April 19, 2004


The Economic Lessons of President Hoover (Tim Kane, Ph.D., April 16, 2004, Heritage)

The economy today is strong, but perceptions remain gloomy thanks to unrelenting negative rhetoric from some politicians in Washington. Despite the widely held view, on Wall Street and elsewhere, that the economy may be overheating, Senator John Kerry and the Democratic Party maintain that President George Bush has “the worst economic record since the Hoover Administration." But is this really an apt comparison?

Herbert Hoover, of course, was President from 1929 to 1933. Given today’s rhetoric, it may be instructive to review his record—both the economic facts and the misguided policy responses that converted the 1930 recession into the decade-long Great Depression.

* Jobs. Hoover’s economy lost 6.4 million jobs in four years, almost half during his last year. Unemployment rose to 24.9 percent. Since Bush took office, payroll jobs are down, but overall employment is up by 400,000. Since the recent recession ended in late 2001, 1.9 million more Americans have found jobs. Most importantly, the rate of unemployment is 5.7 percent today, which is low by almost any standard.

* GDP. Real output collapsed during the Hoover administration, declining by more than 25 percent after the 1929 peak. Today’s real GDP is over $700 billion dollars greater than it was when Bush was sworn in. Growth has accelerated sharply and reached a 6.1 percent annualized average rate over the most recent two quarters. [...]

Policies of the Hoover era

Monetary policy, controlled entirely by the Federal Reserve, was unforgivably tight in 1930, raising interest rates. In contrast, Alan Greenspan’s Fed has aggressively lowered the federal funds rate to from 6.5 percent in 2000 to a steady 1 percent today, driving up investment and asset values. [...]

Questions and Answers

* Were Hoover's policies responsible for the Great Depression?

The policy response of President Hoover, a Republican, to economic crisis was mixed, especially after a Democratic majority was elected to Congress in 1930. Economic polices of the time included, from during and after Hoover’s term, the Smoot-Hawley Tariff in 1930, tax increases in 1932, 1935, and 1937, and a new Social Security tax in 1937.

Economists are universally critical of the contractionary monetary policy of the Federal Reserve during the first phase of the Depression, which had a greater impact than fiscal policy.

Protectionism, increased government spending, raising interest rates into the teeth of deflation and hiking tax rates on an impoverished nation. What's mixed?

Posted by Orrin Judd at April 19, 2004 4:57 PM

I find it amazing that Democrats can continuosly turn what should have been Republican positives into negatives, and Democratic negatives into Republican negatives. Take the economy. The fact that we still talk about the 2003-2004 economy in the context of the Hoover economy is a testament to the Dem strategy of pushing the unbelievable and it may stick. Take the Clinton Admin's ineffectual war on terror and propitiation of despots big and small. What you get is the 9/11 Commission, and the GOP declaring victory is we all agree all previous Administrations were equally to be accountable for it.

Posted by: MG at April 19, 2004 5:52 PM

Maybe people refer back to Hoover because no other president ever achieved his unemployment numbers -- and in this case, it was, indeed, his and Coolidge's achievement.

Few economists admire the economic policies of the 19th century -- if they deserve the term -- but even in the panics then nobody ever brought an economy so low as Coolidge and Hoover.

Furthermore, and you can dump on the Fed or anybody else you want to. The fact remains that the crash of '29 was a crash of illiquidity and underdemand.

Hoover did zip for liquidity and his one positive action was to try to increase production into a market that was drowned in production.

Bush, perhaps, should hammer this slogan: The stock market hasn't declined 84% on my watch.

Posted by: Harry Eagar at April 19, 2004 9:48 PM

Of course the economy worsened under FDR.

Posted by: oj at April 19, 2004 9:58 PM


Coolidge AND Hoover? That's like linking Clinton and Reagan. Or LBJ and RFK. Please.

Hoover was a prima donna who was caught in a hailstorm, and then proceeded to throw away his umbrella (such as it was). The closest President we know like Hoover was Jimmy Carter (or Wilson).

Posted by: jim hamlen at April 19, 2004 11:33 PM

Hoover was a big-government type who was lionized by the media establishment of the time prior to his accession to the Presidency, but as soon as the Depression happened, his media friends deserted him. The irony is that he and FDR really weren't very far apart at all - in fact, I seem to remember that FDR criticized some of Hoover's economic policies as being too liberal.

Posted by: Joe at April 20, 2004 5:36 AM


For instance, FDR ran on balancing the budget and did increase taxes, disastrous policies in a depression.

Posted by: oj at April 20, 2004 8:36 AM

The crash was caused by underconsumption, a result of 40% of the country (the farmers) going into liquidation starting in 1922.

Coolidge ignored that. It caught up with Hoover in 1929.

The Columbia agricultural economists, led by Rexford Tugwell, preached all through the '20s that it was coming, and, unusually for economists, they proved exactly right.

If you reduced the net worth of 40% of the US today to something less than zero, do you think Bush's tax cut would keep the boom going?

Posted by: Harry Eagar at April 20, 2004 7:02 PM


It was global.

Posted by: oj at April 20, 2004 7:13 PM


I'm curious - how does one cure underconsumption?

Posted by: jim hamlen at April 20, 2004 10:45 PM


In 1922 wasn't Harding president, not Coolidge?

Posted by: jd watson at April 21, 2004 5:57 AM


Don't bother. For Harry all that matters is vindicating FDR.

Posted by: oj at April 21, 2004 8:47 AM

Takes a while for a vibrant economy to collapse, jd.

In 1914-15, farmers were asked to increase production as much as possible, to make up for the lost production in Europe.

The Wilson administration made no provision for an orderly transition to normal supply/demand after the peace, nor did the Republicans. Worldwide shortages were over by 1921, and US farm prices cratered in 1922. (Ford was insolvent, too, in large part because of what happened in the Farm Belt.)

Since the farmers had accumulated a lot of equity in 1915-20, they were not immediately liquidated.

As Alastair Cooke, who Orrin so admires, pointed out, Coolidge slept 18 hours a day and no one did anything about the farm situation.

Hoover took office in early 1928. By that time, the Farm Belt was just about dead. The Nebraska bank insurance fund, which had been insolvent for some time, suspended in summer 1928.

The stock market crash had its own dynamic, but the US economy was a wreck long before that.

Jim, the Columbia school (Tugwell, Moley etc.) considered that the cure of underconsumption was to create consumers. Since the 40% of Americans who depended on the farm economy weren't consuming anything, though they were still producing a lot, the cure was to control overproduction enough to get commodity prices up, giving the farm population some disposable income.

Hoover, on the other hand, wanted US industry to build more radios to sell to people who no longer had enough money to buy flour.

The Agricultural Adjustment Act did get farm commodity prices up quite a bit until the Supreme Court interfered.

That a global depression coincided with the Coolidge disaster was not wholly a coincidence, but it mostly was.

It has not been demonstrated that it would be possible to completely destroy a modern industrial economy, but the Republican policies did a pretty good job of kneecapping one.

Posted by: Harry Eagar at April 21, 2004 3:00 PM

So if the collapse took a dozen years then isn't it fair to say that the recovery of the early 40's was really Hoover's?

Posted by: oj at April 21, 2004 3:58 PM

So we should have sent 40% of our entire agricultural production overseas (for free, even), in the hope that prices would then rise? Sounds spurious to me.

Your point about radios v. flour is well taken. But Hoover was 'the great engineer'.

However, it seems a stretch to believe that the 'collapse' of the farm economy in 1922 pre-saged something that happened 7+ years later. The US economy stumbled in 1893, 1907, and so on (usually about every 10-15 years).

I doubt if Alistair Cooke knew anything about Coolidge's sleeping habits - Paul Johnson gives quite another description. I suspect that in 30 or 40 years, Democrats will be comparing Bush to Coolidge (uninvolved, asleep, inarticulate, silent, etc.). Of course, the truth is quite different. And what will people say about the Bill Clinton myths ("I am working harder than I ever have in my life"), when in fact he spent more time in Monica's mouth than he did meeting with James Woolsey and George Tenet?

Posted by: jim hamlen at April 21, 2004 5:23 PM

Tugwell's prescription was to restrict output to get producer prices up so the producers were solvent.

He never explicitly stated that eventually the artificial restrictions would be withdrawn, but that was the implication.

Orrin, you have several times denied that a large fraction of the US economy collapsed in the early '20s. But it did.

It wasn't the buggywhip sector, either.

(Cooke's comments on Coolidge's nap habits were based on a scholarly biography of Coolidge by somebody or other. The comparison has already been made, it's Coolidge-Reagan, and once you know about the nap habits of both, it's no surprise why Reagan's favorite president was Coolidge._

Posted by: Harry Eagar at April 21, 2004 5:53 PM

What';s surprising is that more people's favorite president isn't Coolidge--he was top 5.

Posted by: oj at April 21, 2004 6:13 PM

The best that can be said of him is that he wasn't as bad as Wilson.

It takes chutzpah to blame a successor for a disaster that happened on his predecessor's watch. It happens all the time, I know, but among hoi polloi. This blog is supposed to be full of analytical minds.

Posted by: Harry Eagar at April 22, 2004 3:13 PM


You get blamed for what happens when you're president and you get credit, even if you deserve neither.

The next time you see someone note that all Bill Clinton did as President was enjoy the peace dividend that Reagan handed down to him it will be the first.

Posted by: oj at April 22, 2004 3:16 PM

I'll see that sooner than I'll see anybody credit Carter with building up the military so Reagan had a sword to rattle.

Posted by: Harry Eagar at April 22, 2004 7:23 PM


You may not see that in a newspaper, but I routinely say that Carter's second term would have followed most of the policies of Reagan's first--the "malaise" speech was the moral component, the buildup and aid to the mujahadeen, etc.. He lacked only the vision, moral capacity, and rhetorical skills to be an effective president.

Posted by: oj at April 22, 2004 8:50 PM

My thought was less cosmic. I only meant that Carter, a former professional officer, understood logistics and worked to bring up the military's deficiencies in unglamorous but vital departments like ammunition, spare parts, forward bases.

Newspapers don't understand that and don't write about it. They didn't understand Star Wars either, but they did write about that.

In the last 15 years, we have made practical use of the improvements in our military power that Carter took care of. Of Reagan's initiatives, we have made hardly any use at all.

Posted by: Harry Eagar at April 23, 2004 2:29 PM

Other than a tweenty year economic boom, restored national pride, revitalized Christian warrior ethos, no Communist Empire to threaten our flanks while we pursue Islamicists, etc.

Carter deserves credit for beginning to restore the military, for starting covert action in Afghanistan, and for recognizing he and his predecessors had led us into a moral malaise. Unfortunately he was not the man to lead us out: Reagan was.

Posted by: oj at April 23, 2004 2:58 PM