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Source link: http://archive.mises.org/16617/is-budget-austerity-modern-day-hooverism/

Is Budget Austerity Modern-Day Hooverism?

April 25, 2011 by

Is cutting spending like repeating Herbert Hoover’s errors? No, and saying it again and again doesn’t make it true. The big-spending Hoover did more to intervene in the peacetime economy than any prior president. Indeed, he set in motion all of the things that FDR later did in the New Deal.

FULL ARTICLE by Robert P. Murphy

{ 17 comments }

Bob Roddis April 25, 2011 at 9:08 am

So, we learn not only that MMT guru L. Randall Wray knows no economics, but he also knows no history.

Colin Phillips April 25, 2011 at 11:06 am

I know technically Austrian praxeologists don’t *need* case studies to prove their position, given the underlying structure of the thought, but ever now and again it is very nice to see something like this article. There are so many misconceptions about the Great Depression that it becomes a salient point about which minds (well, open minds, at least) can be changed towards liberty.

I’m not even American, and I can recall my history textbook explaining the magnitude of the Great Depression as an effect of Hoover getting in the way of interventions into the market, and then of FDR not taking his social programs far enough. I only wish I’d had the foundation in logical thought then to question that line of reasoning.

Mark Luedtke April 25, 2011 at 11:11 am

One of the myths about modern Republicans is they support laissez faire too, so maybe they are like Hoover.

J. Murray April 25, 2011 at 11:26 am

This misconception is difficult to battle because it’s the official narrative in the public school system.

Ned Netterville April 25, 2011 at 1:50 pm

Good article, Professor Murphy, but I have one niggling problem with it. You said, “When FDR came into office, he merely upped the ante on everything Hoover had started, and that’s why the nation stayed mired in depression for another decade.” If you had said the depression persisted for another decade and a half, you would have been more accurate. The Hoover-Roosevelt Great Depression did not end in 1943 during WW II. That is another economic myth. The war merely masked many government statistics used to measure the state of the economy. Depression-era unemployment figures declined dramatically, not because the nation was producing more goods for consumption, but because Roosevelt instituted a military draft and the burgeoning military-industrial complex hired the unemployed and even women to produce bombs and bullets. Production of goods demanded by consumers fell to such an extent that goods that had been available during the Depression had to be rationed. As long as people who run the government believe that the State has usurped the power of God to create (anything) by spending OPM (sounds like opium, is equally addicting, stands for other people’s money), the nation will probably remain mired in the current recession and war will gain more fans among immoral and amoral people as a viable alternative

J. Murray April 25, 2011 at 4:11 pm

Agreed. My Grandfather told me stories about how life got worse during WW2 and many people were actually talking about the good old days of the 1930s. Then he got drafted and sent to North Africa and was ticked off in that “employed” category.

Bob Murphy April 25, 2011 at 10:14 pm

Ned, give me the benefit of the doubt; I was rounding. (If I thought WW2 got us out of the Depression, saying “a decade” would have been wrong in the other direction–it should have only been 8 or 9 years, not 10.) Check out the second half of this article.

Mark Luedtke April 25, 2011 at 11:03 pm

Based on this essay, I still think Democrats are right. I don’t see any difference between Hoover and modern Republicans. Both favor intervention. Neither favor freedom. Most importantly, neither favor allowing the individuals who make up the market act in their own interest. If modern Republicans regain power, we’re going to sink deeper into depression and stay there. Same if Obama stays in power.

In fact, I think the term market works against us. It implies collectivism. I think our own terms empower the enemies of freedom.

Ned Netterville April 26, 2011 at 10:54 am

It is worth quoting from the Professor’s article he referred me to above:

“So what did the federal government do to overcome this “lack of money”? Why, it simply forced American citizens to scale back their own consumption, in order to free up scarce resources and redirect them into war production. Specifically, the Federal Reserve created money out of thin air to lend to the government.At the same time, the government physically threatened anyone who dared to raise prices above the permissible limits. The result was that the fraction of total output going to the private sector drastically fell during the war years… I should point out that the above chart misleadingly gives the impression that total output went up during the war years. Yet as Bob Higgs points out, this is a statistical artifact of massive government expenditures coupled with price controls. Simply put, the Fed and banking system flooded the economy with new money, raising the “numerator,” while the government made it illegal for merchants to raise prices, thus holding down the “denominator.” Therefore, “real GDP” figures show a huge burst during the war years, but these numbers are meaningless…World War II did not illustrate the productive powers of mankind. On the contrary, it showed how incredibly wasteful and monstrous human affairs can become when property rights are systematically violated.”

Geez, Prof, I wish I’d said that to make my point more emphatically. I didn’t mean to imply you didn’t understand, but the way you phrased it failed to discredit the ubiquitous myth that WW II ended the Great Roosevelt-Hoover Depression. I guess I feel the myth is so prevalent and generally accepted as the gospel truth that it ought to be rebutted on every opportune occasion.

Chris Goodwin April 26, 2011 at 11:47 am

That last line, …” in the end, Hoover’s belief in the power of volunteerism and
reliance on the “wisdom of the market” simply didn’t work”

This error persists today. Politicians still keep hoping that “the economy” (adequately juiced)
will show its wisdom, and work its magic – not seeing that their own intervention is the one
thing that prevents “the market” from working.

Rowdy April 27, 2011 at 10:31 pm

Under ‘Hoover the interventionist’ the economy tanked – unemployment rose to 25%. Then ‘FDR the bigger interventionist’ “upped the ante on everything Hoover had start.” But if that is true, then why did unemployment fall and the economy improve under FDR?

nate-m April 27, 2011 at 11:22 pm

It didn’t.

The companies that were starting to recover after the stock crashed were taxed heavily in order to pay for FDR’s social programs. This put the economic in a economic standstill for up until WW2. You’ve been lied to about the great depression. FDR attempts to relieve pressure and help get the economy going by artificially inflating employment through ‘busy work’ and thus customer spending was offset by the damage caused to people that were actually productive.

FDR’s programs are the reason why the great depression is called ‘the great depression’. Otherwise it probably would of been over in a 2-3 years.

Rowdy April 30, 2011 at 4:32 am

It did.

If you have Dr Murphy’s book, turn to page 99 where you will see that the unemployment rate fell from 24.9% in 1933 to 14.3% in 1937. You could argue that it was still too high, and I would agree. But you cannot argue that it was not an improvement.

Chris Goodwin May 2, 2011 at 4:16 am

Sorry, Rowdy, but you can, or at least, could. If the extra “employment” is all Federal subsidised pseudo jobs, with either no or little value to the real economy – then you could make an argument that the fall in the unemployment rate is faked, and the 14.3% is hogwash. Clearly it is political suicide to leave people to starve, (think 1792, France?) but we do not have to admit the argument that the government has any competance to CREATE JOBS – nor that the subsidies thus provided indicate a fall in the unemployment rate. Gubmint Stats – whether of jobs, or of inflation (or any other measure of economic wellbeing) can only be used if they are not being deliberately massaged.

An additional point. If one “good/honest/real/productive” (choose your preference) is lost, and twenty “fake/pseudo/Federal/statistical/charity” jobs are “created” then it is arguable that this is no improvement. The green shoots of renewal are being stifled under acres of astro turf. Nineteen extra families being fed at the public trough is arguably not an improvement. One extra man employed in a possibly fruitful new industry is VASTLY more important. Gubmint statistics say “20 is bigger than 1″ This is true. But this does not prove better.

Rowdy May 2, 2011 at 4:53 am

So the stats in 1929-1933 were true (when u/e went up); but the same stats in 1933-37 were fake (when u/e went down); but the stats were true again in 1938 (when u/e went up) but fake again in 1939-41 (when u/e went down again).

I realise that is not what you are saying, but it sure sounds like it.

Chris Goodwin May 2, 2011 at 4:20 am

Correction. Paragraph two, line one, after productive”/ before (choose insert .. job ..

Sorry about that

Ned Netterville May 2, 2011 at 3:06 pm

Rowdy, It is almost always possible to reduce unemployment for a period of time by means of government spending and other State economic dictates, but is it wise? Germany under Hitler and the Nazis, evidently following Keynesian economic policies with some macabre twists of their own invention, managed to virtually eliminate Germany’s unemployment during the world’s worst economic depression (the 1930s)! War, with its casualties, conscription, bomb building, and bureaucratic administrative necessities can have a major impact on unemployment. Concentration camps, extermination camps and forced labor are also very effective means of reducing the lists of those without work. While I don’t mean to imply that Roosevelt was as merciless as Hitler in his efforts to boost nation’s the economy through government intervention, nevertheless it must be acknowledged that those citizens Roosevelt sent to “relocation camps” were not counted among the unemployed and helped to boost his administration’s measures of the economy’s recovery.

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