Revisiting Hoover, Again

                                                           

                                                           

This weekend I read good article by Johan Goldberg.  It addresses the not uncommon comparison of President Obama to FDR and touches on all the concomitant historical fables (oximoron intended) that surround Herbert Hoover and the Great Depression.

Reading the article prompted me to re-post some scribblings about Hoover, FDR, and the anti laissez-faire Hoover policies that laid the foundation for hyper interventionist policies of the New Deal.

Free market apologists should agree with the big government advocates who reflexively proclaim that Hoover was a terrible president.  He was indeed a terrible president because his policies were a prefiguring of the New Deal that was to come, not because he was a "hand's-off" champion of free markets.  That framing of Hoover is a myth.

History teaches that misguided and excessive government intervention caused and prolonged the Great Depression, not "excesses" of capitalism.  It started with the Fed's misappropriation of the money supply before and after the crash of 1929, continued with Hoover's obsessive grasping at market forces, then went into overdrive with the New Deal for eight years until America's entry into World War II.

                                                                      Two excellent sources on this history are Powell's FDR'S Folly and DiLorenzo's How Capitalism Saved America.  DiLorenzo's chapter 9, Did Capitalism Cause the Great Depression? begins with a quote from FDR's chief economic adviser, Rex Tugwell:

"The ideas embodied in the New Deal legislation were a compilation of those which had come to maturity under Hoover's aegis...We all of us owed much to Hoover."

To my earlier post, "Forget FDR. Obama is Looking A Lot Like Herbert Hoover" :

Progressive supporters of President Obama like to fancy a comparison of him to FDR. I think our president deserves a comparison to Herbert Hoover as well.

What, by the way, is the standard public perception of President Herbert Hoover and the Great Depression? Is runs something like this:

President Hoover deserves the blame for the Great Depression because he did
nothing while the country fell deeper into economic misery. He favored laissez-faire economics and refused to use the government to intervene in the economy, leading to higher unemployment and a deepening of the depression. It required the interventionalist policies of President FDR to recover the economy and save capitalism.

None of the Hoover-was-doggedly-laissez-faire lore is true. The general script on Hoover is part of the fable that plagues the history of the Great Depression. Revisiting the historical record sheds truth on the matter and gives us deeper insight into what did actually cause the Depression to be so Great.

In truth Hoover deserves blame for the depression because he intervened too much and set the table fore the hyper interventionism and meddling of the New Deal.

Hoover was a interventionalist across the board. He was anything but a proponent of "laissez-faire" economics. To that point in history (1929-1932) Hoover set all the records in relation to government intervention in the economy, only to be eclipsed by the dizzying manipulation of the market by his successor, FDR.

Here are some examples, from an excellent book on economic history, How Capitalism Saved America, by Thomas J. DiLorenzo.

    •    As Commerce Secretary under President Coolidge, Hoover disliked open competition in the market and favored government-sponsored competition, calling it "cooperative competition." This laid the groundwork for FDR's National Industrial Recovery Act and the National Recovery Association, a noxious system whereby businesses were forbidden from competing below price levels. Policies were set by business cartels supervised by government, and enforcement was provided by the government.
    •    As president he pushed for and signed the Smoot-Hartley tariff act. This high tariff cut off trade with consumers around the world, set off retaliatory tariffs from other countries, and greatly depressed domestic production of agricultural and manufacturing goods.
    •    Hoover was an enthusiastic proponent of public works. As DiLorenzo points out, by 1931 (FDR was not president until 1933) total government expenditures on public works was as high as any other year in the decade! This is astounding when we consider the millions FDR put on the public payroll with his myriad of works programs. Hoover also encouraged the state governments to increase spending on public works.
    •    By 1931 Hoover's spending created a $2 billion deficit.
    •    He pushed through the largest tax increase in history, to that point in time. Income, corporate, surcharges, estate, and gift taxes all went up.
    •    Hoover created the Agricultural Marketing Act, creating another government-created cartel of large corporate interests in the form of the Federal Farm Board. This board colluded production interests that reduced production and drove up prices of agricultural goods. This was the predecessor of FDR's Agricultural Adjustment Act.
    •    He created the Reconstruction Finance Corporation (RFC). This board used tax payer funds to prop up uncreditworthy with credit, leading to the watering down of free market pressures and forces in lending and finance. This effectively steered capital investment away from productive ventures and job-creating businesses, skewing the market and depressing wealth creation and, therefore, job creation.

Decidedly not laissez-faire, all.

And all these gross interferences in the market occurred during the depression, paving the way for the Great Depression:
    •    When the market needed more freedom, not less, to create wealth and jobs, Hoover intervened.
    •    When people needed to save more of their own property in the form of savings, Hoover increased taxes.
    •    When entrepreneurs and businesses needed more certainty in the market in order to invest and plan for the future, Hoover rocked the boat with interventionalism.
    •    And when the country could least afford deficit spending, Hoover piled it on.

So, with the the Stimulus Bill piling on to the debt, the health care bureaucratic boondoggle thrown on the people and businesses, tax rates nearly certain to go up in 2011, a finance regulatory bill that exempts the government-run Fannie Mae and Freddie Mac, the taking over of a portion of the auto industry, and the looming talk of a crippling Cap and Trade bill, I think President Obama bears more of resemblance to Herbert Hoover than FDR, the hero of his progressive base.

Here is a video coverning the same:
 

Video: I.O.U.S.A.

You may recall the Chairman of The Joint Chiefs of Staff, America's highest ranking military official, remarking that the national debt is the biggest threat our national security:


There are obvious reasons why he would say this: a staggering debt puts on a road to national insolvency, cripples our ability to finance our own defense, puts us in a place where interest payments consume more than the defense budget, etc.

Other reasons include who actually holds our debt.  The Chinese buy up our debt and continue to float us loans; this in effect means we're mortgaging our future to China, as well as other countries.  Can we seriously expect this to not adversely affect our foreign affairs?

Worst of all, the debt and unfunded liabilities put us on a path to certain serfdom, to borrow from Hayek, in that we will implode upon ourselves.  We will one day have no one to buy up our debt to fund the ever-growing entitlement rolls.  At that point we will either raise income taxes to a crushing level wherein we become Sweden, Jr. and nearly completely wreck our creative market capabilities, or we will face a banana republic scenario where the tax payers put up a tax revolt in the face of massive redistribution or the the tax consumers revolt in demand of the entitlements the demagogue pass-the-buck politicians have promised over the decades.

A well done documentary on the debt is I.O.U.S.A. One Nation. Under Stress. In Debt.  (There is a 30 minute version on Youtube.  I attempted to embed and upload the video here, but the embed has been disabled.  You can link to it here.)

The documentary features David Walker, former Comptroller of the U.S., Government Accountability Office under Reagan, Bush 41, and Clinton and currently president and CEO of the Peterson Foundation.

The video was completed in 2007 and focuses much time on the acceleration of the debt under Bush 43.  It also relates the debt-to-GDP ratio of past administrations and times.  How chilling to think what has been piled on since 2007.

I recommend this documentary to everyone.  We cannot stay on this path of insolvency.  The U.S. cannot survive if it does, and individual freedom certainly will take a back seat to the dire fiscal circumstances that debt will bring upon us.