I feel the need to come to the defense of Herbert Hoover, if for no other reason than this fundamental misreading of history will only set us up for costly mistakes in the future. The left long has labeled George W. Bush "President Hoover" for presiding over a historic economic crisis. Now the meme has been picked up by the right, as well.
Yet to paraphrase Lloyd Bentsen, President Bush, you're no Herbert Hoover. Among the differences: Hoover (1874-1964) was a self-made man, who worked his way through the new Stanford University, made a fortune as a brilliant engineer, then gained international acclaim for coordinating relief for refugees in World War I. Although a Republican, Hoover came from the party's Theodore Roosevelt progressive wing. He was mistrusted by Calvin Coolidge, and for good reason. Hoover wanted to move away from the rapacious capitalism of the 1920s to an ethic that embraced the common good and the obligations of business to society. He was a product of his time of scientific and engineering wonders: The Great Engineer, who could bring pragmatic, fact-based solutions to governing.
Unfortunately, Hoover was elected in 1929, not 1912 — the era in which his worldview had been shaped. After the great crash and with the gathering depression, Hoover was overwhelmed. His administration launched the greatest expansion of government intervention in the economy up to that point, including programs and ideas that would live on in the New Deal. Yet it did little good as unemployment reached a staggering 25 percent and Americans were forced into shantytowns they called Hoovervilles.
Critically, Hoover couldn't get behind direct federal aid for individuals — he believed it would destroy American character. He allowed himself to be punked by Douglas MacArthur's brutal dispersal of the Bonus Marchers, World War I veterans camped around Washington demanding an early payment of money Congress had already promised them. Hoover was ill-suited for the new media of the age: radio. Shy and reserved, he lacked any charisma. So when the nation needed it the most, he couldn't reassure or inspire confidence. Tragically, events turned him into the very reactionary he once disdained. And he destroyed the Republican Party for a generation.
Yet if President Bush is far from Herbert Hoover, the Great Engineer's era offers a bright cautionary flag for our own. Hoover was trapped in the thinking of the past, as were most leading economists and businessmen. There's a difference between timeless wisdom (see Lincoln, Abraham) and frozen-in-time thinking. Hoover wasn't the only leader overwhelmed by the force, speed, depth and newness of the Great Depression. Most were.
The First New Deal was not immune. With initiatives such as the National Recovery Act, FDR's brains trusters sought to bring centralized industrial planning. It failed even before being declared unconstitutional. Fortunately, Franklin Roosevelt possessed an unusually supple and shrewd mind. He didn't hesitate to experiment while tossing aside what failed to get results. Thus, the New Deal as remembered, as influential movement that built the middle class and provides the safety net we still enjoy, was an amalgam of policies. They were both effective and forward looking, and built upon by both parties right up through Nixon. FDR saved capitalism and the country at a time when fascism or communism were seen as viable solutions to an unprecedented crisis.
The greatest cause for unease at the moment is a reprise of early-Depression thinking. Henry Paulson and his class gave us this disaster, and he's the one to fix it? A huge bailout for Citigroup, with its bushels of meaningless "securities" — and nothing to use Detroit as the industrial base for a green economy? It's not even that Paulson and Co. are venal — although they may be. Or that they are using the waning days of the Bush Administration to loot the Treasury to bail out their friends in the financial kleptocracy — although that, too, may be true.
The biggest danger is that they simply can't set aside failed thinking, and will spend trillions trying to resuscitate the dead and the deadly. So here are the house builders, lining up for their taxpayer "rescue" — so we can go back to the sprawl that helped precipitate the disaster and is a key culprit in global warming and declining oil and water resources.
Bush is no Hoover. This is not the Great Depression. It may well be worse unless the Obama administration makes all the right moves.
The following excerpt is rather eerie. Except for the reference to high interest rates, the parallels to today are remarkable. From Wikipedia:
Marriner S. Eccles, who served as Franklin D. Roosevelt’s Chairman of the Federal Reserve from November 1934 to February 1948, detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951)[25]:
As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers’ loans, and foreign debt. The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.
The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.
Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.
This then, was my reading of what brought on the depression.
https://en.wikipedia.org/wiki/Great_depression#Causes
From emil
“Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929”
Substitute six trillion and CDO’s for 6 billion and stock market speculation above and you would describe the last five years perfectly.
Interestingly enough, regarding Mr. Talton’s thesis, is this:
Franklin D. Roosevelt blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs and blocking trade, as well as placing millions on the dole of the government. Roosevelt attacked Hoover for “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of leading “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, accused the Republican of “leading the country down the path of socialism”.
These policies pale beside the more drastic steps taken later as part of the New Deal. Hoover’s opponents charge that his policies came too little, and too late, and did not work. Even as he asked Congress for legislation, he reiterated his view that while people must not suffer from hunger and cold, caring for them must be primarily a local and voluntary responsibility.
Even so, New Dealer Rexford Tugwell later remarked that although no one would say so at the time, “practically the whole New Deal was extrapolated from programs that Hoover started.”
https://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression
(See in particular footnotes 30 and 31 in the above cited article.)
That said, it appears that FDR, despite taking his programs well beyond the scope envisaged by Hoover, didn’t take them far enough. At least part of this was the fault of the U.S. Supreme Court, which ruled in 1935 that the Roosevelt administration’s National Recovery Act (NRA) was unconstitutional, and again against the Agricultural Adjustment Act (AAA) in 1936.
Whatever the cause, the New Deal was only partially successful:
“Massive increases in deficit spending, new banking regulation, and boosting farm prices did start turning the U.S. economy around in 1933, but it was a slow and painful process. The U.S. had not returned to 1929’s GNP for over a decade and still had an unemployment rate of about 15% in 1940 — down from 25% in 1933.”
https://en.wikipedia.org/wiki/Great_depression#Causes
It took much more massive government spending than the New Deal to take America out of depression/recession, but only the threat of world war was enough to bypass judicial/constitutional concerns:
“In the United States, the massive war spending doubled the GNP, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts. Productivity soared: most people worked overtime and gave up leisure activities to make money after so many hard years. People accepted rationing and price controls for the first time as a way of expressing their support for the war effort. Cost-plus pricing in munitions contracts guaranteed businesses a profit no matter how many mediocre workers they employed or how inefficient the techniques they used. The demand was for a vast quantity of war supplies as soon as possible, regardless of cost. Businesses hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 11 million working-age men serving in the military. These events magnified the role of the federal government in the national economy.
In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt’s critics charged that he was turning America into a socialist state. However, spending on the New Deal was far smaller than on the war effort.”
https://en.wikipedia.org/wiki/Great_depression#Rearmament_and_recovery
P.S. I don’t want to give the mistaken impression that I’m advocating a war economy or anything of the sort. I’m merely saying that it took the kind of massive government spending and regulation which, at the time, was only done for the sake of the war, to fully lift America out of the Great Depression.
The point I would now add, on top of that, is that there is NOTHING magical about war expenditures: the critical factor was the size of the economic stimulus. There is absolutely nothing saying that, had Hitler not threatened the world, America could not have used similar measures for entirely peaceful purposes in order to escape depression. The same is true for other governments which also managed to end depression in their countries by means of war mobilization and the vast expenditures and hiring which went with it.
hmm late me think about it!!!
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https://www.dissertation-help.co.uk/
Mr Talton,
You are giving me a post graduate education in political/economic history that I was unable to grasp in high school and college.
Thank you.
One more thing that really needed to be pointed out in my last comment, is the fact that the U.S. government’s massive World War II spending to put the country on a war footing, wasn’t just any old spending: it was a massive capital expenditure to expand America’s MANUFACTURING base.
After WW II, Cold War military spending continued to contribute somewhat, but — and this is the critical point — all those factories that reverted to the production of peacetime goods (for consumers and businesses) got to keep the expanded/improved manufacturing infrastructure that the government had paid for during the war. This, along with other factors, lead to a peacetime American manufacturing boom after the war. In effect, American industry got a big injection of “socialist” investment.
Other factors:
The G.I. Bill, along with the post-war (Cold War) need for strong “bread and butter” unionism to co-opt Communist appeal to the working classes, helped insure that the pre-war consumer income crisis did not recur, by expanding the middle class. (Revolution, and the upheaval and doubts which accompany it, is a lot less appealing if you own a nice little house in the suburbs.)
European manufacturing and other infrastructure was heavily damaged by bombing and other ravages of war. While it’s true that we helped rebuild Europe after the war, the expenditures were relatively small compared to what the U.S. spent on its own manufacturing investment during the war; the result was that Europe’s war losses insured that they started the post-war manufacturing race with a handicap, while America’s geographic isolation and its own “socialist” war formula for growth gave it an unimpeded head-start.
Continuing U.S. government investment, as in the Interstate Highway System, didn’t just make things easier for tourists or insure military transport in times of crisis, but made interstate commerce much easier and more interconnected, thus contributing also to economic growth. Other far-sighted government investments (e.g., scientific and technical research and development, subsidizing both academia and business) also contributed.
https://www.thenation.com/doc/20081208/greider
https://www.thenation.com/doc/20081208/greider_web
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