Hooverism Lives

Steven Horwitz

Frank Stephenson at Division of Labour finds a lovely bit of Hooverism in an AP report on the economy:

Wages and benefits paid to U.S. workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw their compensation rise by the smallest amount on records going back more than a quarter-century.

The anemic gains have raised concerns about the durability of the economic recovery. The fear is that consumer spending, which accounts for 70 percent of economic activity, could falter if households don't have the income growth to support their spending.

As Frank rightly notes:  "With 10% unemployment, you'd think it just might dawn on them that wages might fall or remain relatively flat as part of the great recalculation."

It's not going to dawn on anyone as long as the worst fallacies and biases of economics continue to live on in the mind of the public and the second-hand dealers in ideas.

Comments

[Greg Ransom]

"the second-hand dealers in ideas"

Just say his name. Paul Krugman.

[G. Dericks]

Sorry, why is this a "Hooverism"?

[Steve Horwitz]

The belief that rising wages are necessary to generate the spending that is necessary to generate economic well-being is the core of how Hoover understood the problem of the Depression. It's why he did everything he could to convince/prevent firms from cutting wages in the early 30s, despite the fact that doing so is exactly what they should have been doing with a monetary deflation and the adjustments of the bust taking place. Many have argued that Hoover's wage policy, based on that severe misunderstanding of the relationship between wages and growth, was significantly responsible for the depth and, to some degree, the length of the GD.

[Matt Stiles]

Umm, but my model says that after a recession, the economy rebounds to trend growth. Shouldn't that mean that wages never have to fall? ;-)