the Hoover mistake?

But as Tim Taylor points out, the only “Hoover mistake” being repeated is by folks like Krugman and Judis who apparently aren’t aware of what Hoover did while in office:

Hoover’s budget strategy over his term of office was not to balance the budget. The budget ran a small deficit of 0.6 percent of GDP in 1931, followed by a much larger deficits of 4.0 percent of GDP in 1932 and 4.5 percent of GDP in fiscal year 1933 (which, as Judis points out at a different point in his discussion, started in June 1932 and was thus mostly completed before Roosevelt took office in 1933).

Taylor puts the matter plainly:

Hoover did not cut spending. In nominal terms, federal spending went from $3.3 billion (!) in 1930 to $4.6 billion in 1933. Given price deflation during that time, the real increase in government spending would have been larger. With the economy declining in size, federal outlays more than doubled from 3.4 percent of GDP in 1930 to 8.0 percent of GDP in fiscal year 1933…

Because of this pattern, it would be hard to find an economic historian to argue that fiscal tightness was a significant factor in worsening the Great Depression from 1929 to 1932.

17 thoughts on “Repeating the Hoover Mistake: Paul Krugman and The New Republic

  1. “it would be hard to find an economic historian to argue that fiscal tightness was a significant factor in worsening the Great Depression from 1929 to 1932.”

    Paul Krugman wrote, “No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession,”

    Well, maybe not that hard.

  2. To D. Boyd: You’re assuming that Krugman qualifies as an “economic historian” rather than an hysterical totalitarian fool. Your mistake.

  3. “it would be hard to find an economic historian to argue that fiscal tightness was a significant factor in worsening the Great Depression from 1929 to 1932.”

    Fiscal tightness did play a role, in 1932 income taxes were raised across the board. The top rate went from 25 to 63 percent. The corporate income tax rose from 12 to 13.75 percent.

    The Fed had more to do with the Great Depression but fiscal policy did not do the economy any favors.

  4. The difference between Hoover’s time and today is Hoover wasn’t in the “coffin corner” we find ourselves in today. Today the national debt is 100% of GDP and adding to it will collapse our financial system just as it is collapsing Greece’s. Should interest rates spike to say 10% (new Greek sovereign debt is currently well over 20%), interest on our debt would be $1.6 trillion, clearly unsustainable.

    Krugman’s Keynsian solution to borrow like hell today and repay it in 2050 is wishful thinking. Keynsians almost never find the economy good enough to stop deficit spending. That is the reason for its failure and why we find ourselves wuth the stultifying debt we have today.

    • Tax cuts. They workedi n ’82-’86, they’ll work even better now. The reason is that government more than ever wastes money unproductively and with relatively less job growth; look at education spending, 4x in real dollars in NYC with no result – all for basket-case zombie teachers and administrators.

  5. Good point. Everybody points to Hoovers failed free market policies, but in reality he was just as much of a progressive interventionist as any dem. The last truly free market presidents were Harding and Coolidge, and their policies, of cutting spending taxes and regulation, ended a severe recession in 1918, caused by another progressive named Wilson, and led to a long lasting boom.

  6. Krugman is an a$$. Like the rest of the brain dead asses and criminals in the Obamunist mis-Administration like Jimmy Hansen, Gavin Schmidt, Tom Karl, Lisa Jackson, Franklin Reines, Tim Johnnson, Jamie Gorelik, Tim Geitner, Ken Salazar, John Holden, Eric Holder and a cast of cloacal cavities too numerous to mention.

  7. Hoover was nicknamed the “Great Engineer”, if memory serves, and he very much began the New Deal. Hoover Dam and the Golden Gate Bridge were both started under him. He passed wage laws that dictated the wage rates of various jobs, and the Davis-Bacon wage scale began under, that is still used to this day on Federal projects. This wage scale is more or less set by trade unions, who by this means more or less control all Federal contracts, and prevent non-union laborers from underbidding them. The Restoration Finance Corporation began under Hoover.

    The history is clear that the Fed started the Great Depression and that Hoover and FDR lengthened it. Read “FDR’s Folly”, as one resource.

    If you want someone who cut spending, look at Harding in the Great Depression of 1920. Oh, wait, it didn’t happen, did it? We have only had ONE Great Depression, and it coincided, not accidentally, with the largest government expenditures and regulatory “innovation” ever in our history to that point.

  8. The Great Depression hit Hoover early in his presidency. It’s easy to cherry-pick facts and look at a chart of federal spending and attribute the worsening of the Great Depression to government overspending, but Hoover was in fact a staunch advocate of laissez-faire capitalism UNTIL he observed that it was not working. His initial ideas eerily resemble much of what is being proposed by conservatives today (including a tightening on immigration, but that’s beside the point.)

    Tim Taylor also eludes Mr. Romney’s answer to the question altogether, in which Romney made the entirely uninformed declaration that Hoover’s pre-crisis policy alone was what CAUSED the Depression and not only what worsened it.

    • That’s an odd assertion of Hoover. He sat on the price controls board during World War I and urged massive government spending, works projects, jobs programs, unemployment assistance, and government loans to Warren Harding while he was his Commerce Secretary during the Depression of 1920-21. Harding rejected almost all of the advice and adopted America’s last laissez-faire response to a slump and the depression was over in 18 months.

      Hoover also wrote in his memoirs that right after the 1929 crash his Treasury Secretary Andrew Mellon advised him to “liquidate labor, liquidate stocks, liquidate the farmer, etc…” but that others in his cabinet “believed with me that we should use the powers of government to cushion the situation.” And within two weeks of the 1929 crash he called together America’s business leaders and urged them to “voluntarily” keep wages high or else face regulation from Congress forcing them to do so.

      So at what point in Hoover’s career are you saying he stopped being a “staunch advocate of laissez-faire capitalism?” Because in my reading of his life I have never found a time when he was anything but a progressive interventionist.

  9. Tim Taylor’s assertion that “Hoover’s budget strategy over his term of office was not to balance the budget” flies in the face of the facts. Not in the face of Taylor’s “facts”, which are neatly tailored (so to speak) to the assertion but in light of Hoover’s stated intentions, as Taylor says, “over his term of office”.

    Annual Budget Message to the Congress – Fiscal Year 1931
    Date: December 4, 1929

    Our estimated expenditures for this and the next year are well within our expected receipts. With the recommended reduction in taxes the margin between the two will be considerably lessened, but to what extent we do not definitely know to-day. This situation emphasizes the necessity for a careful scrutiny of any proposed additional activities which would involve a material increase in expenditures in order that we may not jeopardize either the balanced condition of the Budget or the continuation of the benefits of reduced taxation.

    Annual Budget Message to the Congress – Fiscal Year 1932
    Date: December 3, 1930

    I am satisfied that in the absence of further legislation imposing any considerable burden upon our 1932 finances we can close that year with a balanced Budget.

    Annual Budget Message to the Congress – Fiscal Year 1933
    Date: December 9, 1931

    The welfare of the country demands that the financial integrity of the Federal Government be maintained. This is a necessary factor in the rebuilding of a sound national prosperity. This Budget, with its recommended reductions in appropriations and increases in revenues, presents a definite program to this end involving three steps – first, a material reduction in the anticipated deficit for the current fiscal year; second, a relation between receipts and expenditures for the fiscal year 1933 which will avoid a further increase in the public debt during that year; and third, a balanced Budget for 1934.

    Annual Budget Message to the Congress – Fiscal Year 1934
    Date: December 7, 1932

    Notwithstanding the large reduction in expenditures estimated for the current fiscal year below those in the fiscal year 1932 and the increased revenues anticipated during this year under the revenue laws enacted at the last session of Congress, a large excess of expenditures with consequent increase in the public debt is anticipated for the current fiscal year. Such a situation can not be continued without disaster to the Federal finances. The recommendations herein presented to the Congress for further drastic reductions in expenditures and increased revenues will serve to prevent a further increase in the public debt during the fiscal year 1934 only if Congress will refrain from placing additional burdens upon the Federal Treasury. I can not too strongly urge that every effort be made to limit expenditures and avoid additional obligations not only in the interest of the already heavily burdened taxpayer but in the interest of the very integrity of the finances of the Federal Government.

    • Great, this is the typical Brad DeLong moving goalpost response. Print out some of Hoover’s speeches and hope readers will ignore the actual budget and layout numbers.

      I guess in the year 2065–75 years after the 1990-91 recession–I can prove George H.W. Bush never raised taxes by quoting his “Read my lips, no new taxes” speech. Surely that will be enough to disprove those columnists who naively insist on using actual budget numbers. Why concern yourself with what Bush and Hoover actually did when you can offer what they actually said?

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