Herbert Hoover was an awful president. He caused economic disaster. Everyone agrees on that. Beyond that, many seem to argue he caused disaster by what he didn't do. In other words, he was a free marketeer who wanted to just let everything run its course, and that's how we got economic disaster. In reality, he was largely an interventionist, and the problem was caused by much of what he did.
John Nance Garner, FDR's running mate, said Hoover was,
leading the country down the path of socialism
and FDR accused Hoover of
"reckless and extravagant" spending and for thinking "that we ought to center control of everything in Washington as rapidly as possible,"
Source: FDR's Disputed Legacy, P. 4
FDR and Garner were largely correct, for the following reasons:
- Smoot-Hawley Tariff Act: Passed in 1930, it raised tariffs a fixed number on certain items, not by a %, but by a $ amount. The argument was tariffs would force people to buy more things made domestically, and solve the unemployment problem. The problem is, trade is a two-way street, by definition. When we enact tariffs, consumers lose (higher prices, and less money to spend on other things), the company the consumer would have bought from with that extra money loses, the workers of that company therefore lose, the foreign exporters lose from less business (obviously), and the American exporters whom the foreign exporters (or people in that country) would have bought from lose. Exports and imports are directly related; if one goes up, the other goes up, and the other way around. Just as we stopped buying their products, they stopped buying ours, which not only exacerbated unemployment, but continued directing our capital and labor to uses less efficient than if we had open trade. That alone makes Hoover an interventionist, but he did more
- Subsidy programs. In just a year, he increased federal government spending as a % of GNP by a whopping 5.1% (and ran a $2.2 billion deficit. $31.36 billion in today's dollars). The Agricultural Marketing Act established subsidies to stabilize crop prices, the Reconstruction Finance Corporation gave billions more in subsidies. When these subsidy programs were not working, he doubled, redoubled, and expanded them; see Emergency Relief and Construction Act
Subsidies, by their very nature, take money from what people value more and put it toward what people value less (excluding positive externality subsidies). When people do not buy from somewhere, they are sending a message: you're wasting resources. Sell us what we want, or get out and someone else will. To subsidize the company wasting resources is to prevent capital and labor from going to more efficient uses.
Rex Tugwell, one of the New Deal's architects said practically the whole New Deal was
extrapolated from programs that Hoover started
Other source for 2: A History of the American People (pages 740-1)
- Revenue Act of 1932: A huge tax increase, increased the top bracket from 25% to 63%. The estate tax was doubled. A 13.75 tax was put on corporations' net income.
Much is talked about taxes reducing productivity, and in counter, much is said about no one refusing extra money because of the tax bracket they will enter. They are both true. If, saying the top rate was 65% for simplicity, I was given a $1,000 raise when in the top bracket, I'd accept it, because I'd still have $350 more. That only applies to situations when the money is guaranteed. An example that applies less: would I be willing to work longer to get $1,000 more but only keep $350 of it. Is the extra sweat that produces $1,000 more worth it if I only get $350? That is hard to decide
Then the next degree, we have the question of risk. If I wanted to start up a new company, or invest in a company and help create jobs in it, would I be willing to risk my time, money, and energy, if I have to bear 100% of the losses, but only get 35% of the return? In those cases, the money is uncertain, and I likely would not make that investment when I would have if I got to keep more of the return. When reducing returns without reducing risk, we end up with less investment.
Hoover was not a free marketeer. He was an interventionist, he caused the economic disaster with much of what he DID.