In a recent column, Nobel-prize laureate economist Paul Krugman referred to the states' governors, legally bound to balance their budgets in good times and in bad, as "50 Herbert Hoovers."
It's a rather slipshod historical metaphor, but a common one: Hoover caused the Great Depression, people say; Franklin Roosevelt rescued us from it.
The facts, however, are quite different. Hoover was by no means a bad president, and Roosevelt's reputation far exceeds his actual reach. (And Hoover's post-presidential record rivals Jimmy Carter's in terms of public service.)
Hoover and Roosevelt were well-intentioned, but they were products of their times. The economic problems of their day overwhelmed the common economic wisdom.
The Great Depression was caused by a perfect storm of events and bad policy: a growing bubble amid an economic boom — this time caused by automobiles and radios — (a bubble economy — sound familiar? Every recession is preceded by some kind of bubble); weakness in the farm sector caused by over-production; bad monetary and fiscal policy; bad trade policy; and, ultimately, a lack of any social safety net in which to catch the fallen.
But all of this wasn't Hoover's fault. The Hoover administration, like the latest Bush administration, did not push for any kind of regulation that might have curbed Wall Street's excesses. But neither did the administration of then-New York Gov. Franklin Roosevelt.
Hoover was, at one time, extraordinarily popular. A self-made millionaire from a career as a mining engineer, he had been an able administrator during and after World War I, helping to avert starvation in Europe by organizing food aid. Of course, the pressure the government put on farmers to produce more led to excess capacity following the war, which led to decades of low prices for farmers. That contributed to the Great Depression.
Hoover served the nation in the 1920s as secretary of commerce. In that time, he wrote a paper that suggested if the U.S. were to fall into another economic panic, as they were called then, the country should engage in a broad program of public works spending to get things moving again. (Sound familiar?)
Had Hoover stuck to his convictions, history might be different. Unfortunately for everyone, he didn't.
By 1928, people were urging Hoover to run for president, including his friend, Roosevelt. He handily beat Democrat Al Smith, and took office.
When the bottom dropped out of the economy in 1929 and 1930, Hoover sought to get his recovery plan moving, accelerating public works spending and creating the Reconstruction Finance Corporation, which helped bail out banks and other corporations. A record number of banks failed in the Depression, but it would have been much worse without the RFC.
There was no deposit insurance, so when a bank failed, you lost your money. The social safety net wasn't there, and savings disappeared.
The Federal Reserve, meanwhile, worried about loss of gold reserves to Europeans who were demanding gold for their dollars, jacked up interest rates to stem the gold tide. This was terrible timing, as though right now the Fed were to decide that what the current recession needed was high interest rates to curb inflation. Higher interest rates raise borrowing costs, further curbing spending and investment.
What Hoover didn't do was balance the budget. The federal budget showed a surplus in 1929 and 1930, but a deficit in 1931 and 1932. In fact, the deficit got smaller in 1933 under Roosevelt. As Roosevelt emerged as a Democrat front-runner, he began to campaign against "irresponsible Republican budget deficits." Hoover, hoping to get re-elected, pulled back on his spending plans.
The conventional wisdom was that a balanced budget was the right thing to do. Budget deficits were to be run only in times of emergency. War was an emergency; millions of people out of work and starving apparently was not. For the wealthy, poverty has always been a character flaw.
Like what you just read? Support high quality local journalism. Become a member of Crosscut today!