Monday, November 17, 2008

The Myth of the Laissez-Faire Hoover

When I was a lad, I heard that Herbert Hoover spent the first three years of the Great Depression "going fishing" -- in other words, doing nothing (fishing being his hobby).

In the same vein Jonathan Alter recently said, in his hagiographic book on FDR, The Defining Moment, that when his idol took office Hoover had "for more than three years, since the aftermath of the stock market crash, ... been sullen and defensive as disease spread through the American economy."

This version of history is the very reverse of the truth. Hoover was one of the last of the progressive Republicans, a wonder-boy who was the darling of the people we now call the "liberals." During the short-lived Depression of 1921, it was Hoover, as Secretary of Commerce, who pressed President Harding to intervene in the economy (the depression was over before Harding managed to act). The first movement to nominate Hoover for president was spearheaded by people like the Governor of New York, Franklin D. Roosevelt. When he finally was elected and the stock market crashed, he was able to pursue his interventionist dreams.

In Hoover's speech accepting the 1932 Republican nomination, he boasted of his measures to reverse the depression. Not only were his countercyclical policies remarkably similar to those of the New Deal and beyond, but his rhetoric was similar to that of every administration since then that has been caught in a serious downturn.

The depression, he tells us, was caused by "overproduction and speculative mania." The government evidently had nothing to do with causing this unprecedented catastrophe.

"We might have done nothing" he said. "That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic." Here we see the military metaphors that dominate this sort of talk.

"Our measures have repelled these attacks of fear and panic." A major factor in causing the mess is irrational emotions, mainly on the part of those silly consumers. The possibility that these people are reacting rationally to a situation created by their own government need not be considered. Not being as eloquent as FDR, he didn't come up with something like "nothing to fear but fear itself." This is one of the real differences between Republicans and Democrats. Republicans don't pour a lot of sauce on their BS. They serve it up straight.

More important, consider some of the policies he was so proud of. By that time, he had:

1. Established the Reconstruction Finance Corporation, which propped ailien enterprises with loans from the Treasury Department. (Note how many of these measures sound familiar to us today.

2. Created a Public Works Administration to initiate vast make-work projects such as the Hoover Dam and the San Francisco Bay Bridge.

3. Dramatically restricted immigration.

4. Restricted the development of natural resources in the name of conservation.

5. Reformed the bankruptcy laws, making it easier to escape from debt.

7. Created a Home Loan Bank systen, to create more credit for prospective home owners.

8. Signed the Smoot-Hawley Tarriff.

9. Signed the Glass-Steagall bank regulation act.

Details of the whole amazing story can be found in Murray Rothbard's America's Great Depression.

The most amazing single detail is a quote from another of Hoover's speeches, quoted by Rothbard:

"For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world." It's not easy to imagine a more insane thing for a President to say in the depths of a depression. We compelled businesses to pay artificially high wages until their profits had practically vanished. Wow. You probably can guess what happened next. The businesses collapsed, unemployment soared to 25% nationally, and wages tumbled after all.

What is really disturbing though is that, except for number 5, these policies are very similar to ones that we are enacting, or are contemplating enacting, right now.

The Hoover-did-nothing myth shields us from looking at the possibility that these policies caused the worst horrors of the Great Depression in the first place. Eventually, perhaps the myth of GWBush-the-laissez-faire-deregulator may serve the same purpose.
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