The Disasterous and Instructive Presidency of Hoover

All the Hoover-was-doggedly-laissez-faire lore is terribly incorrect.  One probably reacts: "He was a Republican so he must have been against government intervention, right?"  That assumption is a bit like thinking Jeffrey Dahmer was a vegetarian if he did not eat animals.  That's a disgusting analogy but so is myopic interventionism!

Revisiting the historical record sheds truth on the matter and gives us deeper insight into what did actually cause that particular depression to be so great.

Hoover does indeed deserve blame for the depression but not because he did too little.  As a self-described progressive he intervened too much and set the table for the hyper interventionalism and meddling of the New Deal.  Good one, Herbie!

To that point in history (1929-1932) Hoover set all the records in relation to government intervention in the economy and spending, only to be eclipsed by the dizzying manipulation of society 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-coordinated 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 government-dictated 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 as the tariff killed global demand for American products.

• 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 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 a government-created cartel of large corporate interests in the form of the Federal Farm Board. This board colluded production interests, 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 entities 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.  Just as important, decidedly unconstitutional, all.

And all these gross interferences in the market occurred during the onset of a depression, paving the way for the only Great Depression in American history:

• 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.

• When the country could least afford deficit spending, Hoover piled it on.

So history tells us the Progressive-Light, damn-the-Constitution RINO phenomena is not a new one in the Republican Party.  This history also teaches as long as the government is too big, its authority too far reaching, and our freedoms insecure, we need to place no faith in political parties and the politicians that bear their banners.

If only there were some written document into which we could place our trust, to which these politicians had to swear to uphold and defend, something that limited the power of the offices of the government they occupy, something that was the first in history to prioritize individual rights over the privileges of the power of the state...

Video: Now and The New Deal

 "Underlying a lack of faith in free markets is an underlying lack of faith in freedom itself."~~~Milton Friedman

Are there similarities between the current recession and the FDR New Deal era?  The folks at Reason put this video together arguing so much.

Statists and enthusiasts of excessive control of the market enthusiastically liken Obama to FDR, the premise of their enthusiasm being FDR's hyper intervention saved the country from a crushing depression.

The comparison of Obama with FDR, however, is not be a flattering one.  As Jim Powell amply illustrates in his book FDR's Folly, government control and manipulation of nearly all aspects of the economy--and therefore society--turned a not uncommon to American history depression into a deep and abiding depression, lasting over a decade.  If President Obama is the new FDR, we have worse economic times ahead, and for a long time.

Hence, the great depression.

Put another way, why was this one depression bad enough to be remembered our only great depression?

A market economy runs primarily on freedom: cooperation among individuals, contractual agreements, entrepreneurship, pursuit of respective self interest, and marginal business growth require free society.  In order to create wealth, employment, and standard of living for a diverse population of millions, capital and limited resources with alternative uses must be efficiently allocated and utilized.  Controlled and over regulated markets have never been up to this task and create the uncertainty in market condition-- lack of freedom, that is--that stagnates growth.  Government destruction of the freedom required by the market and regulation beyond its proper role (and there is a good role for government) inevitably brings about economic stagnation and high unemployment.

Remember to ask, what and who is "the free market," or what is more commonly tossed around, "the private sector"?  It is nothing less than you, me, and other individuals freely and responsibly pursuing our respective self interest.  Demand more regulation of "the private sector" and you're demanding more control of your own lives! 

Of course, it's never ourselves and our own liberty we don't trust; it is always the other guy.

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: