Obama’s jobs plan is nothing new

October 17, 2011

“And that’s why FDR brains-trusters Rexford Guy Tugwell and Raymond Moley acknowledged later that Hoover “really invented” all the devices of the New Deal. Frederick Lewis Allen might not have recognized that in 1940, but Joseph Nocera should. And if we don’t want to relive the Great Depression, as Nocera worries, then we’d better learn what didn’t work in 1929-33 any better than it worked in 1933-39.”

–David Boaz
The CATO Institute
“The Hoover Myth Marches On”

President Obama’s latest jobs proposal, where infrastructure banks and public works projects are the rage, has been blocked by the Senate. But each day another paper showing the way forward appears and demands more government spending.

Avoiding the errors of President Herbert Hoover and not allowing deflation to roar unchecked by government is the chief argument for more stimulus. Liberal gospel states that Herbert Hoover did nothing from 1929 to 1932 to staunch the tide of deflation and debt liquidation in the run up to the Great Depression, and that FDR acted decisively and saved the day.

But is this popular thread in the American economic narrative really correct? Did Hoover do nothing compared with the bold “action” of FDR? Or are Hoover, Roosevelt and Obama equally all interventionists?

Joe Nocera made this popular but erroneous point in his last New York Times column. But my friend David Boaz of the CATO Institute caught him in the act. In fact, Hoover did all the things that Obama has proposed and more. And Hoover only made things worse. FDR accelerated the growth of government greatly thereafter, but did so based upon the actions of his nominally Republican predecessor. Obama offers more of the same nonsense.

Hoover was a big government Republican who sought the Democratic nomination in 1920, a fact that makes Democrats cringe even today. But in a new Cato Institute study economist Steve Horwitz notes what Hoover really did to expand the scope of the government in the period leading up to the Depression.

In the study, Horwitz says that Hoover almost doubled federal spending from 1929 to 1933, expanded public works projects to “create jobs,” and pressured businesses not to cut wages, even in the face of deflation. Hoover signed the Davis-Bacon Act and the Norris-LaGuardia acts to prop up unions, he signed the Smoot-Hawley tariff, created the Reconstruction Finance Corporation, and proposed and signed one of the largest peacetime tax increases in US history, the Revenue Act of 1932, which raised income tax on the highest incomes from 25% to 63%.

Our liberal brothers who deride President Hoover as inactive and use him today as justification for even more federal debt and deficits need to find another argument. Hoover was the greatest technocrat of his age and not at all against government intervention. FDR would later expand this fascist model of Hoover into dozens of other parastatal agencies like Fannie Mae, the housing agency that arguably enabled and led us into the subprime crisis.

Proponents of further government intervention in the economy as a remedy for imagined Hoover inaction should also ponder one of my favorite U.S. economists, Irving Fisher. In Debt-Deflation Theory of Great Depressions (1933), he notes that the open market operations started by the Fed in the middle of 1932 had begun to address the deflation prior to FDR’s election six months later. Fisher wrote:

In fact, under President Hoover, recovery was apparently well started by the Federal Reserve open-market purchases, which revived prices and business from May to September 1932. The efforts were not kept up and recovery was stopped by various circumstances, including the political campaign of fear.

The campaign of fear was FDR’s attacks on business, a deliberate strategy to spread panic in the business community while a Democratic Congress thwarted the ability of the Fed and other agencies to help the economy and lend to solvent banks. Obama’s attacks on business — Dodd-Frank and socialized health care — seem very similar to the anti-growth actions of FDR.

When FDR said in his famous inaugural speech that “we have nothing to fear but fear itself,” he spoke of fear he had himself orchestrated for political reasons.  Roosevelt pretended to be concerned about the plight of his fellow citizens, but the real agenda of FDR and the Democrats then, as today with Barack Obama, was to achieve and retain power by making Americans more dependent upon the state.

Once the private sector was in disarray, from 1933 through the start of WWII in 1939, FDR and his fellow travelers began to experiment in socialist engineering with the New Deal. His attempts to regiment American society in imitation of the fascist models of Europe actually made the Depression far worse, but many Americans still think of FDR as a hero. Quite the reverse is the case, but never forget that Hoover enabled FDR.

Fisher told the American Economic Association in December 1933: “We should have been further on the road toward recovery today had there been no election last year. Recovery started under Mr. Hoover but … a recession occurred because of fear over political uncertainties.” In the days of intimidation and fear following the election of FDR, Fisher’s public statement against the new president took courage.

Sad to say, after four years of bank bailouts, incompetence, and trillions in wasted federal stimulus spending, we could say the same thing about Barack Obama. Americans need to focus on rapid restructuring and building sustainable economic renewal based on reality. If we do this we can break the cycle of boom and bust, end deflation in housing, and restore public confidence.

9 comments

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Dear Christopher Whalen

You, sir, how biased can you be? Such selective use of statistical data is misleading at best, and may be considered ethical questionable.

The Revenue Act of 1932 was desperately assembled by Congress to increase federal revenue, to address the serious deficit caused by numerous tax cuts that cut the top (marginal) income tax rate from 73% to 24% (under Presidents Warren G. Harding and Calvin Coolidge). But by the time it was enacted, American was already in recession, and unemployment was already 9% in 1930, 13% in 1931, and 18.8% in 1932 (LABOR FORCE AND UNEMPLOYMENT IN THE 1920′S AND 1930′S: A RE-EXAMINATION BASED ON POSTWAR EXPERIENCE Robert M. Coen). At that level, there simply not enough income to be taxed anymore: Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value, corporate profits had dropped from $10 billion in 1929 to $1 billion in 1932, and between 1929 and 1932, the income of the average American family was reduced by 40% (Overproduction of Goods, Unequal Distribution of Wealth, High Unemployment, and Massive Poverty, From: President’s Economic Council). In fact, the decrease in revenue was so massive, even after the Act, from 1932-1934, federal revenue from income tax actually DECREASE by 29% http://www.usgovernmentrevenue.com/reven ue_chart_1925_1940USk_12s1li011mcn_10t

Furthermore, taxing must be associated with spending – and it takes time for spending to take any effect. Taxing simply to fix the deficit do nothing to rescue the economy.

Sir, the same person that you have repeatedly quoted, and your favorite economics Irving Fisher, have publicly stated, shortly prior to the Wall Street Crash of 1929, claiming that the stock market had reached “a permanently high plateau”. The same person is also an advocate of Eugenics, or the enforcement of racial hygiene, the extermination of “undesired” population group – the same policy adopted by Nazi Germany. Fisher also believed so thoroughly in the now-ridiculed “focal sepsis” theory, attributes mental illness to infections in bowels and other human body parts, to apply it to his own daughter, results in her death.

Of course, such questions on personal integrity and belief do no justice to his economic theory. But such is nothing compared to the amount of personal vilification that you and some others have recently attribute to President Barack Obama and President FDR.

After some research, it came to me that you advocated a default on the debt obligation of the US. It became clear to me that you had no understanding of global economy whatsoever, and your views are dangerous and reckless. I could only hope that few share your view, or we will no longer have a nation.

Posted by hereiam2005 | Report as abusive

Spend/gamble our way out to where-more debt? It’s proven beyond doubt, these jobs are extremely expensive, don’t last and favor unions! Asking what your country can do for you didn’t work-the reults are in and our government is now 40% of US GDP, buried in debt for decades and bleeding over $4 BILLION EVERY DAY 365! You want us to believe more spending that cost 40 cents to spend a dollar is the solution-really? Honesty is the best policy folks and this is a dishinest approach!

Posted by DrJJJJ | Report as abusive

The only reason it appeared more spending worked in the 1930s was WW2 folks-don’t be fooled by more foolishness!

Posted by DrJJJJ | Report as abusive

……hey, what about 2011?

http://bit.ly/p4cwjU

Posted by Robertla | Report as abusive

This is revisionist history…. at its worst…

Posted by edgyinchina | Report as abusive

Chris,

An interesting, as usual, view. Of course, fascism and socialism are effectively two sides of the same coin, so the step from one to the other is not that difficult.

I think the real point that people should take is that there are too many arguments for and against historical and current programs and policies, to enable a single ‘truth’ to shine through. Therefore, all contributions to the debate should be welcome. Your analysis is always well researched, and I enjoy your views.

Posted by Jovite | Report as abusive

Near Peoria, IL, they are building an $800,000,000 Eastern Bypass even though tri-county population has decreased since 1980. The jobs were shipped overseas, they aren’t coming back. Building roads we don’t need, doesn’t help.

Posted by minipaws | Report as abusive

The Jobs plan may be nothing new in channeling the times of FDR , but it still has elements that are new to this current generation and will affect the livelihood of future ones. It isn’t so much the bill itself as it is how we are going to pay for it. The surtax on millionaires that we are proposing will only work for so long. As it stands now the taxes project bringing in about $36.4 Billion in revenue( eng.am/qsLwhK). While it may not seem like a lot to most it does affect the ability those people to reinvest in their businesses which can hurt job creation down the line. As the Jobs Bill is making its way around the country, government still needs to figure out a better long term plan for an economic recovery.

Posted by FlorianSchach | Report as abusive

Obama has no job plan and never will.

Posted by Rial | Report as abusive