Hoovernomics Revisited

Herbert Hoover is recognized as one of the worst presidents in American history.  The historical depiction of his non-handling of the Great Depression is legendary.  We have all been taught that he was a do-nothing executive who let the country’s economy fall apart at his feet.  Further, if Franklin Roosevelt had not thumped him in the presidential election of 1932 the United States would have eventually been reduced to a fifth world cesspool.  This historical account taught to millions of American public school students each year cannot be farther from the truth.  In fact, Hoover’s activist policies during the Great Depression are the real reason he was a horrible president and it’s a shame our current leaders learned nothing from his folly during the early 1930s.  

The goal of Hoover’s economic policies after the onset of depression was to re-inflate prices back to pre-depression levels.  He sought to achieve this through two mechanisms – government spending and credit expansion.  Sound familiar?  First of all, he instituted a federally financed program of public works.  The concept was supposed to put money in peoples’ pockets so they could spend their way to recovery.  By 1932, this scheme nearly doubled federal construction projects from 1929 levels.  The program was very expensive by 1930s standards – $1200 per aided family.  The biggest problem with federal public works, as far as Hoover was concerned, was that the program was unavailable to those hurting in remote parts of the country and to those folks unable to perform such labor.  Of course, the real problem, economically speaking, with make work schemes, is that they do not work in stimulating a beaten down economy.  

Instead of continuing the program, his administration increased federal relief aid to the states so they could carry out projects that would aid displaced workers.  The increase in aid was phenomenal in such a short period of time.  In 1929, aid to the states totaled $33 million.  By 1931, the figure rose to $173 million.  By 1932, aid was $308 million, which represented an astronomical amount at the time. 

Then there was Hoover’s Reconstruction Finance Corporation (RFC) which was approved by Congress in 1932.   In that year, the RFC made $2.3 billion in loans to banks, railroads, and farmers.  Most of the money went to paying off debts, supposedly to ensure the solvency of the credit markets.  Still more money flowed from the RFC to the states to further finance make work schemes.  In addition, $25 million was allocated to the Treasury Department so it could invest in the stock of the 12 newly created Federal Home Loan Banks.

So, contrary to popular belief, Herbert Hoover, for his time period, was a radical government spender and interventionist in the economy.  Indeed, this article has only represented a few of the more egregious measures of his administration.  Without question, Roosevelt’s New Deal was much larger and more comprehensive a program. But, what is important to understand is that both Hoover and Roosevelt’s policies are what put the “Great” in Great Depression by prolonging the recovery by about 15 years.  The increased government spending of the time, like this year’s stimulus package, did nothing to spur recovery.  The expansion of credit through the RFC and FHLBA was as effective as current Fed and Administration policies will be in restoring faith in the banks and getting the economy moving again.  Tighten your belts, because If Bush is our Hoover and Obama is going to be our Roosevelt, then we are in for many years of economic despair.

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