Ol' Kruggie is At It Again

Steven Horwitz

In today's New York Times, we get this from Paul Krugman: 

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Actually Kruggie, that doesn't sound like Hoover, that sounds like a big pile of bullshit.

I have documented the reality of the Hoover Administration's pro-spending and pro-deficit policies rather thoroughly in this Cato paper. The relevant highlights:

The 1929 budget was $3.1 billion, and Hoover’s first budget in 1930 had $3.3 billion in spending, followed by $3.6 billion, $4.7 billion, and $4.6 billion over the following three years. In nominal terms, he increased spending 48 percent over the last budget of the previous administration. However, this period was one of significant deflation, so if we adjust for the approximately 10 percent per year fall in prices over that period, the real size of government spending in 1933 was almost double that of 1929. The budget deficits of 1931 and 1932 represented 52.5 percent and 43.3 percent of total federal expenditures. No year between 1933 and 1941 under Roosevelt had a deficit that large.8 It is hard to reconcile those data with the claim that Hoover was a defender of “austerity” and “budget cutting” in the name of laissez faire.

Most of these policies continued, and many expanded, throughout 1931, with the economy worsening each month. By the end of the year, Hoover decided more dras­tic action was necessary and, on December 8th, he addressed Congress and offered a set of proposals that historian David Ken­nedy refers to as “Hoover’s second program” and that has also been called “The Hoover New Deal.” The list of items he proposed included:

•   The Reconstruction Finance Corpo­ration to lend tax dollars to banks, firms, and  other institutions in need.
•    A Home Loan Bank to provide govern­ment help to the construction sector.
•    Congressional legalization of Hoover’s executive order that had blocked im­migration.
•    Direct loans to state governments for spending on relief for the unem­ployed.
•    More aid to Federal Land Banks.
•   Creating a Public Works Administra­tion that would both better coordi­nate Federal public works and expand them.
•   More vigorous enforcement of anti­trust laws to end “destructive com­petition” in a variety of industries, as well as support for work-sharing pro­grams that would supposedly reduce unemployment.

On top of those spending proposals, most of which were approved in one form or an­other, Hoover proposed, and Congress ap­proved, the largest peacetime tax increase in American history. The Revenue Act of 1932 increased personal income taxes dramati­cally, but also brought back a variety of ex­cise taxes that had been used during World War I. The higher income taxes involved an increase of the standard rate from a range of 1.5–5 percent to the 4–8 percent range. On top of that increase, the act placed a large surtax on higher-income earners, leading to a total tax rate of anywhere from 25 to 63 percent. The act also raised the corporate income tax along with several taxes on other forms of income and wealth.

And keep in mind Hoover's description of what his administration had done:

"We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. These programs, unparalleled in the history of depressions of any country and in any time, to care for distress, to provide employment, to aid agriculture, to maintain the financial stability of the country, to safeguard the savings of the people, to protect their homes, are not in the past tense—they are in action. . . . No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such time."

Finally, consider what FDR's own advisors had to say:

Rexford G. Tugwell, one of the academics at the center of FDR’s “brains trust” said: “When it was all over, I once made a list of New Deal ventures begun during Hoover’s years as Secretary of
Commerce and then as president. . . . The New Deal owed much to what he had begun.”

Another member of the brains trust, Raymond Moley, wrote of that period:

"When we all burst into Washington. . . we found every essential idea [of the New Deal] enacted in the 100- day Congress in the Hoover administration itself. The essentials of the NRA, the PWA, the emergency relief setup were all there. Even the AAA was known to the Department of Agriculture. Only the TVA and the Securities Act was drawn from other sources. The RFC, probably the greatest recovery agency, was of course a Hoover measure, passed long before the inauguration."

Late in both of their lives, Tugwell wrote to Moley and said of Hoover, “we were too hard on a man who really invented most of the devices we used.” Roosevelt’s inner circle would have every reason to disassociate themselves with the policies of their predecessor, yet two of them  recognized quite clearly Hoover’s role as the father of the New Deal.

All of this information is very easy to find for anyone who wants to look it up, even if they, like Kruggie, take pride in refusing to read anything by people they disagree with.  At some point, this is no longer about laziness but about an intentional attempt to obfuscate and deceive, and to use propaganda to score ideological points.  Kruggie has become a master of the genre.

 

Comments

[Daniel Kuehn]

My understanding is that the deficits were primarily caused by reduced tax revenue... that doesn't seem like an anti-austerity deficit to me.

Also - you go on at length about raising taxes. Doesn't this buttress Krugman's point about austerity??? I really don't understand the argument on this one. How is Krugman giving us a big pile of bullshit if you turn around and then give us a whole paragraph describing Hoover's tax increases?

As I've said in the past, this argument often boils down to people talking past each other, because everyone has their own counter-factual when they talk about "austerity". Hoover did far less then he should have done, which is why a lot of Keynesians speak ill of him, and more than you all think he should have done, which is why you speak ill of him.

It's the same logic behind why Scott Sumner argues Bernanke has kept monetary policy tight. Sumner is exactly right, given the context of the statement. Opponents of Bernanke on the other side are right too, given their context. For this reason, I think we need to be careful about accusations.

But I am genuinely confused on that taxes point. That seems to be making Krugman's case.

[Daniel Kuehn]

Also - if I recall, Steve's very interesting Cato paper includes a discussion of the business conferences that Hoover held.

If anyone is interested in more of that, I have a comment in the most recent QJAE on that subject, with a rejoinder by Vedder and Gallaway. I'll warn you - I will not take responsibility for all the arguments they attribute to me, and hopefully a short reply clarifying that will be in the QJAE in the future.

Also - Rose (JHE 2010) has a fantastic empirical analysis of the Hooover business conferences. I won't spoil the surprise on what his conclusions are.

[Alex Durante]

Daniel raises an interesting point about taxes. If my understanding is correct, austerity measures refer to both spending cuts and tax increases. I think us libertarians need to be clear that what we mean by so-called austerity is "shrinking government" not necessarily "balancing the budget."

[Don Boudreaux]

Daniel: If the real size of Uncle Sam's spending in 1933 was nearly double that of 1929 - and especially if the size of Uncle Sam's 1931 and 1932 budget deficits were as large as Steve reports them as being - what legitimate basis do you see Krugman having for his suggestion that Hoover did, and wanted to, "slash spending" (Krugman's words).

One can argue that Hoover's fiscal policies should have been even more expansionist than they were, but on no sensible reading of the historical record can those policies be accused of being examples of a government "slashing spending."

To read Krugman's "slash spending" as being an accurate description of what actually happened on Pres. Hoover's watch is not to be a generous reader; rather, it is either to inexcusably excuse Krugman for using a totally inappropriate description, or to redefine the word "slash" in ways that boggle the mind.

[Steve Horwitz]

Did you miss this part Daniel?

"The 1929 budget was $3.1 billion, and Hoover’s first budget in 1930 had $3.3 billion in spending, followed by $3.6 billion, $4.7 billion, and $4.6 billion over the following three years. In nominal terms, he increased spending 48 percent over the last budget of the previous administration. However, this period was one of significant deflation, so if we adjust for the approximately 10 percent per year fall in prices over that period, the real size of government spending in 1933 was almost double that of 1929."

Here's the data (receipts, outlays, surplus/deficit

1929 3,862 3,127 734
1930 4,058 3,320 738
1931 3,116 3,577 -462
1932 1,924 4,659 -2,735
1933 1,997 4,598 -2,602

In 32 and 33, receipts were about 1.1b below 31 and spending was just about the same amount above 31. So, at best, you can call that a 50/50 split on causes of the deficit. To argue, however, that Hoover was promoting austerity flies in the face of the facts around his commitment to spending and his pride in having done so. He couldn't control the loss of revenue directly, but he could and did have his preferences on spending. Calling Hoover a prophet of austerity just doesn't fly.

And yes he promoted the tax increases and yes that was a bad idea. But most of the claims about austerity these days are about slashing spending not increasing taxes, so I'll stand by my reading.

[Russ Nelson]

Daniel, you're an idiot. In that, you're the one stellar constant in a world of change. So, he DOUBLED taxes, more than anybody else has done, and you think that wasn't enough? Please reply, and bring your brain this time. If you can find it. Look on your chair -- maybe it fell out when you stood up?

You just reinforce what I've said for a while -- Keynesian deficit spending is a useless idea if you have to spend more money than any sane person will do. If it's politically unacceptable, then get used to being an ineffectual Keynesian, but ahhh, I repeat myself.

[McKinney]

Coolidge called Hoover a socialist.

[Lord Keynes]

Your figures on Hoover's spending lack background and context:

http://socialdemocracy21stcentury.blogspot.com.au/2012/02/steven-horwitz-on-herbert-hoover-mostly.html

(i) In fiscal year 1930 (July 1, 1929 – June 30, 1930), as the depression become a very serious contraction indeed, Herbert Hoover actually ran a federal budget surplus, not a deficit. The net effect of federal fiscal policy on its own was contractionary, not expanionary. Hoover’s first deficit was in fiscal year 1931, when the US economy had already begun contracting severely.

(ii) The Federal Reserve raised the discount rate in 1931.

(iii) Hoover also cut spending in fiscal year 1933, and the net effect of federal fiscal policy in fiscal 1933 was contractionary against 1932. This was made worse by the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years (a measure which, curiously, Horwitz later mentions, but fails to understand properly). These were highly contractionary measures, and these two policies are the very antithesis of Keynesianism!

[Lord Keynes]

"However, this period was one of significant deflation, so if we adjust for the approximately 10 percent per year fall in prices over that period, the real size of government spending in 1933 was almost double that of 1929."

Just comparing 1929 to 1933 is misleading.

(1) in 1929, total federal spending was only about 2.5% of GNP - a very small amount relative to the size of government spending after 1945 when we had proper Keynesian macro management.

(2) It is year on year increases that are necessary to gauge the impact of federal fiscal policy in any one year.

(3) fiscal year 1930 saw a federal budget surplus - not Keynesianism.

(4) 1933 saw cuts in total spending over fiscal 1932 - not Keynesianism.

(5) 1932-1933 tax policy was contractionary - not Keynesianism.

(6) at most we have expansionary fiscal policy in 1931 and 1932, and that ignores (i) that role of state and local cuts/surpluses and (ii) the ridiculously small size of expansion compared to GNP collapse.

http://socialdemocracy21stcentury.blogspot.com/2012/01/what-hoover-should-have-done-in-1931.html

[Josh S]

Spending was cut the last year. Granted, a mere 2% cut might not seem like a "slash," but remember that in Krugman's terminology, not increasing spending quickly enough is also a "spending cut." So by that metric, Hoover "slashed" spending. In fact, that first spending increase is only 6%, which may qualify as a "spending cut" in Krugman's world.

[Bob Murphy]

Good post Steve, though Israel Kirzner would probably not approve of your tone...

I can't fathom how Daniel Kuehn is overlooking the obvious data on spending and what that does for Krugman's position, but I do agree that Daniel is right that Keynesians don't actually recommend tax hikes to fix a problem of Aggregate Demand. So "our side" should try to be more nuanced on that point. E.g. I personally think that Hoover was really bad for propping up wages and then laying those massive tax hikes on the economy, I don't think the spending per se would have been that catastrophic.

[Bob Murphy]

Oh one last thing: Krugman knows full well what he is doing. Notice how carefully he worded his statement: He said that that was the type of thing Hoover *said*. He didn't say it was the type of thing Hoover *did*, because Krugman (by now at least) has to know full well the pitfalls with accusing Hoover of slashing budgets in response to the Great Depression.

But presumably Hoover did try to justify his attempts to rein in the deficit by using "confidence" language and such, so technically Krugman is saying a true statement.

[Abir Mandal]

Daniel is a moron. Did you miss everything about the increase in spending figures?

[anoncubed]

So in 1931* Hoover increased outlays by $300 million and decreased receipts by $1 billion (a combined stimulus of positive $1.3 billion) while GDP contracted by $13.5 billion. So $1 stimulus for every $10 of output loss.

So in 2010 Obama increased outlays (oops...outlays decreased by $61 billion) and receipts increased by $57 billion (combined stimulus of positive $4 billion) while GDP expanded by $422 billion. So $1 stimulus for every $105 of output gain.

Hoover is the winner of the austerity award.

* Hoover's fiscal year was June 30; Obama's March 31.

[Daniel Kuehn]

Don -
re: "Daniel: If the real size of Uncle Sam's spending in 1933 was nearly double that of 1929 - and especially if the size of Uncle Sam's 1931 and 1932 budget deficits were as large as Steve reports them as being - what legitimate basis do you see Krugman having for his suggestion that Hoover did, and wanted to, "slash spending" (Krugman's words)."

I don't see any legitimate basis for saying he slashed spending. I've seen some quotations from him that might perhaps indicate he might have wanted to at some point. I've never said he wanted to slash spending - take that up with Krugman.

[Bill Stepp]

"Lord Keynes":

Re: yhour point ii), the Fed's raising the discount rate in 1930--Hoover had nothing to do with this. The Fed was "independent," and not beholden to HH's approval.

Also, as long as we're on the subject of Hoover's economic black markets, let's not forget his signing of the Smoot-Hawley tariff in 1930, even though he opposed some of it.

[Daniel Kuehn]

"Daniel, you're an idiot."
-Russ Nelson

"Daniel is a moron."
- Abir Mandal

Screw you all - get a life. It's depressing that there's not a single Austrian blog that comes to mind where I don't get this crap. I'm an honest dealer in these matters - I'm no troll. The fact that you all can't handle that is sad.

[Daniel Kuehn]

Bob -
re: "I can't fathom how Daniel Kuehn is overlooking the obvious data on spending and what that does for Krugman's position"

You need to be careful in assuming what I think of Krugman's position. I agree with Steve on the spending, and I don't think I've said otherwise. Check my most recent blog post... I say Krugman characterizes the spending point in a bad way.

Where I'm with Krugman is that he's not just offering bullshit - there was a lot of contractionary stuff Hoover did. The man was no Keynesian.

I'm also with Krugman in that even though I disagree with his characterization of it as "slashing spending" (I've disagreed with him on this in the past too, btw), I think he's right that it wasn't nearly enough.

Part of that was just the nature of government at the time - it was much smaller.

So anyway - perhaps my position is easier to fathom if you realize I disagree with Krugman.

It's hardly unprecedented for me.

[Steve Horwitz]

Daniel - just imagine what they call you when you're NOT around. :)

I don't condone the name-calling, and haven't directed any your way I don't believe, but you would probably not get it as often if you weren't a master of moving the goalposts every time these issues come up, or even seriously acknowledge that we're right about Hoover. I'm not sure doing so brings down the entire (new) Keynesian edifice, but it would certainly indicate good faith on your part.

But no, your response was as predictable as the sun rising in the east. In fact, the least surprising thing that happened to me today was you being one of the first commenters in and making the argument you did.

It would be one thing if it were just a handful of people who see you doing that, but I'm quite confident there's a silent majority out there who is really sympathetic to the name callers for just that reason.

I know you don't think that's what you're doing, but I'm just telling you that's how it seems to lots of folks.

And for the rest of you: knock off the name calling please. We've tried to keep this blog free of that sort of stuff, so please respect that. Feeling frustrated with Daniel is a perfectly fine (and quite popular) form of audience participation, but name calling is not. Find some other way to express it, or just let it go.

[Don Boudreaux]

Daniel: I (and Steve) have already done what you advise be done: take up with Krugman his historically ignorant suggestion that government spending was "slashed" by Herbert Hoover.

The person whose statement the object of my post over at Cafe Hayek and Steve's post here is none other than Paul Krugman. My earlier post here merely asked why you are apparently defending him given that he did in fact suggest that Hoover "slashed" spending.

[Niko]

@Kuehn:
"Screw you all - get a life."
One may say the same thing about you.

"Daniel - just imagine what they call you when you're NOT around."
Well, he is not around most of the time. This is a blog where people comment. If he would be around, but abstain from commenting, no one would even mention his name.

The thing is that here, on this blog, there are other people I don't agree with (this is me as an example) and even if sometimes I am a little "impolite," I recognize they have some points worth considering. Like Horwitz on free banking, he is wrong almost every time when it comes to money (I do think it is every time, but I am being polite here), but he did help by providing points worth refuting and so making my ideas clearer.

But Kuehn ... it is not about him being a troll (well, he is, but it is not that). I am more of a troll than he ever was. But if you take all his comments and put them together, you get ... nothing. I mean like zero, there is nothing there. Just read all the comments here, he agrees, he doesn't, Krugman is right about something, but he doesn't agree with Krugman about the same very thing and, best of all, no, he didn't said that, you didn't read him right. He is a waste of time and space, and, I am sorry to say, I was really scared when I saw the tile of the post: OMG, Kuehn is surely gone be here first ... And he was ...

[Jerry O'Driscoll]

In the spirit of Steve Horwitz's call for civility, I want to point out to Daniel why people get frustrated with him. Steve quoted Krugman on calls to "slash spending." Krugman then said the calls were something that Herbert Hoover would say.

Steve provided the numbers showing by how much Hoover increased SPENDING. He also mentioned the deficits went up, but the central question was Hoover's record on SPENDING.

Daniel then switched the issue to DEFICITS. A number of commentators followed him down the detour away from the central question. Herbert Hoover was a big spender, who introduced the core of the New Deal.

The issue of Hoover's tax hikes is another diversion from Krugman's rant. Again, Krugman disparaged SPENDING CUTS. Steve responded with the historical record to show that Krugman was wrong.

Why Hoover also raised taxes is interesting. The US remained on the gold standard and he may have felt constrained by that.

[Richie]

I'm an honest dealer in these matters - I'm no troll. The fact that you all can't handle that is sad.

You may not be a troll, but you act as Krugman's PR person constantly. I believe that is what irritates people the most.

[Jonathan]

Question: were the spending increases undertaken at Hoover's initiative? My understanding is that a good chunk were implemented over his veto. The underlying facts seem germane to the question that is being hotly debated.

http://delong.typepad.com/sdj/2011/07/fiscal-policy-during-the-great-depression.html

[Matt Stiles]

I second Jerry's sentiments. The avoiding of the stated issue and constant changing of the topic to score points/counterpoints is frustrating.

And yes, Austrians do it too.

[Daniel Kuehn]

re: "I'm not sure doing so brings down the entire (new) Keynesian edifice, but it would certainly indicate good faith on your part."

Steve, I don't know how many ways to say this. I've never been of the opinion that Hoover cut spending. I said he cut spending on my blog today. Why are you and Don and Bob assuming I've claimed that Hoover cut spending? I don't understand this.

How would you like me to phrase "I don't think Herbert Hoover cut spending"???

The problem is, I can't seem to say that Krugman makes legitimate points without every point that Krugman makes being attributed to me.

You tell me how to say it, and I'll say it. I've always agreed with you on the spending and if it's just a matter of rephrasing it I will.

[Daniel Kuehn]

Jerry -
If you'll note, I talked about deficits and taxes because Steve brought up both. The post was not just about spending.

[Barkley Rosser]

Jonathan is much to the point. On the day before that veto override vote happened, Hoover declared "Nothing is more important than balancing the budget with the least increase in taxes." This remark was indeed followed by a reference to the impact of deficits on business confidence. It is certainly true that spending increased substantially during Hoover's term in office, despite the small decline between 1932 and 1933, but it is also true that Hoover was not responsible for all of that increase.

So, I think that Steve was initially off in his post when he declared as bulls*** Krugman's arguing that that calling for austerity spending cuts would lead to improved confidence sounded like what Herbert Hoover would say and did say. Responding with what Hoover did does not prove the point, although it is true that Hoover was less emphatic about the spending cuts part of the proposed austerity, and Steve has been accurate in pointing out how so many people have spread misconceptions about this (including Krugman in the past).

Unfortunately, this particular thread has gone off the rails with a lot of unpleasant name calling, but I fear that Steve must bear some of the responsibility for this given the inaccuracies in his post and the over the top tone in his initial post.

[Josh S]

You know who actually did cut spending in the teeth of a recession? Warren Harding. Why don't Krugman et al. talk about what a failure Harding's austerity policy was? You've got a real live recession and a deep spending cut in both real and nominal terms.

[Bill Stepp]

Josh S,

I assume Krugman et al. don't bring up the 1920-21 recession because it was short-lived and vindicated Harding's aversion to government spending.

[Josh S]

You know something else? This would be over and Keynesians could claim the moral and intellectual victory with a simple change in accounting identity. Instead of calling them "unemployment checks" and "welfare benefits," call them "paychecks" and declare everyone who receives them has been hired by the government as a professional TV-watcher. Bam. Full employment reached. Problem solved.

[Daniel Kuehn]

Barkley -
Exactly. The focus has been on spending, when I believe every single person in this thread so far has agreed with Steve that that was increased.

Put spending aside cause we all agree apparently. Even LK agrees with me and Steve and Don on that.

There are other issues with Steve's post - the taxes, the pronouncements about deficits, etc. That's a valid point, I think. And it's a point that can be made without so much second-guessing.

Josh S. -
Krugman's posted on 1920-1921 four or five times now.

[Jerry O'Driscoll]

Hoover actually did not get all the spending he wanted. The Home Loan Banking System was scaled down from a more grandiose plan Hoover advanced in October 1931. This is covered in Rothbard's America's Great Depression, p. 276.

Steve's major thesis remains unchalleneged. Hoover authored the New Deal. As Rexford Tugwell later acknowledged.

What is really over the top is blaming Steve for the vexation of others. He has consistently called people out who cross the lines of civility, not just on this thread but on many prior occasions.

Enough already.

[Josh S]

DK, then is Keynesianism a theory? If Keynesians like you and Krugman can admit that Harding's spending cuts didn't cause the never-ending death deflationary spiral you say it should (and, similarly, that Canada also didn't experience this doom scenario more recently), if you can admit that decades of stimulus haven't brought Japan's economy screaming back, if you can admit that Bernanke's ZIRP hasn't created full employment, if you can admit that rising inflation and rising unemployment can coexist, if you can admit that huge postwar spending cuts and layoffs of government employees (aka the military) didn't cause a crippling depression, if you can admit that printing and spending didn't lift Zimbabwe's economy to the heavens, then under what set of conditions could your theory possibly be falsified?

It seems like you've always got a mental Band-Aid ready when events don't go the way your theory says they should. If there's no conceivable set of conditions under which your theory could be wrong, it's not a theory at all. It's more like a philosophical system.

[Allan Walstad]

A "[Comment deleted]" in time might save nine.

[Bill Stepp]

Josh,

You mention Canada's better recent economic performance. Another episode in which its economy outperformed that of the U.S. is the great depression. Canada wasn't saddled with a central bank until 1935, and experienced (if I recall) one bank failure (due to fraud) during the first few years of that event compared to hundreds of bank failures in the U.S.
Someone should write a comparative history of Canadian and U.S. banking experience. Maybe it could be a topic for a PhD student's dissertation. Then give it a suitably snappy title and get it published as a book.

[Robert Fellner]

It would be one thing if it were just a handful of people who see you doing that, but I'm quite confident there's a silent majority out there who is really sympathetic to the name callers for just that reason.

There certainly is!

[Daniel Kuehn]

Josh S -
I guess I just don't understand or agree with your premise. Anyway, that's a decade before what we're discussing here.

[Richard O. Hammer]

It seems to me that the NY Times is a bigger player than Paul Krugman. If Krugman didn't write views which the NY Times happily publishes, then the NY Times could find some other main-stream-reputable economist who would write such views. I would say that Krugman is just playing a role in the state-media complex.

[Barkley Rosser]

Regarding Hoover, it should be recognized that to a large extent his policy was probably not something he particularly wanted, but resulted from a combination of the Depression itself (the declining tax revenues) to the result of political forces that operated on him from outside. In particular, the major spending increases were tied to agricultural and veterans' groups interests, with the latter particularly involved with the veto override vote on March 9, 1932 in particular.

Of course farmers (and their families) were a much larger proportion of the population then than now and had strong links with Hoover's Republicans.

Regarding veterans, there has been a lot of talk about how various US presidents were semi-fascists, from TR through Wilson to FDR, with Hoover as a de facto junior partner in all that as essential founder of the New Deal. But this sort of talk ignores that in fact fascism came to power on pushes coming from frustrated WW I veterans in Italy, and veterans were organizing marches on Washington and were in other ways engaging in actions that were genuinely frightening to those interested in maintaining democracy in the US. That Congress was keen on sending money the way of this group as they claimed to have been particularly victimized by the declining economy, over the wishes of the president in fact in early 1932.

BTW, while there are certainly lots of cases of countries with austerity policies that did OK in recessions or depressions, Krugman's argument that the current push for austerity policies in UK and Europe are not exactly working out as hoped remains a pointed point, however sneakily he poked at incorrect claims about Hoover (after all, just as Hoover supported balanced budgets, so did FDR, at least when he ran against Hoover).

[Niko]

I am not sure austerity in Europe means what people think it means. Most European states consider austerity measures to be raising taxes and closing tax loopholes. It is a kind of austerity, but I don't think it is the version which comes to mind when people think about "austerity".

And this kind of European austerity can hardly be considered productive.

[Greg Ransom]

"The man was no Keynesian."

Hoover was a Keynesian before Keynes guy -- into all of the guys who anticipated almost every element of today's "vulgar" Keynesian economics.

Public works, inadequate consumer demand, expanded government spending during busts - reduced public works spending during booms, and on an on and on, yada, yada, yada.

Look into the history. What part of vulgar Keynesian economics wasn't Hoover up to his eye-balls into throughout the 1920s, from his Unemployment Commission under Harding, to his preface to a volume of Foster & Catchings essays.

[Pierre]

@Daniel Kuehn.

Krugman asserts that a policy of "slashing spending" is exactly what Hoover would have suggested.

Steven shows that Hoover actually increased spending (a lot).

Hence, Krugman is proven wrong.

If you DO get a bad reputation here, it might be because you tend to look rather insistently at the trees and do not pay much attention to the forest. Whenever someone is doing that on a regular basis, it is natural to wonder... what the point of doing it is, since it is still, after all, the forest that matters.

[Greg Ransom]

"it should be recognized that to a large extent his policy was probably not something he particularly wanted" -- Barkley Rosser

There is endless evidence to support the opposite view -- Hoover's history, e.g. the Unemployment Commission under Harding, the Foster & Catchings preface, etc. show Hoover to be fully soaking in vulgar Keynesianism before Keynes, and perfectly comfortable with it.

I'm no expert on Hoover, but we have to deal with the actual Hoover who existed at the time, and not mistake the actual man of the time for the works of ideology and apologetics the man wrote many years later.

Do we read Churchill with a grain of salt? How about Nixon's memoir?

But with Hoover -- well that is a "you are there" cinema verite. So insist the leftist "scholars".

[Greg Ransom]

if you look at the reports and testimony of Hoover's Unemployment Commission under Harding, and his embrace of the Foster & Catchings stuff, it's absurd to presume that this "sound like Hoover".

No, this sounds like you are inventing stuff out of your hat.

Barkley writes,

"Krugman's arguing that that calling for austerity spending cuts would lead to improved confidence sounded like what Herbert Hoover would say and did say."

[Lord Keynes]

Greg Ransom@February 21, 2012 at 03:46 AM:

"What part of vulgar Keynesian economics wasn't Hoover up to his eye-balls into throughout the 1920s, from his Unemployment Commission under Harding,"

American corporatism/cartelism was not Keynesian economics. Keynes in fact denounced the National Industrial Recovery Act (NIRA), and urged Roosevelt to scrap it:

http://socialdemocracy21stcentury.blogspot.com.au/2011/09/keynes-on-new-deal-in-1933.html

Another point is that total federal spending (state, local and federal) increases under Hoover are not very large at all. In fact, they were feeble:

Year | GNP | Total Spending ($ billion)
1927 | 95.544 | 11.22
1928 | 97.4 | 11.44
1929 | 103.6 | 11.68
1930 | 91.2 | 11.92
1931 | 76.5 | 12.18
1932 | 58.7 | 12.44
1933 | 56.4 | 12.62

In 1931, US GDP collapsed by $14.7 billion dollars. Total federal spending increased 0.26 billion. If we assume a multiplier of roughly 3 (quite high), then perhaps roughly 0.78 billion worth of stimulus might have been imparted that year. It is madness beyond words to think that would have stopped a $14.7 billion GNP collapse. More than likely, GNP would fallen even further - roughly another 0.78 billion - had fiscal policy been neutral (that is, had zero impact) in this year.

In 1932, US GDP collapsed by $17.8 billion dollars. Again, $0.26 billion in increases might have imparted roughly 0.78 billion worth of stimulus, but that was a stone in the ocean of a GNP fall of $17.8 billion dollars.

If in 1931, Hoover had tried a properly designed Keynesian stimulus he would have stimulated the economy by an additional $3.675 billion.
Of course, it would have been better first just to intervene and stop the banking system from collapsing. If banking stabilization had stopped GNP collapse by roughly half, then only about $1.33 billion worth of stimulus would have been necessary in 1931.

http://socialdemocracy21stcentury.blogspot.com/2012/01/what-hoover-should-have-done-in-1931.html

[RPLong]

The final paragraph in this excellent blog post is something I have been waiting to read on this blog for a long time now.

Kudos, and keep up the good work.

[Jerry O'Driscoll]

@Barkley,

I've got to agree with Greg that your comments come off as specualtion. If you have citations to buttress your statemets, I'd be interested in seeing them. The sources I've erad suggest his policies reflected log-held beliefs.

Later in life, Hoover did change his views.

[Jerry O'Driscoll]

@Lord Keynes,

Your numbers are irrelevant. Hoover didn't control state and local spending.

There was no "Keynesian" policy in 1931. In 1931, Keynes wasn't yet a Keynesian. The Chicago School and others were advocating deficit spending. Keynes was opposed because he still favored monetary policy.

Hoover did try to stop the banking collapse. That was what the Reconstruction Finance Corp. was designed to do. It was hard to offset the Fed.

[Greg Ransom]

Our hidden identity "Lord" is simply changing the topic:

"American corporatism/cartelism was not Keynesian economics."

[Greg Ransom]

Going to Paul Krugman for history of economic thought is like going to a 3rd world big city open sewer for fresh water.

[Barkley Rosser]

Jerry,

I was referring to Hoover opposing budget deficits. I would agree that when push came to shove, he preferred to raise tax rates to try to narrow the gap that opened during the Great Depression than to reduce spending. At the beginning of the Great Depression the biggest increases were in agriculture and also public works, (particularly air travel infrastructure and the Hoover Dam), while he did not support the increases for veterans. By 1932 he had turned against public works spending, which was stabilized and part of the reason spending did not increase after that. Of course, 1932 was the year of the Bonus Army, which was tied to the matter of veterans' benefits, which Hoover opposed, being overridden on that matter by Congress.

[Mario Rizzo]

I just came to this. Having read Steve's work on the topic (as well as Rothbard's)I must say: first, I agree with him and second, the discussion reminds me of the search for the historical Jesus. In Jesus's case there is no or little direct historical evidence of the person and his teachings, it is all through the interpretive lense of his followers. But Herbert Hoover is no Jesus. We have a ton of direct evidence. We also have the mythology that has grown up about him by his anti-followers. They need a symbol of the anti-Keynes for the popular mind. So Krugman's Hoover is not a historical figure. HE IS A TEACHING OBJECT. A heuristic device for the children eager to learn the truths of Keynes. It is well within the the Keynesian tradition to create myths (all religions do). Keynes admitted, to Roy Harrod -- I think -- that he had been unfair to Pigou but that it was necessary to do do this to "get our point across."

But for the unwashed masses who don't know Pigou, Herbert Hoover will do nicely. It is too bad that we have so much evidence on what Hoover really did. Then, again, who has the time to read? Virtual Hoover fits the bill.

Herbert Virtual Hoover!

[Jerry O'Driscoll]

Mario has nailed it.

For those actually interested in what Hoover the man thought, last year Hoover Institution Press published Hoover's Freedom Betrayed, which consist of his sceret memoirs on WWII and its aftermath. It is a 900 page book plus a 120 page introduction by editor and Hoover scholar George Nash.

[Colin]

"It would be one thing if it were just a handful of people who see you doing that, but I'm quite confident there's a silent majority out there who is really sympathetic to the name callers for just that reason."

Yea, this.

[George Machen]

The Bosha @TheBosha
Give me a subject, ANY subject, and I can change it to another subject I at least know a little about.
Retweeted by Merrill Markoe two hours ago

[Greego]

Daniel, considering Krugman's definition of 'austerity economics' didn't mention tax increases, how could evidence of tax increases "buttress Krugman's point about austerity"?

[Gene Callahan]

"Krugman asserts that a policy of "slashing spending" is exactly what Hoover would have suggested.

"Steven shows that Hoover actually increased spending (a lot).

"Hence, Krugman is proven wrong."

Unbelievable. So, if someone says, "Jim suggested going to the movies," you can "prove them wrong" by showing that he actually went to a nightclub?!

[Josh S]

Don't forget Jim wrote a memoir explaining how he fought the people who wanted to go to the movies, people who knew him all affirmed that he hated movies, and the people who went to the nightclub with him, but publicly proclaimed it was all their idea, admitted in their diaries that it was originally Jim's suggestion.

So yes, that's exactly how proof works. Krugman makes a false claim. Honest/knowledgable people show that claim is the opposite of true. And we all move on.

[Hume]

Daniel,

You write "Screw you all - get a life."

You're better than this. I know you're no troll, and I began reading your blog after reading your thoughtful comments here (and elsewhere, I think econlog) even though I disagree with much of your political philosophy (I do not have the requisite knowledge of economics at this time (pursuing a philosophy PhD) to agree or disagree with your economic theories).

No need to lower yourself to the level of retaliatory name-calling. Do what I do (I often defend democracy [gasp] on libertarian blogs from a libertarian-ish perspective); "Thank you for the thoughtful comment. I think you are mistaken, however, because ..."

[colin]

"Do what I do (I often defend democracy [gasp] on libertarian blogs from a libertarian-ish perspective); "Thank you for the thoughtful comment. I think you are mistaken, however, because ..."

It would help if you also stuck to the point rather than trying to change the subject then pretending that you somehow addressed or countered the real point.

Its really obvious when you try and move the goalposts, its really not that clever a trick, especially when we can just go back and read what you wrote previously.

[Daniel Kuehn]

colin -
re: "It would help if you also stuck to the point rather than trying to change the subject then pretending that you somehow addressed or countered the real point."

For the umpteenth time - Steve mentioned both taxes and deficits in his post. Read his post, please! I don't know why you and Jerry are saying this.

I did stray from the topics that were raised when I mentioned the business conferences. But I made sure to tie that in by mentioning that Steve talks about these in his Cato paper.

[Daniel Kuehn]

Mario and Gene both make very good points.

On Mario's point - I did some rooting around last night to see how Hoover is taught in high school. I looked at teacher's resource sites, textbook sites, AP sites, and Cliff's notes.

I was surprised by how accurately they portrayed him - much better than the claim about slashing spending. I compile that material here, if you're interested: http://factsandotherstubbornthings.blogspot.com/2012/02/hoover-in-high-school.html

I think most people actually have a fairly fair view of Hoover. He's conceived of as a "do nothing president", to be sure. I think that's fair enough. But I don't think anyone is really taught that he cut spending. Just that he didn't do enough and didn't provide direct relief.

As you say, it's always hard to recover historical figures, but as historical figures go I think we do OK on Hoover.

[Greg Ransom]

Gene. That's an argument form FAIL you've given us.

[Greg Ransom]

"Its really obvious when you try and move the goalposts."

Daniel does this constantly.

And I insist that such things need to be explicitly discussed if a conversational community is going to save itself some time, or if folks want to make progress when Daniel is part of the conversation.

Daniel will move the goalposts, and falsely explicate the topic at hand.

Happens all the time.

[Daniel Kuehn]

Greg - when have I ever moved the goalposts?

Take a look at how it's been characterized in this discussion.

I discuss two things that Steve discussed, and because I don't discuss a third additional thing that Steve also discusses I get accused of "moving the goalposts"? Please. I don't think the term means what you think it means.

[colin]

Oh good lord. Here is exactly the portion of Krugman's post that Steve had a problem with:

"The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did."

And Steve's reply:

"Actually Kruggie, that doesn't sound like Hoover, that sounds like a big pile of bullshit."

Over and over Krugman is refering to *spending* cuts. He says it 3 times in that paragraph alone. Steve then goes on to show, or at least attempt to show, that Hoover did not, in fact, cut spending, he actually increased it substantially.

Now lets look at your reply:

"My understanding is that the deficits were primarily caused by reduced tax revenue... that doesn't seem like an anti-austerity deficit to me."

The first thing you do is try and change the subject to *deficits* when it is clear, even to a non-PhD like myself that Steve was trying to refute the notion that Hoover cut *spending*.

Again, I can read.

Yes Steve mentioned both taxes and deficits in his post, but the obvious, primary point of Steve's post is to refute the notion that Hoover cut spending. Even a non-economist, cube-drone like myself can see that, everyone else on this thread sees that, yet somehow you "really don't understand the argument on this one." Perhaps if you really dont understand then the problem is you.

Again, you arent being clever, its not hard for everyone to see you trying to threadjack, and its annoying, to me, at least, to see you try and act like a wounded animal when you get called on it.

[Daniel Kuehn]

re: "Over and over Krugman is refering to *spending* cuts. He says it 3 times in that paragraph alone."

Right - and several times now I said that I agreed with Steve on that. I would have thought that not disagreeing with him initially would have indicated that.

But Hoover's tax increases and the source of a large portion of the deficits in factors out of Hoover's control seems to suggest there is truth to the point that the Hoover administration had an austerity policy.

If you want to argue with someone who defends Krugman on the spending claim, go find someone who defends Krugman on the spending claim. I never have.

[colin]

"If you want to argue with someone who defends Krugman on the spending claim, go find someone who defends Krugman on the spending claim. I never have"

And here we go again. The point of my post was not "do you think Hoover cut spending?", I dont care what you think about Hoover. My point was that you threadjack and change the subject when your backed into a corner, then try and act all hurt when people call you out on it. And what a suprise, when I call you out on it you then changed the subject.

Again Daniel, you are not clever, this tactic you use is not clever, its obvious to everyone that you are just trying to avoid looking stupid when someone calls you out.

This is why i came out of lurker mode, im so tired of children like you crapping on every thread everywhere I go. Its like you think the rest of the world is too stupid to see the tactics you use, that you think that, despite being called out on this stuff over and over, that you are somehow pulling something off. You are not fooling anyone, Daniel, you just look stupid and egocentric.

[Daniel Kuehn]

one more time colin -

- What you're angry with is contingent on the assumption that my comment was on that one part of Steve's post. It wasn't. So you really have no reason to be upset about.

- The things I did want to comment on were not off topic at all.

The only threadjacking being done here is by people who are obsessing over a perfectly straightforward comment.

re: "this tactic you use is not clever"

WHAT TACTIC??? It's a freaking blog comment.

[KP]

Daniel, how is the public perception of Hoover as a "do-nothing" president fair? When he himself made it clear that he was unprecedented in doing something?

[Daniel Kuehn]

Because what he did do was a drop in the bucket.

Spending increased under Hoover relative to Coolidge - but not by all that much. Federal spending under Hoover's largest budget (1932) was still lower than spending in 1921 (which I'm regularly told was an example of "austerity"). In other words, Hoover was spending as much as was being spent a decade earlier.

Yes, we must all acknowledge that Hoover increased spending over his tenure.

The level of spending can still be fairly considered "do nothing" in the context of federal spending to date and in the context of the massive depression that he was facing.

In 1929, maybe he didn't know any better.
In 1930, maybe he still didn't know any better.
In 1931, 1932, and 1933 there was simply no excuse (for Hoover or for Roosevelt for that matter). The short version is that this was a do-nothing president. The long version is that he did increase spending and introduce some measures that would do some good if they were scaled up. But if you had to come up with a catch-phrase for the administration, "do nothing" is eminently fair.

[Daniel Kuehn]

This is what a "do nothing" presidency looks lie. Hoover and the early Roosevelt can fairly be described as "do nothing". The only thing going for the American people in terms of macro policy was going off gold:

http://1.bp.blogspot.com/-QngQHUG5-MQ/T0OZpYjm8iI/AAAAAAAABNQ/oQIc1ua9x0c/s400/depression%2Bausterity.jpg

[colin]

You know what? Im going to go back to lurker mode. I truely hope that one day you grow up enough to see what a fool you are being. When that day comes, here's hoping you have to deal with someone just like you.

[Mario Rizzo]

I find that a lot of times these discussions with Daniel come down to hard-to-pin-down points like (in this case) the *impression* people have of Herbert Hoover, the *impression* one is trying to convey by saying that Hoover was for austerity. Or even better: Did Hoover pre-figure Roosevelt or was he simply the inadequate last gasp of the "old" approach?

Let us say that Hoover had been a Democrat and had served the traditional two terms but pursued the same policies he actually did. Then his successor FDR comes into office and says, "Let us continue... but we need to do more and better." Forgetting about monetary policy (not under the control of the president), how does the story look now?

If you believe, on analtytical grounds, that Hoover's policies were qualitatively wrong (that is, not merely "not enough") and that FDR's policies did not cure the depression (again because they were qualitatively wrongly not merely "not enough") then you will see continuity -- with the tax increase being a possible mistake. And then you will not want to paint Hoover as "austerity" and FDR as "largesse" (I don't know a term)but Hoover as largesse I and FDR as largesse II Now, on the other hand, if you think that FDR's policies were correct you must give Hoover some credit. He set in motion programs and policies that could be expanded later, but he mistakenly raised taxes.

So either way I do not see Hoover, painted accurately with facts and charts in hand, as being the anti-FDR. STOP HERE IF YOU LIKE THE SIMPLE LIFE.

I do think, based on Hoover recently uncovered massive book, Freedom Betrayed, that he later did regret or, at least, re-evaluated his interventionism. What I mean is that with Roosevelt he saw the logical extension of the policies he had set in place. And he did not like it. Hoover was a "victim" (please do not take this word too literally) of the slippery slope process. He was not acute enough to have seen it when in office.

[KP]

Yikes! When "do-nothing" can be fairly attributed to a man who did a lot I step out.

[Barkley Rosser]

I have not read Hoover's book, but in fact he had shifted ground by the end of his term, as has been noted here. In 1932 his budget did not "slash spending," but it did lower it slightly for 1933, and he had a large tax increase passed. Ironically, FDR would run against him for not cutting the deficit enough to get a balanced budget, although FDR certainly did not make any moves in that direction, at least not immediately.

Curiously, if one wanted to make a case for austerity (if not necessarily "slashing spending") as a way to halt a decline, Hoover's policy of 1932 might offer support (although it was more through tax increases, which most here do not like). After all, while the clear bottom to GDP came about the time of FDR's inauguration, there appears to have been a near bottom and more or less flattening out in the summer of 1932. The austerity budget of Hoover does not offhand seem to have made things worse, with most of the damage already done in 1931 and early 1932, even if it did not clearly turn things around into an improving situation.

Indeed, the history of Hoover and his policies is a good deal more complicated than most observers on any side recognize.

[Barkley Rosser]

BTW, for the record I shall retract my poke at Steve about the tone of his post. I did so initially because the tone of the discussion here went, as I said, "off the rails," with the name calling initiated by those supporting Steve's position, perhaps inspired by Steve's use of strong language. Steve is and has been generally correct that Krugman has mischaracterized the historical record on Hoover's policies repeatedly.

[Current]

I'm a bit late to this discussion, anyway...

This sentence Daniel Kuehn wrote over at his blog sums up the problems of this debate for me:

"The point is he didn't increase it [spending] nearly enough, which looks like austerity to those of us who think he didn't increase it enough."

It seem to me that to Keynesians a government must perform a large stimulus of some sort to be Keynesian by them. A simple increase spending isn't regarded as enough.

What I don't understand though is why the Keynesians here don't consider tax-and-spend to be stimulative. That's not what traditional Keynesianism says. Old Keynesianism says the balance budget multiplier is 1. It says for every dollar the government tax from one party and spend elsewhere there will be one dollar of extra NGDP, and in a recession one dollar of extra RGDP.

Or, is this all about judging if Hoover was a New Keynesian?

[Daniel Kuehn]

Mario -
re: "I find that a lot of times these discussions with Daniel come down to hard-to-pin-down points like (in this case) the *impression* people have of Herbert Hoover, the *impression* one is trying to convey by saying that Hoover was for austerity. Or even better: Did Hoover pre-figure Roosevelt or was he simply the inadequate last gasp of the "old" approach?"

I'm not sure what's so hard to pin down about my position.

But as to the question you pose - I think the point is he was both. The early Roosevelt himself was the actual "last gasp of the old approach", but things were obviously changing.

I say Hoover was an example of austerity, and you guys seem to assume that's the same as saying that Hoover cut spending (he obviously didn't cut spending), or that Hoover is an anti-FDR (he obviously isn't - the continuity between the two administrations is well known, at least among people who think and talk about this period).

[Daniel Kuehn]

Current -
I think that turns on whether you separate tax and spending or not. It seems sensible to separate them because they don't have to move together.

Together, of course "tax and spend" can be stimulative (albeit weakly so). But if you separate them, "taxing" is unambiguously contractionary relative to "not taxing", and "spending" is unambiguously expansionary relative to "not spending" (assuming the context of a depression, of course).

I think you just have to clarify the counterfactual, and since taxing and spending can move in either the opposite or the same direction, most people separate them when talking about counter-factuals.

[Greego]

"I say Hoover was an example of austerity, and you guys seem to assume that's the same as saying that Hoover cut spending"

In the article that is the focus of Steve's post, 'slashing spending' is Krugman's definition of austerity economics.