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I think the worst distortion of history during this period is that Hoover was tagged as a do-nothing president while soup lines formed and the country had a full-scale economic meltdown. In truth, Hoover pursued a very vigorous response that would have pleased the Keynesians, had they actually existed at the time. He jacked up government spending by roughly 50% and upped the tax rates. And Morgenthau, FDR's Treasury secretary credited Hoover's recovery programs as the foundation of the New Deal programs.
So while Hoover didn't do nothing, he did a lot of damage by doing exactly the opposite. Truth is, all that government spending was not a prescriptive for the Great Depression. The huge surge in government spending did nothing to relieve the core economic problems and the skyrocketing tax rates squashed investment and consumer spending. It says a great deal that unemployment in 1939, after almost a full decade of government programs to fight poverty and unemployment, was almost as bad as unemployment in 1932. Hitler, Tojo, and Mussolini bailed America out of the Great Depression, not Franklin Delano Roosevelt.
And, while this was beyond the control of the Hoover administration, let's not forget the Federal Reserve's disastrous decision to jack up interest rates during the opening stages. This was an incredibly stupid move, the equivalent of fighting a middling brush fire by hosing it down with gasoline.
I think people would be really informed by comparing the Great Depression to the Depression of 1920. Whenever I make this statement, people look at me and ask, "What Depression of 1920?" Yet it existed, and was just as severe as the opening stages of the Great Depression. However, what makes it markedly different was the shortness of its duration, instead of being a lingering 12-year ordeal, the Depression of 1920 was over in a matter of 18 months. What was also markedly different was the government response during the early phases. Rather than hike taxes and spending, the government instead slashed spending and tax rates. That's why the Depression of 1920 is scarcely a blip in American economic history today.
Several of you have now expressed the viewpoint that the New Deal and even Herbert Hoover's attempts to end the Great Depression through means like the Reconstruction Finance Corporation and increased government spending were doomed to failure.
Not one of you armchair generals has told me what background you have in economics. I wonder if even one of you has taken an Economic History course in college. In the alternative, what have you read? What have you studied?
Let's talk about what did happen in 1929 and the 1930's. In 1929, the stock market crashed or underwent a huge correction. What caused what happened on Wall Street to spread to the rest of the country were subsequent bank failures that were tied to the fact that banks had lended a great deal of money that was used to "play the market". There were also issues of the incredible lack of regulation of the banking industry at the time. As banks began failing, a sort of chain reaction occurred as the Federal Reserve chose to play a "laisse faire policy" and simply allowed one bank after another to go down with the depositors totally wiped out. As this occurred, people began showing up at even well run banks and demanding their money. No bank is set up to be able to pay back its depositors 100% of what they put in. The bank makes money, taking your money, and loaning it to others. So, a run on even a well-managed bank would mean the collapse of that institution as well.
As this sort of thing occurred, a general sense of panic spread throughout the country. No business would invest in this climate. No bank could or would loan money. Few consumers would make purchases. All these activities caused businesses to lay off employees. Unemployment was very high by the time FDR took office in March of 1933. Bank failures had reached a point where a "banking holiday" had to be declared to help restore confidence in the banking system.
Other things occurred that made this economic collapse worse. The Smoot Hawley Tariff raised tariffs to record high rates. Other countries retaliated and exports to other countries dropped dramatically. Hoover did raise taxes as you say and this is anti-Keynesian policy in a bad economy.
The state of economic knowledge in 1933 was very poor. John Maynard Keynes would not write his "General Theory" until 1946. The state of emergency in America was so great in 1933 that most of FDR's efforts were not focused per se on ending the Great Depression. Most of them initially were simply focused on relieving the utter destitution, misery, and even starvation that many people at that time were faced with. Programs like the WPA (Works Progress Administration) and CCC (Civilian Conservation Corps) were simply set up to give unemployed adults and teenagers work and some minimal amount of compensation for doing it. Other efforts, like the Glass Stegall Banking Reform Act and the Securities and Exchange Comission Act of 1934 were set up to help stabilize and restore confidence in the banking system and the securities markets. IMO, FDR's greatest accomplishment was not ending the Great Depression. His great accomplishments were his success in relieving much misery and poverty during the 1930's and restoring public confidence in the financial system.
There was improvement in the economy from 1933 to 1937 and this coincides with a time when coincidentally the government was engaged in heavy deficit spending. It was when FDR became concerned about deficit spending and attempted to move towards a balanced budget that the economy worsened in 1937. At this point, FDR and others began to see the connection between deficit spending and economic recovery. The final proof that FDR was pursuing the correct policies didn't come until World War II. The massive amount of spending necessary to fight the war lifted the country up from double digit unemployment to a spectacular economic recovery in 4 or 5 years. Those who claim FDR's policies were a failure conveniently ignore the effect that the spending engendered by World War II had on the economy.
Just a couple of other comments from someone has an economics background:
1. Mainstream economists that include even the late Milton Friedman accept the notion that deficit spending is necessary to lift a bad economy out of its doldrums. This is a policy that has been followed since the end of World War II. Even Ronald Reagan used this policy when he essentially cut tax rates without decreasing federal spending in 1980 when we had double digit unemployment. What was the result? A fairly rapid economic recovery that took place over 6 to 8 years.
2. The only economists who tend to reject Keynesian Economics belong to the "Austrian School" which is a marginal branch of economics to whom perhaps 1% of economists adhere. BTW, if you are going to claim that 99% of all trained economists are incorrect, you'd better have some credential of your own if you expect anyone to listen to you.
3. I often hear references to the state of the economy in 1920. The cynical side of me says this is something that is being spread about in Tea Party propaganda these days. Whatever the case, the reasons for that recession ending quickly are not what anyone thinks. The 1920's were a unique time in American History. A wave of innovation was unleashed in the 20's that included the development of radio, electric appliances, mass production techniques for automobiles, and airplanes. This wave of innovation was sufficient to overcome any short term economic difficulties. Another factor, was the development of consumer credit. This had not existed in abundance before 1920 and it enabled manufacturers to sell all sorts of things to the public which had limited purchasing power. In fact, the collapse of consumer credit was another major factor in initiating and prolonging the Great Depression.
I am startled at the number of conservatives who seem to even reject policies initiated by Ronald Reagan these days. What he did was "proof positive" that Keynesian Economics works. One has to be virtually blind, deaf, and dumb not to see that.
........Not one of you armchair generals has told me what background you have in economics. I wonder if even one of you has taken an Economic History course in college. In the alternative, what have you read? What have you studied?...........
And there you go again. I used to play that game with you.
You sucker someone in to telling you his source and providing you with a bibliography and then you will attack or ridicule the source, all while never revealing your own qualifications.
In my case you ridiculed a source because he had appeared on Fox News, and never bothered to look and see what his qualifications which were, BTW, extensive.
You cannot declare someone else's opinions irrelevant and then expect everyone to accept yours as sacrosanct.
And there you go again. I used to play that game with you.
You sucker someone in to telling you his source and providing you with a bibliography and then you will attack or ridicule the source, all while never revealing your own qualifications.
In my case you ridiculed a source because he had appeared on Fox News, and never bothered to look and see what his qualifications which were, BTW, extensive.
You cannot declare someone else's opinions irrelevant and then expect everyone to accept yours as sacrosanct.
What I can do is point to a series of mainstream economists that have served in such capacities as on the President's Counsel of Economic Advisors (Republican and Democrat) or have occupied positions at Harvard, Yale, or the University of Chicago. The University of Chicago has a rather conservative bent to it. Yet, I challenge you to find economics professors there who claim that the whole Keynesian model is flawed.
The poster I was responding to actually made the comment that cutting government spending would end a recession. Slashing government spending would be the worst medicine of all. It will eliminate not only government jobs, but all the jobs created because the government employees are spending their paychecks on good and services. He also mentioned cutting taxes--which is part of the whole Keynesian prescription. That part of the plan probably did help end the recession of 1920.
Anyway, one would think the spending engendered by World War II and Ronald Reagan's experience cutting taxes (but not cutting spending) would end this argument once and for all. Even though there was remarkable economic growth during both periods, it does not end this argument those who choose to ignore the weight of economic history and instead focus on one isolated example (which I believe they misrepresent).
And there you go again. I used to play that game with you.
You sucker someone in to telling you his source and providing you with a bibliography and then you will attack or ridicule the source, all while never revealing your own qualifications.
In my case you ridiculed a source because he had appeared on Fox News, and never bothered to look and see what his qualifications which were, BTW, extensive.
You cannot declare someone else's opinions irrelevant and then expect everyone to accept yours as sacrosanct.
I think a better course of action would be to produce your own argument based upon the argument and not the person making it.
Several of you have now expressed the viewpoint that the New Deal and even Herbert Hoover's attempts to end the Great Depression through means like the Reconstruction Finance Corporation and increased government spending were doomed to failure.
Not one of you armchair generals has told me what background you have in economics. I wonder if even one of you has taken an Economic History course in college. In the alternative, what have you read? What have you studied?
Let's talk about what did happen in 1929 and the 1930's. In 1929, the stock market crashed or underwent a huge correction. What caused what happened on Wall Street to spread to the rest of the country were subsequent bank failures that were tied to the fact that banks had lended a great deal of money that was used to "play the market". There were also issues of the incredible lack of regulation of the banking industry at the time. As banks began failing, a sort of chain reaction occurred as the Federal Reserve chose to play a "laisse faire policy" and simply allowed one bank after another to go down with the depositors totally wiped out. As this occurred, people began showing up at even well run banks and demanding their money. No bank is set up to be able to pay back its depositors 100% of what they put in. The bank makes money, taking your money, and loaning it to others. So, a run on even a well-managed bank would mean the collapse of that institution as well.
As this sort of thing occurred, a general sense of panic spread throughout the country. No business would invest in this climate. No bank could or would loan money. Few consumers would make purchases. All these activities caused businesses to lay off employees. Unemployment was very high by the time FDR took office in March of 1933. Bank failures had reached a point where a "banking holiday" had to be declared to help restore confidence in the banking system.
Other things occurred that made this economic collapse worse. The Smoot Hawley Tariff raised tariffs to record high rates. Other countries retaliated and exports to other countries dropped dramatically. Hoover did raise taxes as you say and this is anti-Keynesian policy in a bad economy.
The state of economic knowledge in 1933 was very poor. John Maynard Keynes would not write his "General Theory" until 1946. The state of emergency in America was so great in 1933 that most of FDR's efforts were not focused per se on ending the Great Depression. Most of them initially were simply focused on relieving the utter destitution, misery, and even starvation that many people at that time were faced with. Programs like the WPA (Works Progress Administration) and CCC (Civilian Conservation Corps) were simply set up to give unemployed adults and teenagers work and some minimal amount of compensation for doing it. Other efforts, like the Glass Stegall Banking Reform Act and the Securities and Exchange Comission Act of 1934 were set up to help stabilize and restore confidence in the banking system and the securities markets. IMO, FDR's greatest accomplishment was not ending the Great Depression. His great accomplishments were his success in relieving much misery and poverty during the 1930's and restoring public confidence in the financial system.
There was improvement in the economy from 1933 to 1937 and this coincides with a time when coincidentally the government was engaged in heavy deficit spending. It was when FDR became concerned about deficit spending and attempted to move towards a balanced budget that the economy worsened in 1937. At this point, FDR and others began to see the connection between deficit spending and economic recovery. The final proof that FDR was pursuing the correct policies didn't come until World War II. The massive amount of spending necessary to fight the war lifted the country up from double digit unemployment to a spectacular economic recovery in 4 or 5 years. Those who claim FDR's policies were a failure conveniently ignore the effect that the spending engendered by World War II had on the economy.
Just a couple of other comments from someone has an economics background:
1. Mainstream economists that include even the late Milton Friedman accept the notion that deficit spending is necessary to lift a bad economy out of its doldrums. This is a policy that has been followed since the end of World War II. Even Ronald Reagan used this policy when he essentially cut tax rates without decreasing federal spending in 1980 when we had double digit unemployment. What was the result? A fairly rapid economic recovery that took place over 6 to 8 years.
2. The only economists who tend to reject Keynesian Economics belong to the "Austrian School" which is a marginal branch of economics to whom perhaps 1% of economists adhere. BTW, if you are going to claim that 99% of all trained economists are incorrect, you'd better have some credential of your own if you expect anyone to listen to you.
3. I often hear references to the state of the economy in 1920. The cynical side of me says this is something that is being spread about in Tea Party propaganda these days. Whatever the case, the reasons for that recession ending quickly are not what anyone thinks. The 1920's were a unique time in American History. A wave of innovation was unleashed in the 20's that included the development of radio, electric appliances, mass production techniques for automobiles, and airplanes. This wave of innovation was sufficient to overcome any short term economic difficulties. Another factor, was the development of consumer credit. This had not existed in abundance before 1920 and it enabled manufacturers to sell all sorts of things to the public which had limited purchasing power. In fact, the collapse of consumer credit was another major factor in initiating and prolonging the Great Depression.
I am startled at the number of conservatives who seem to even reject policies initiated by Ronald Reagan these days. What he did was "proof positive" that Keynesian Economics works. One has to be virtually blind, deaf, and dumb not to see that.
Wow. What an interesting and shrill diatribe, one more intent on establishing your credentials than actually discussing my points. Let's take on those one-by-one.
1) I simply pointed out that Hoover did not sit on his hands during the opening phases of the Great Depression, implementing policies inconsistent with the narrative that he did nothing. During his term in office, he raised government spending from $2.9 billion to $4.7 billion, a 62% increase in spending. Help explain where this is inaccurate. After all the topic of this thread is a "Presidents Who Got Too Much Blame," not a critique of Keynesianism. Oh well, never get in the way of a blowhard with an agenda.
2) To your point, I discussed how his policies would have pleased Keynsians, had they existed yet. You did read that little disclaimer of mine, didn't you? You realize that I was not indulging in anachronism, right? And help me understand what I said was inaccurate again. I mean, during the 2008 meltdown, weren't people such as Krugman standing on their chairs yelling for the money spigots to be opened wide? If so, Hoover's policy responses anticipated Krugman by 80 years. And, had you really bothered to read my post, you would have read that Morgenthau credited Hoover with a lot of the thinking that went into the New Deal. Or did you skip over that little point?
3) As to the 1920 Depression, the government policies are a matter of public record. The rest of your supposition is sheer, extravagant speculation. This is not a Harry Turtledove novel. We have to look at cause and effect. If, according to your contention that cutting spending is the worst possible thing to do, then why was the Depression of 1920 so short lived? According to your statements, that should have lengthened and worsened the downturn. Yet the exact opposite result occurred.
I have not the foggiest where you get the rest of your rant. I am not a Tea Party tin hat wearer. I'm not an Austrian. I'm not a Keynsian. And I'm not a Monetarist. Why? Because I feel that none of those theoretical bases fully explain economics. In my post, I didn't critique Reagan's policies, which hinged on deficit financing, and I also didn't critique either the Bush/Obama policies. And, as someone who operates heavily at the strategic level in the business, I think the FDIC is an awfully good thing. I mean, were you reading someone else's post or something? Were you on a board in an alternative universe and popped over here to answer?
As far as your statement about Roosevelt ending misery and poverty, I think you are skating on awfully thin ice. Yes, there was a easing in the unemployment rate in 34 and 35, but then the numbers began to climb back into the high teens in 37 and 38, and didn't break 15% until 1940. Had FDR's policies really been the panacea to the nation's economic ills, this is a difficult thing to explain. As it was, unemployment and GDP did not recover until World War II broke out, which leads me to believe that the policies implemented really were less effective than war, which led to total employment in the country, not to mention an escalation of the savings rate. And you yourself conceded that my criticism of Hoover hiking the income tax was on point.
Now on to your pompous little demand for our economic credentials. Pshaw. I took a couple of economics courses in college and that's it. But given the strategic advice I've given to clients over the past two decades, I've anticipated a lot of the economic storms seemingly better than the collective wisdom of economists. I don't know. Maybe because I have to operate in the real world rather than in a fusty, book-lined office at a university, lording it over my students and teaching assistants. I don't have tenure, so if I don't make the right recommendation based on my gut feel on how the economy is going, I don't eat. I have done quite well for myself, thanks.
And, while I've got you here, let me ask this salient question: If economists have such a command over your discipline that we mere mortals do not, why are you collectively such a godawful bunch of prognosticators? How come you guys can never get a prediction right? I mean, every month we go through two basic rituals: a) The economists predicting economic activity in the coming month and b) the less trumpeted news release where those same economists revise their numbers by several tenths, essentially an admission that they weren't accurate at all. I've made a minor hobby of this over the years, tracking the annual and quarterly predictions of economists and seeing how accurate they were. Trust me, the track record is unimpressive.
In fact, the number of economists who foresaw the 2008 meltdown even six months out could be counted on a couple of hands, if that. I have a couple of dozen white papers on my hard drive written by economists prior to the real estate bubble bursting. I'm not talking white papers written by academic hacks from some third-rate university or community college here. I'm talking about government and Fed economists. Economists for Fannie Mae and Freddie Mac. And, to a man, every single one of them were strewing about rose petals in the middle of the last decade, talking about how the economy was set to boom until well into the 2020s. I did my level best to advise my clients to not buy into their happy talk, either. The handwriting was on the wall, and I made my corresponding adjustments in my portfolio and real estate holdings in 2006.
Yet seemingly the entire community of economic experts (You know, 99% of whom were Keynsians, by the way, by your reckoning) were caught utterly flat-footed when the collapse began. They simply did not see it coming. In fact, I went to a meeting of the American Banking Association in 2005 and listened to a panel of supposedly eminent economists who were proud as peacocks of their bona fides, and they unanimously shouted down a number of bankers who were expressing concerns about the real estate bubble, essentially harrumphing the way you're doing right now. Those same guys still get interviewed from time to time on the news, regardless of how badly wrong they were in the past.
I realize that economists like to describe their field as a science, but the term 'science' doesn't seem to dignify it, given how economists seem to totally lack a predictive capability. I guess I'm just trying to understand this wholesale failure of your profession to do anything but analyze past economic events and formulate theories that never accurately forecast events to come. It would be akin to the National Weather Service never actually predicting a tornado, instead only documenting the ones that roared through town.
Isn't some of the argument about Hoover and FDR a bit off the point?
Whatever the merits or otherwise of FDR's economic measures, he at least created the appearance that something was being done - he gave people hope. Hoover, for whatever reason, never managed to do this.
And when you look at what was happening in Europe, it's only too clear what could have happened without the hope.
Isn't some of the argument about Hoover and FDR a bit off the point?
Whatever the merits or otherwise of FDR's economic measures, he at least created the appearance that something was being done - he gave people hope. Hoover, for whatever reason, never managed to do this.
And when you look at what was happening in Europe, it's only too clear what could have happened without the hope.
Translation: I totally ignored everything you said in your post so I could bluster on about my economic credentials.
Hoover was a big government guy and had complete faith that big government would fix it. That did not work and the depression became the "Great Depression under FDR".
JFK - The near nuke war with the USSR over Cuba was JFK's own fault with this failed invasion of Cuba. Then until his death he endorsed trying to kill Castro with his brother, RFK, as the leader of that failed and illegal idea.
JFK lead a reckless life with drug abuse and constant cheating on his wife. His behavior was way beyond what people can overlook and it was unfortunate it took decades for it to come to light.
Obama will be added to this list as soon as his term is over, and deservingly so. Clinton should be added as well. I can't think of any good thing that either of them has done for this country except being great achievers in botching it.
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