You Mean Hoover Wasn't Right?

by Eric Martin

As with Ireland's attempt to tighten their belts out of a recession, so, too, does Greece suffer the fate of Hoovernomics:

The austerity measures that were supposed to fix Greece's problems are dragging down the country's economy. Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back.

Luckily, President Obama pushed for a stimulus instead of doing what most Republicans were calling for at the onset of the recession: imposing austerity measures at a time of sagging demand (also known as "what Herbert Hoover did to spur on the Great Depression").

Unfortunately, Obama didn't push for a sufficiently large enough stimulus - as measured by his own financial advisors applying the applicable formulas (at least, the competent ones, with the likes of Larry Summers badly miscalculating for no discernibly rational reason, and Rahm Emanuel applying a political lens to counsel for a lower number regardless of the math).

Further weakening the effort, a self-styled group of "moderates" in the Senate pared back the already-too-small stimulus package - cutting, of all things, aid to the States, which money was badly needed and is used, among other things, to keep teachers, firefighters and police officers on the job.

Speaking of the States, at a time when reduced tax revenue sent many budgets plunging into the red, and due to the mandates of State laws that require balanced budgets, States needed more, not less, aid from the federal government just to tread water - or, rather, not cut services and jobs too deeply.  Due to the economic downturn, and absent a sufficient injection of aid from the Federal government, States cut back massively on spending, largely wiping out the stimulative effect of the already-too-small stimulus.

Put simply, while there was an injection of stimulus from the Federal government, on the State level, there was a massive contraction, leaving only a slight net stimulus - certainly too small to counteract the considerable recessionary effects.  So while the federal government was engaged in a Keynesian effort to gin up demand, there were, to paraphrase Atrios, 50 Little Hoovers implementing austerity measures at precisely the worst time in terms of economic cycles.

On an international level, at the most recent G20 conference, world leaders were almost all doing the Hoover Shuffle in calling for extreme austerity measures in response to a global economic slump, with Obama the lone voice of reason in terms of asserting the need to put off budgetary discipline until the world economy was on firmer footing such that the contraction would not pose a risk.  He deserves credit for at least trying to talk Europe down from the ledge, not that his efforts were entirely successful, which doesn't bode well for the world economy.

On a national level, the conundrum this country now faces is that we need another stimulus bill - one designed to make up for the initial deficiency in terms of dollar amount, as well as the austerity measures put into effect on the State level.  Politically, though, that will be a very hard sell - with Republicans, now that they are out of power, attacking any and all spending measures as wasteful pork.  Keynes be damned. 

Which is what Paul Krugman was trying to call attention to at the time of the stimulus fight.  While we might not be heading down the exact paths traveled by Greece and Ireland, we're not exactly going in the opposite direction either.

Comments

[wonkie]

If the austerity measures affected only those who called for them...

[Marty]

This is,once again, a political hack job. The ddifference in the government collecting more money and spending it and...the government collecting less and spending less is the discussion.

I haven't heard many say we shouldn't put more money into the economy.

Well, except those that say the damage done in the short term is worth the pain to reduce the debt and fix the economy long term. But that's just pretty much Greenspan.

[Oyster Tea]

Marty,

"I haven't heard many say we shouldn't put more money into the economy."

How, exactly do conservatives envision doing this? Who do they see as "we"?

It seems to me that a concerted effort by "we" to "Put more into the economy" translates to "Government" "Stimulus".

What am I missing? Or, are you saying that "you haven't heard many saying we shouldn't" doesn't mean that "we should"? Are you just weaseling? Or do you have a novel way for "US" to act in concert?

[hairshirthedonist]

The ddifference in the government collecting more money and spending it and...the government collecting less and spending less is the discussion.

Well, not really. The discussion is one of net spending. But, if you're advocating the government taking as much money out of the economy as it puts in, regardless of the magnitudes of the equal (in absolute value) and opposite numbers, I assume you have a distributional effect in mind that does the least damage on the taking-out side and produces the greatest stimulus on the putting-in side, which would be highly progressive, of course.

But, no, the argument is about reducing or stabilizing the national debt versus increasing it through further deficit spending.

[Eric Martin]

I haven't heard many say we shouldn't put more money into the economy.

Then you haven't been listening.

Listen to all the talk about when a family budgets are like government budgets from Republicans. Tightening the belt, etc.

Further, the austerity measures are not tax cuts, but spending cuts.

Therein lies the answer, and the rebuttal to your charge of political hackery.

[hairshirthedonist]

Listen to all the talk about when a family budgets are like government budgets from Republicans. Tightening the belt, etc.

Quite. And consider how that works when families are trying to tighten their belts at the same time the govenment tries to tighten its belt when you have a trade deficit that isn't going away any time soon.

[s antler]

This discussion is hilarious.

Don't any of you understand Greece got into this mess through years and years of unconstrained "stimulus" spending?

And by the way, both Hoover and Roosevelt ran on platforms calling for balanced federal budgets.

[MKS]

Since government austerity doesn't seem to be working, the answer MUST be to resume government profligacy, no?

I was in a hole, and I stopped digging. After I stopped digging, I found that I was deeper and more tired than when I started. So I must need to start digging again.

[Sebastian]

The main problem with Greece is that it is in the euro and that its collection rate on taxes is amazingly low. It has very little to do with 'austerity' measures one way or another.

It was well on the way to the tank before the austerity measures, and the only reason it didn't have a complete default meltdown was because of the austerity measures. This obviously happened *before* the austerity measures, and can't be attributed to them. It has been trying to spend its way to success for almost a decade.

The annoying thing about this post is that there is an excellent case for stimulus spending, but Greece is pretty much horrific evidence for it. Greece needs to collect taxes, reduce long term spending, and devalue its currency. The last part is almost certainly the most important, but it can't do that in the euro, so it is screwed. That fact is driving unemployment to new heights *and* is driving the austerity measures which short-term aren't great for it. Greece isn't suffering from Hoovernomics, it is suffering from being tied to the euro.

[hairshirthedonist]

Don't any of you understand Greece got into this mess through years and years of unconstrained "stimulus" spending?

Don't you understand that Greece and the US are not comparable in that Greece doesn't issue its own currency and has nothing remotely approaching the productive capacity of the US?

I also don't know who advocates unconstrained spending, nor do I think anyone would purposely advocate ineffective stimulus spending, not in good faith, anyway. We have plenty of obvious ways to spend money here in the US that will stimulate the economy for years and years, eliminating the need for years and years of future stimulus spending.

Greece /= the US.

[hairshirthedonist]

I was in a hole, and I stopped digging. After I stopped digging, I found that I was deeper and more tired than when I started. So I must need to start digging again.

I'll take this over-simplified analogy a bit further.

You can either plan your continued digging to make the hole wider and less steep, and to keep less dirt from actually leaving the hole, or you can let the economy decide for you that you will dig straight down and throw all the dirt out rather than being able to step on it later on your way out of the hole.

[cleek]

Hoo-ever ?

I was in a hole, and I stopped digging. After I stopped digging, I found that I was deeper and more tired than when I started. So I must need to start digging again.

"Holes don't matter."
-- Dick Cheney

[Eric Martin]

Seb: Hoovernomics are not helping. And Ireland is further testament. But, you are right that Greece's problems run much deeper, and the Euro (and long time anemic tax collection) are the prime movers.

But still, at this point in time, given all that, austerity measures are hurting, not helping.

Don't any of you understand Greece got into this mess through years and years of unconstrained "stimulus" spending?

Um, it's not "stimulus" spending if it's unconstrained and undertaken over that long a period of time.

[Eric Martin]

Thank Clee-ek ;)

[JMG]

The fact is that the people in charge of this country in both the private and public sector don't give a good god damn about the economy as a whole -- just their ever-increasing slice of it. If we had 20 percent unemployment, as long as marginal tax rate were low, nothing would be done about it.

[hairshirthedonist]

I thought "Hooever" was on purpose, a play on "whoever," and possibly making reference to something I wasn't getting, not being hip enough. Glad to know Eric just screwed up, and Occam wins.

[Eric Martin]

Glad to know Eric just screwed up

Two thoughts on this:

1. We are never glad that Eric screwed up.

2. Now I think I should have just played it off as intentional. But, regrettably I screwed up that as well.

[Hogan]

If Eric is going to screw up (I have no information either way), then it is better that he screw up on relatively trivial things like the spelling of Hoover's name rather than on important stuff like, say, the spelling of my name.

[jonnybutter]

I thought the same thing about 'Hooverer' - that maybe it was some hip song lyric I didn't know about...

That Greece can't devalue is indeed a big problem right now (big problem for Spain, too), but the long term problem in Greece is at least broadly similar to the one in the US: that of tax collection. The difference is that Greece has been under-collecting nominal taxes for a long time, whereas in the US the undercollection from wealthy individuals is by design and explicitly legal. We deal with this kind of robbery-problem by simply making it legal - and *poof* it's no longer 'robbery'.

[Jacob Davies]

Greece isn't the best example just because, as Seb says, their economy was already a basket case, and they ran up a lot of debt in pretending that it wasn't. The effects of austerity are the same whatever the cause, but in Greece's case they didn't have much choice - it was this or default. Actually, it will probably be this and default.

The German dudgeon over the bad loans isn't entirely justified; they should have known when they made them that they would go bad.

The real canary in the coalmine will be Britain. The UK is very much like the US in almost every way, it does not have the constraints of the Euro, and the new government has embarked on savage cuts to public services and a regressive increase in VAT. I think it's going to be a disaster, but we shall see.

[Oyster Tea]

Marty,

Answer??

[SteveAR]

"As with Ireland's attempt to tighten their belts out of a recession, so, too, does Greece suffer the fate of Hoovernomics...

Luckily, President Obama pushed for a stimulus..."

Amusing. Greece cut spending but raised taxes, hence the exacerbation of their already bad problems (this is ignored by Eric Martin, but is mentioned in the Spiegel piece). Hoover increased spending and raised taxes, leading to the Great Depression. FDR further increased spending and raised taxes even more, and the Great Depression continued. Obama increased spending without raising taxes (although that may happen automatically on Jan. 1, 2011), and this is leading us to another depression.

Maybe it's time to do something smart. Leave all the tax rates as they are and cut spending. I'd bet that if Greece left their tax structure alone, things wouldn't be as bad.

[cleek]

and this is leading us to another depression.

prove it

[Marty]

"Marty,

Answer??"

While tempted to ignore this since I just got back to my computer, if you mean this:

What am I missing? Or, are you saying that "you haven't heard many saying we shouldn't" doesn't mean that "we should"? Are you just weaseling? Or do you have a novel way for "US" to act in concert?

I think I answered that in my original comment:

the government collecting less and spending less is the discussion.

[hairshirthedonist]

Leave all the tax rates as they are and cut spending.

And demand and the jobs that result from demand will come from nowhere.

It's not about tax rates per se. It's about taxes. The economy will make sure there's a deficit regardless of tax rates or projected spending if there is insufficient demand. Tax revenues go down with declines in economic activity (tax rates get multiplied by incomes, you see, when determining the actual taxes) and welfare payments go up with the resulting loss of jobs.

What spending should we cut, BTW? There are places to make cuts, but the net spending, overall, will depend things outside the control of the government that much more to the degree that the government fails to properly target what it spends and what it taxes.

[Eric Martin]

Hoover increased spending and raised taxes, leading to the Great Depression. FDR further increased spending and raised taxes even more, and the Great Depression continued

And did the Great Depression end? And was that because FDR cut spending?

Your history is, shall we say, poorly researched. Would love to see some citations, by the way, to overall taxing and spending trends in the Hoover and FDR admins.

[Tom Allen]

Amazing how Obama's policies (which are far too timid, btw) caused a financial crisis over a year before he took office. Maybe he's an X-Man or something.

[Eric Martin]

the government collecting less and spending less is the discussion

The discussion for who though Marty?

The GOP is not having that discussion. At least not exclusively.

[Bernard Yomtov]

Would love to see some citations, by the way, to overall taxing and spending trends in the Hoover and FDR admins.

You have two wishes remaining.

The columns are year, GDP in billions, Revenue as % of GDP, Spending as % of GDP, and Surplus/Deficit as % of GDP. I don't have pre-1929 numbers, sorry, but 1930 would have been Hoover's first budget anyway. The difference is not so stark as we tend to imagine, and it's clear that FDR erred in 1937-8.

The columns look much neater in the comment box.

1930 97.4 4.2 3.4 0.8
1931 83.8 3.7 4.3 -0.6
1932 67.6 2.8 6.9 -4.0
1933 57.6 3.5 8.0 -4.5
1934 61.2 4.8 10.7 -5.9
1935 69.6 5.2 9.2 -4.0
1936 78.5 5.0 10.5 -5.5
1937 87.8 6.1 8.6 -2.5
1938 89.0 7.6 7.7 -0.1
1939 89.1 7.1 10.3 -3.2
1940 96.8 6.8 9.8 -3.0
1941 114.1 7.6 12.0 -4.3

[Tony P.]

YEAR...GDP....R%.....S%....D%
------------------------------------
1930...97.4...4.2....3.4....0.8
1931...83.8...3.7....4.3...-0.6
1932...67.6...2.8....6.9...-4.0
1933...57.6...3.5....8.0...-4.5
1934...61.2...4.8...10.7...-5.9
1935...69.6...5.2....9.2...-4.0
1936...78.5...5.0...10.5...-5.5
1937...87.8...6.1....8.6...-2.5
1938...89.0...7.6....7.7...-0.1
1939...89.1...7.1...10.3...-3.2
1940...96.8...6.8....9.8...-3.0
1941..114.1...7.6...12.0..-4.3

[Phil]

SteveAR is Amity Shlaes and I claim my $5.

[Bernard Yomtov]

Engineers are anal.

[McKinneyTexas]

We deal with this kind of robbery-problem by simply making it legal - and *poof* it's no longer 'robbery'.

So, it's robbery when you aren't taking enough of someone else's money?

The UK is very much like the US in almost every way, it does not have the constraints of the Euro, and the new government has embarked on savage cuts to public services and a regressive increase in VAT. I think it's going to be a disaster, but we shall see.

Other than NHS and defense spending, perhaps there are similarities.

[Bernard Yomtov]

Eric,

On a national level, the conundrum this country now faces is that we need another stimulus bill - one designed to make up for the initial deficiency in terms of dollar amount, as well as the austerity measures put into effect on the State level. Politically, though, that will be a very hard sell - with Republicans, now that they are out of power, attacking any and all spending measures as wasteful pork. Keynes be damned.

I agree 100%. And I think that the political difficulty, or impossibility, of getting that stimulus is a consequence of Obama's biggest blunder - not pushing hard for a bigger bill originally, whether he thought he could get it or not.

The debate should have been over the size of the stimulus, but instead it was over whether to have one at all. Had Obama been able to say, "We need more, but this is all the Republicans will let us have," he would be much better placed to come back for more now.

[DBN]

Um, it's not "stimulus" spending if it's unconstrained and undertaken over that long a period of time.

No, stimulus is trying to drink your way out of a hangover.

I agree 100%. And I think that the political difficulty, or impossibility, of getting that stimulus is a consequence of Obama's biggest blunder - not pushing hard for a bigger bill originally, whether he thought he could get it or not

It's hard to imagine that a stimulus bill could have been practically bigger. When it comes to stimulus, size argues against speed of implementation. We're still spending the first one.

[Gregory]

So, it's robbery when you aren't taking enough of someone else's money?

1) Referring to taxation as "taking someone else's money" (or better yet, "theft") is inherently dishonest. Yes, it's taking someone else's money, but that's the legitimate function of government -- read your Hobbes -- and referring to it in such loaded terms smacks of bad faith.

2) And yes, it is aking to theft when Republicans start with a balanced budget, slash taxes for one group and borrow to make up the difference. The deficits are future taxation, so they're also someone else's money -- only this time it isn't likely to be those who presumably benefited from the initial spending.

3) It's also, and more blatantly, theft when Republicans tap the Social Security surplus to paper over their deficits and then use the problem they created as an excuse to cut Social Security.

[jonnybutter]

Thanks Gregory. I'll add..

We deal with this kind of robbery-problem by simply making it legal - and *poof* it's no longer 'robbery'.

So, it's robbery when you aren't taking enough of someone else's money?

Yes, it's robbery when very wealthy people have a lower total tax rate than working stiffs. Your choices are: a.) justify that with some voodoo-economics BS, or b.) just ignore it. I wonder which it will be today?

[Hartmut]

Greece shamelessly lied itself into the euro and the other countries underestimated the size of the lies (that Greece lied was well-known but most other contries did it too). Grece should not have been in the EU in the first place. I repeat myself that we should kick out Greece and replace it with Turkey (at least the Western part). In that sense Greece is indeed a bad example. Spain looks more apt, esp. since they have their own housing bubble.

[hairshirthedonist]

Engineers are anal.

Someone has to be if things are going to get done right.

No, stimulus is trying to drink your way out of a hangover.

Another inapt analogy. Yay!

You can drink different things. Water and fruit juice might be better choices than beer or vodka, just as domestic infrastructure and education might be better choices than blowing things up on the other side of the world and exacerbating exceedingly high concentrations of wealth.

Yes, doing the same things that got you into a deficit aren't going to help, but "spending" isn't a thing unto itself in this context. It depends on what you spend the money on. It's much like the difference between investing wisely on one hand and buying giant piles of hard candy and leaving them out in the rain on the other. It's not that hard. Please try.

[hairshirthedonist]

It's hard to imagine that a stimulus bill could have been practically bigger. When it comes to stimulus, size argues against speed of implementation. We're still spending the first one.

See state aid. They needed the money immediately and it would have prevented real cuts. Bigger and faster. Try again.

[Eric Martin]

No, stimulus is trying to drink your way out of a hangover.

Only if the cause of the current recession was excessive government spending. Which is not the case. So pop the cork y'all.

[hairshirthedonist]

I guess it depends on how you look at it, Eric. If you assume that the wasteful spending that did occur could have been put to better uses, you could call it "excessive government spending (on stupid things)" and make the argument that it at least contributed to the recession, at the very least as an opportunity cost. But I doubt that's what DBN meant, so your response is valid.

[McKinneyTexas]

Yes, it's robbery when very wealthy people have a lower total tax rate than working stiffs.

But the very wealthy (being defined as a combined income over 370K) pay a much higher total tax rate than the working stiff. You are simply wrong. But robbery? I'm robbing someone by not paying more of my money to the gov't? How does that make sense?

[Eric Martin]

But the very wealthy (being defined as a combined income over 370K) pay a much higher total tax rate than the working stiff.

Actually, McTex, that's not true. At least, that depends on how you define "very wealthy."

The wealthiest Americans pay a lower effective rate than the working stiff. As Warren Buffett likes to point out, he pays a lower effective rate than his secretary.

See here.

[JanieM]

A question for McKinney in relation to someone else's money.

I'm still curious about something I mentioned a few days ago. I didn't ask a direct question then; I'm going to try to do so now. This isn't meant to be a direct comment about tax rates, but rather a response to what Gregory characterizes as "loaded terms."

In England in the days before the Factory Acts, when some people got rich working children to death, was it nevertheless "their" money, no matter how they got it?

They got it by means that were legal at the time, after all.

If you would say that the wealth earned by factory owners who worked children to death was "theirs," by virtue of the fact that they got it legally under the laws of that time, then you are saying that "theirs" is whatever the law says it is.

So what I'm wondering is: why is it that the law's role in defining what "theirs" means goes in only one direction?

The law says that anything you get by certain means (even if not by other means, which these days include working children to death) is "yours," and you rely on that to accumulate wealth. "Yours" in this sense means that no other individual can pick your pocket or raid your bank account. You have immense protection against other non-governmental entities; that's what "yours" means. I take it that you rely on laws like this when you talk about what's "their" or "your" or "my" money.

But the law also says that the government can take some of the money that has come into your hands and use it for the collective good (we the people...general welfare...etc.).

So why is it that when the law says how much money you can take (and how you can take it, and how other people can't take it from you), that's definitional, but when the law says how much of the money you have accumulated has to be used for collective purposes, that's not definitional?

I know you didn't say it directly, at least in this thread, but to say that taxes are taking "someone else's money" amounts to saying that taxes are theft.

And if you can say that taxes are theft, then I don't know why I can't say that wealth accumulation beyond some obscene point is also theft.

It seems to me that if you're going to rely on the law to say (in the name of "we the people") what you can take, it's not consistent or fair to then turn around and say that the law can't say what you have to give. What people "take" often comes at other people's expense in the form of dire poverty and other ills, so if taxes are theft, why isn't vast accumulation of wealth at other people's expense also theft?

Or maybe you think that the wealth accumulated by factory owners in England prior to the Factory Acts wasn't somehow theirs. I don't suppose you really want to go down that road, though....

[JanieM]

From a different angle: If the law matters in defining what's "yours," then the money you owe in taxes was never "yours" in the first place.

And incessantly pounding on the idea that taxes amount to taking "someone else's money" is an attempt to presume the conclusion instead of actually making an argument.

[hairshirthedonist]

Let's also not forget that the only reason there is such a thing as money, as it now exists, is because of government. The whole context in which people get "their" money would not exist were it not for the public goods provided through government enabling that money to be made in the first place. Yes, people have to work for "their" money, but they have to have something to do and a context in which to do it before that can happen. It's easy to take that for granted and, thus, forget about it, but it's still, none the less, true.

[TallDave]

Between 1929 and 1933, the budget went from 3,127M to 4,598M, so I'm not sure why you think Hoover cut spending (and we went from a 734M surplus to a -2,602M deficit).

http://www.gpoaccess.gov/usbudget/fy05/hist.html

Keynesians often seem to argue as though they believe there is no useful limit to government spending as a % of GDP. We're at 45% today -- and they think we're not spending enough??

You'd think command economics would have been discredited by the 1990s, but apparently hope springs eternal that this time, the central planners will get it right!

[jonnybutter]

But the very wealthy (being defined as a combined income over 370K) pay a much higher total tax rate than the working stiff. You are simply wrong.

You are simply wrong, McK. First of all, a combined income of 370k is not what anybody means by 'very wealthy' in this country. You gain nothing rhetorically by using strawmen - why bother?

Click Eric's link if you dare. For those of you who don't, it's a story and chart which illustrate that very wealthy people's (millions per year) effective tax rate is tied more closely to capital gains tax rates rather than income tax rates. As McK knows full well, cap gains tax rates are quite a bit lower than income tax rates (which themselves are no longer very high at the high end).

JanieM raises a great question, which will, naturally, either go completely unanswered here, or will be disingenuously 'answered'. Yawn.

[Eric Martin]

Between 1929 and 1933, the budget went from 3,127M to 4,598M, so I'm not sure why you think Hoover cut spending (and we went from a 734M surplus to a -2,602M deficit).

I don't think I actually said that Hoover cut spending. However, the increases were very minor, more like treading water, the first few years, with most of the increase in 1933 - which was still too little, and even then, too late Hoover didn't significantly boost spending in 1930, 1931 or 1932 in any stimulative sense.

And the surplus became a deficit largely because of slumping revenues caused by the recession. Check out the revenues year by year, again.

Keynesians often seem to argue as though they believe there is no useful limit to government spending as a % of GDP.

No, they don't.

You'd think command economics would have been discredited by the 1990s, but apparently hope springs eternal that this time, the central planners will get it right!

Yes, Keynes = Communism!

[Eric Martin]

"recession" should be "depression" - point stands.

[russell]

But the very wealthy (being defined as a combined income over 370K) pay a much higher total tax rate than the working stiff.

Actually, McTex, that's not true. At least, that depends on how you define "very wealthy."

Bolds mine.

Back when we had much higher top marginal rates, they generally kicked in at signficantly higher threshholds than our top marginal rate does now. Especially when considered in inflation-adjusted dollars.

The fact is that income taxes today are, by historical standards, significantly less progressive than they used to be, not just because the top marginal rates are lower, but *because the higher brackets have simply gone away*.

The 70% top rate from the 60's and 70's kicked in at what would be, in today's money, in the neighborhood of a million bucks a year.

The real nosebleed rates kicked in at what would be tens of millions in today's money.

$370K is a lot of money, but in a lot of places in the country it's probably not equal to "very wealthy". There are lots of places where a nice-but-normal house can cost $600K and up. That, plus a couple of kids in private college, and suddenly $370K is comfortably upper middle to upper class, but not more than that.

Still well out of reach for most folks, still a hell of a lot of money, still should be paying a higher effective tax rate than a bus driver in a progressive income tax regime. But not really I-never-have-to-work-again-if-I-don't-want-to rich.

$370 million, on the other hand, is a lot of money, anywhere you want to go. It's so much money that you would have to, literally, exert yourself to spend it all. You will have to p*ss money away to burn through that kind of dough.

It's more than a million dollars *a day*. Every day, seven days a week, 52 weeks a year.

It is a stupidly large sum. And, people make that much.

The guy making $370 million makes *one thousand times* what the guy making $370K makes, but every dollar he makes above $370K is taxed at exactly the same rate as the $370K guy's last dollar.

US income taxes are progressive up through the nosebleed section of the upper middle class, and then they're flat from there through the stratosphere. And that's still talking about earned income, it doesn't even consider the difference between the treatment of earned vs unearned income.

This is a very, very, very good country in which to be wealthy. Very good.

[MDF]

And did the Great Depression end? And was that because FDR cut spending?

Eric, the Great Depression ended in the United States because the world broke all of its windows, and then blew up all of its glass factories, except for those located in the United States. Or, more generously, because the US government forced 12 million men to quit their jobs and go work for the government at much lower wages, while dramatically increasing government purchases of things to blow up windows and glass factories in other countries. It really didn't have all that much to do with FDR's stimulus policies per se.

[Eric Martin]

So MDF, it was glass making that ended the Great Depression?

Or, more generously, because the US government forced 12 million men to quit their jobs and go work for the government at much lower wages, while dramatically increasing government purchases of things to blow up windows and glass factories in other countries. It really didn't have all that much to do with FDR's stimulus policies per se.

So it was massive government spending on the war, but not stimulus policies?

[Slartibartfast]

Hmmm.

Looking at expenditures, it looks as if "education, training, employment and social services" was outspending defense as late as 1940.

So: I'm guessing it didn't go down QUITE as MDF says it did.

I think the Depression ended prior to 1940, yet the US didn't get fully committed to war until 1941.

[russell]

It really didn't have all that much to do with FDR's stimulus policies per se.

Whatever.

I can tell you that members of my immediate family ate a lot of meals they would otherwise have not eaten, due to FDR's stimulus policies. Per se.

They're mostly dead now, so they can't tell you that themselves. So I'm here to tell you. And I'm telling you.

Nothing ever happens for one and only one reason. Certainly nothing at the scale of turning around an economy that's gone into the dumper.

But a hell of a lot of people made it from one end of the Depression to the other in a hell of a lot better shape than they would have otherwise, because of FDR's policies.

[hairshirthedonist]

And the surplus became a deficit largely because of slumping revenues caused by the recession.

Some (maybe many) people don’t seem to get the broader implications of this. The government passes budgets based on projections, but the actual revenue and outlays are subject to economic conditions. People can decry deficits and spending (and deficit spending) all they like, but the fact is that you may have no choice but to deficit spend if that’s what the economy demands. You do have a choice in whether you simply let it happen in whatever fashion the economy demand or whether you take some control over the situation to make the resulting economic conditions more favorable. In some cases, you can have bigger deficits and less pain now, with at least the possibility of smaller deficits and even less pain later, or you can have smaller deficits and more pain now, with a greater likelihood of bigger deficits and even more pain later.

I wonder how well WWII would have worked out for the US if we had just let our productive capacity wither under the depression. Even if you think WWII was what finally got us out of the depression, you have to understand why it was possible at the time, given what happened in the years prior.

[TallDave]

I don't think I actually said that Hoover cut spending.

So, your argument is he imposed "austerity" that increased the budget 50%? That's some expensive "austerity." Are you making any attempt to be coherent?

No, they don't.

Then what do you think is a reasonable upper limit? I've never heard prominent Keynesians even admit such a limit exists. Given that optimum growth seems to happen between 20-30% and we're at 45% today, why do you argue for something closer to 60%?

http://www.usgovernmentspending.com/us_20th_century_chart.html

Yes, Keynes = Communism!

You don't need to go full Communist to have gov't planners overseeing most of the economy. But even the Chinese Communist Party now sees the virtues of the free market, while our own Keynesians seem to think we can centrally plan our way to prosperity. I doubt Keynes would have approved of some of things being argued by Keynesians today.

[Slartibartfast]

More than all of that increase went to RFC. Hoover must have cut elsewhere in the budget, I think.

[Eric Martin]

So, your argument is he imposed "austerity" that increased the budget 50%? That's some expensive "austerity." Are you making any attempt to be coherent?

Did you read the year by year breakdown? He didn't increase spending much at all in the first three years. So, yeah. Also, what slarti said.

But even the Chinese Communist Party now sees the virtues of the free market, while our own Keynesians seem to think we can centrally plan our way to prosperity.

So are you saying we should have the same level of central planning as the Chinese? Really?

Then what do you think is a reasonable upper limit?

I'm willing to entertain various proposals. But it really depends on the circumstances. Depression Era the % went up to the mid 50s. Seems like that might be a good starting point for a discussion.

I doubt Keynes would have approved of some of things being argued by Keynesians today.

Such as?

[TallDave]

MDF makes a good point (Eric, he's referring to the Broken Windows Fallacy, not literal glassmaking) -- absent WW II, FDR might easily have been remembered as America's greatest economic dunce. It's generally forgetten the demobilization in 1946 was controversial, as many thought it would cause another Great Depression because of the massive drop in government spending.

But a hell of a lot of people made it from one end of the Depression to the other in a hell of a lot better shape than they would have otherwise, because of FDR's policies.

Probably not. FDR's policies probably did more harm than good overall. Some of the regulatory policies were very useful, but the wage controls certainly made unemployment worse, and the taxation policies certainly inhibited growth. And some ideas were just crazy, like buying gold to increase crop prices to help farmers.

[Eric Martin]

absent WW II, FDR might easily have been remembered as America's greatest economic dunce.

Or not. But either way, this suggests that really large stimulus packages are the way to go.

Some of the regulatory policies were very useful, but the wage controls certainly made unemployment worse, and the taxation policies certainly inhibited growth. And some ideas were just crazy, like buying gold to increase crop prices to help farmers.

Which says nothing about his stimulative and job creating policies.

[TallDave]

He didn't increase spending much at all in the first three years.

That doesn't sound like "austerity." Does "Hoovernomics" mean raising spending 6%-8% for 3 years, then raising it 30%?

So are you saying we should have the same level of central planning as the Chinese? Really?

You're arguing we should move in that direction. Oddly, they seem think moving in our direction is beneficial.

Depression Era the % went up to the mid 50s.

That would be ideal for invading Europe.

Such as?

Keynes argued for temporary stimulus. Keynesians today seem to think government spending is just another kind of demand, interchangeable with any other. Assuming all components of aggregate demand are created equal is what got the Communists in so much economic doodoo.

[hairshirthedonist]

Keynesians today seem to think government spending is just another kind of demand, interchangeable with any other.

Government spending is just another kind of demand, though it's not interchangeable with any other. I've never heard anyone suggest that government spending is interchangeable with any other, or that all the others are interchangeable with each other, for that matter, or even that different kinds of government spending are all interchangeable. Might you have a cite showing that, generally, Keynesians today suggest what you say they do?

[Eric Martin]

Does "Hoovernomics" mean raising spending 6%-8% for 3 years, then raising it 30%?

The raising it 30% I've already addressed, so it's odd that you're bringing that up. That increase was too little too late, but not what the complaints are about. It's the relatively modest action when faced with a depression/deep recession, more or less. 6%-8% is also a little deceptive considering the overall size of spending at the time. But, yeah, modest and cautious increases (or even less) in the face of a serious economic downturn is Hooverism.

You're arguing we should move in that direction. Oddly, they seem think moving in our direction is beneficial.

And yet, they are much farther along than us in terms of central control. And much farther than I would ever counsel us to go. I'm not arguing for central planning as much as some limited Keynesian stimulus. To the extent that moves us nominally more toward central control has little to do with China moving away from their rather extreme position. It is not "odd" and other than a cute toss off line, it's entirely irrelevant.

That would be ideal for invading Europe.

But you yourself said that if not for the massive spending attendant to the war, Roosevelt wouldn't have succeeded economically. So it seems that spending at that level might be what's needed now. Although we have several infrastructure needs that would nicely replace the whole invasion of Europe thing.

Keynes argued for temporary stimulus. Keynesians today seem to think government spending is just another kind of demand, interchangeable with any other.

Not me. Not Krugman (he calls for reductions in long term deficits including through spending cuts). Not any Keynesian that I'm reading. Care to name names?

[TallDave]

slarti -- I don't see the Reconstruction Finance Corporation (or TARP, for that matter) as something special that wasn't government spending.

Might you have a cite showing that, generally, Keynesians today suggest what you say they do?

We're already at 45% of GDP, and no invasion of Europe is planned. If Keynesians don't think that gov't spending can replace private, why do they argue we need yet more of it? I've certainly never heard a suggestion from them that we should cut gov't spending to levels better correlated with long-term GDP growth, but maybe I missed it.

[Eric Martin]

If Keynesians don't think that gov't spending can replace private, why do they argue we need yet more of it?

They argue that we need more of it...because of the recession. Not just "in general." Krugman, for one, has written about long term deficit reduction and reduction in spending post crisis. But I guess you missed it.

We're already at 45% of GDP, and no invasion of Europe is planned.

And it should be noted that we didn't get to 45% of GDP because of Keynesians.

No, those numbers climbed up just as steeply under supply side, free market pols like Reagan, Bush and Bush.

[TallDave]

The raising it 30% I've already addressed, so it's odd that you're bringing that up.

Yes, if by "addressed" you mean "ignored because it didn't fit my thesis."

But, yeah, modest and cautious increases (or even less) in the face of a serious economic downturn is Hooverism.

Are you suggesting that's what's happening in Greece and Ireland?

But you yourself said that if not for the massive spending attendant to the war, Roosevelt wouldn't have succeeded economically.

Yes, but look at how they did it. Are you arguing the government should draft working-age men and send them to Europe with massive numbers of tanks, planes, and guns? That would certainly reduce U.S. unemployment, but I don't think Normandy would be quite as thankful today. As noted earlier, this is just the Broken Windows Fallacy writ large.

It is not "odd" and other than a cute toss off line, it's entirely irrelevant.

It's relevant to the notion of Communism, which you raised, because it demonstrates that even Communists no longer believe government spending can grow an economy. That's why I say the notion should have died in the 1990s -- if the Cold War didn't kill it, Japan's experience should have. Governments just don't produce efficiencies very well.

[Eric Martin]

Yes, if by "addressed" you mean "ignored because it didn't fit my thesis."

Huh? I addressed it twice. In two separate comments prior to the one you just cited.

First:

However, the increases were very minor, more like treading water, the first few years, with most of the increase in 1933 - which was still too little, and even then, too late Hoover didn't significantly boost spending in 1930, 1931 or 1932 in any stimulative sense.

Then:

Did you read the year by year breakdown? He didn't increase spending much at all in the first three years.

So, not really ignored as much as directly addressed, twice. And then a third time after you tossed it out again as if my first two responses had not been made. Which I said was "odd."

Are you suggesting that's what's happening in Greece and Ireland?

Some form of that, yes. They are taking the wrong tack: cutting back on spending, which could end up being either modest increases, or actual cuts. I'd have to see the actual numbers. Often times, things that are referred to as "cuts" are actually just smaller increases than previously planned. See, ie, defense spending in the US that Obama "cut" (actually increased at less a rate than was wanted by the MICC).

Yes, but look at how they did it. Are you arguing the government should draft working-age men and send them to Europe with massive numbers of tanks, planes, and guns? That would certainly reduce U.S. unemployment, but I don't think Normandy would be quite as thankful today. As noted earlier, this is just the Broken Windows Fallacy writ large.

I think we can hire working age men and women and, instead of invading Europe, we could set them to work on the countless infrastructure needs of this country: from high speed rail, to crumbling sewers/water systems, broadband, roads/bridges, electrical grid, etc.

I mean, you're not really suggesting that there was something particularly stimulative about troops storming the beach of Normandy. Right?

It's relevant to the notion of Communism, which you raised, because it demonstrates that even Communists no longer believe government spending can grow an economy.

Communists actually do believe this. And China, amongst other communist countries, have more central planning than we do. I didn't raise the issue, though. You equated Keynesianism with central planning and alluded to the 1990s - referring, I assumed, to the end of the Cold War, or communism's decline.

I merely put into words your suggestion: Keynesianism = Communism.

if the Cold War didn't kill it, Japan's experience should have. Governments just don't produce efficiencies very well.

Japan's experience should prove that stimulus is not needed in times of recession? Oh boy.

[hairshirthedonist]

If Keynesians don't think that gov't spending can replace private, why do they argue we need yet more of it?

Moving the goal posts a bit there, are we? Being a bit overly general, too, I see.

How about this? Why don't you tell me how we can have a private sector that is saving and a trade deficit without the government spending more? And why don't you tell me why it's a bad idea to fix our ailing national infrastructure while so many people are out of work?

If you can't tell me why that's a bad idea, tell me who, other than the government, will do it.

Why don't you tell me where all the jobs are going to come from if the government doesn't step in, and also tell me why the government's outlays aren't going to go up anyway if people don't go back to work, while revenues continue to decline.

What exactly do you think is going to happen if the government props up aggregate demand until the private sector gets rolling again? Is it really that hard to think of ways to take up the productive slack that will create better conditions for private enterprise in the future? Do you think it's better for private industry if people are unemployed for long periods, resulting in the loss of skills and human capital? Do you think it's better for private industry if our roads and bridges deteriorate? Do you think it's better for private industry if we don't improve access to eduction?

[russell]

TallDave - just as a reality check:

Are you arguing that Hoover's policies would have turned things around, if only he would have been allowed to pursue them a little longer?

[hairshirthedonist]

Regarding China:

1. INTRODUCTION
Infrastructure development in China has rapidly upgraded within the last five years (the Tenth Five-Year Plan). Infrastructure investment has been the engine driving the economic growth of China. The gross domestic production of China reached 22 trillion yuan, increasing at an annual rate of 10.8 percent in 2006. Infrastructure development and economic growth are mutually pursued.

The economic structure has transformed into a socialist market-orientated economy since 1986, which has been consolidated in the early 1990s. Export-orientated economy supported by infrastructure development contributes largely to the economic growth.

Read on here if you wish:

http://www.eria.org/research/images/pdf/PDF%20No.2/No.2-part2-3.China.pdf

[Slartibartfast]

slarti -- I don't see the Reconstruction Finance Corporation (or TARP, for that matter) as something special that wasn't government spending.

Neither do I. I didn't say it was, either. What I said was: it appears that RFC spending is actually offset by some spending cuts in other areas of government. That is all.

I've seen it argued that RFC was proto-New-Deal; if so (by Eric's metrics) Hoover was moving in the right direction at the end, but it was simply too late.

[jonnybutter]

ah...hairshirt and Eric, don't you see? The point is to seem to get the better of the argument, and not anything else. Who cares about what is actually workable? Ideology is Beautiful, and since Truth is Beauty (and Beauty, Truth), talldave wins. Get a little more sophisticated, would you?!

[TallDave]

Are you arguing that Hoover's policies would have turned things around, if only he would have been allowed to pursue them a little longer?

Which policies? Increasing gov't spending? The RFC? Obviously his trade policy was terribly wrongheaded.

I think it's a safe bet the economy didn't need the massive government interventions of Hoover or FDR, and they tended to make the problem worse, with the exception of some things like FDIC. Had we moved away from a trade war, increased liquidity, and moved towards more free market policies we probably could have avoided the Great Depression altogether. Of course, we're a lot smarter today then we were then.

[TallDave]

Re China -- yes, they're still so poor they need massive spending on basic infrastructure like roads. That happens when you spend thirty years doing crazy things like telling people to forge steel at home. But their growth has been dependent on fostering markets and promoting property rights, which had been nonexistent. They've moved from a North Korean model to something only as dysfunctional as Mexico. They have a long way to go.

http://www.dailyfinance.com/story/china-housing-bubble-end-badly/19597426/

[TallDave]

So, not really ignored as much as directly addressed, twice

No, you've waved your hands around and ignored that it contradicts your thesis. Let me spell out the problem you've been dancing around:

1) Hoover didn't cut spending, he raised it quite a lot;
2) Ireland and Greece did cut spending, a lot;
therefore
3) Greece and Ireland are not practicing "Hoovernomics" and your premise is totally wrong.

I think we can hire working age men and women and, instead of invading Europe, we could set them to work on the countless infrastructure needs of this country: from high speed rail, to crumbling sewers/water systems, broadband, roads/bridges, electrical grid, etc.

You really think there are trillions of dollars of economically efficient infrastructure projects in this country? Really? The fact you even bring up high speed rail tells me you haven't thought this notion through. High speed rail is a ridiculous notion for a country with our population density; every serious study says it can't be a paying concern. And Japan already tried the "massive infrastructure investment" trick and they got a country full of Bridges to Nowhere and no growth.

I didn't raise the issue, though.

Central planning isn't the same as Communism; you just thought it would be a cute way to dismiss the criticism. Of course, I could just as easily have been referring to the sweeping market reforms that Western Europe underwent in the 1990s, such as in the Swedish educational system, or the failure of Japan's stimulus efforts.

Japan's experience should prove that stimulus is not needed in times of recession? Oh boy.

What I said was that it proves gov't spending cannot grow an economy -- at least, not at the proportionn of GDP we're at today.

[hairshirthedonist]

Government spending alone can't grow an economy, but it can lay the groundwork for the private sector to grow the economy. Try again.

[cleek]

Central planning isn't the same as Communism; you just thought it would be a cute way to dismiss the criticism.

fail.

the phrases "central planning" and "command economics" are almost always associated with some form of communism. they're rarely associated with anything else. and your pairing of them makes the implication doubly-clear.

[MDF]

So it was massive government spending on the war, but not stimulus policies?

Yes, it was a huge increase in demand via massive government spending -- to orders of magnitude more than any goverment is willing to consider in peace time -- combined with the complete destruction of supply in the rest of the world, that ended the Great Depression. It was not FDR's stimulus policies. So unless you are going to try to convince the Japanese to attack Pearl Harbor again, it is unlikely that any Obama stimulus, no matter how large, is likely to make much of a real difference.

[Duff Clarity]

High speed rail is a ridiculous notion for a country with our population density; every serious study says it can't be a paying concern. And Japan already tried the "massive infrastructure investment" trick and they got a country full of Bridges to Nowhere and no growth.

Interesting. Every factual assertion above is either completely false, completely irrelevant, or both.

During World War II, was it a paying concern to put explosives into metal containers in the United States, put them on trains to the ports, put them in ships, transport them across the globe, put them into airplanes and then drop them out and blow them up?

Not by any reasonable definition of the phrase paying concern. But it helped end the Great Depression.

A quarter or so of the country's productive capacity is idle. It's like computer clock cycles, you can't save them up for later. You can use them or let them go to waste.

We, as a nation, have been letting them go to waste because we lack the political will to tell bondholders that in the future their claims on America's productive capacity will be slightly lower and the claim by American workers on America's productive capacity will be slightly higher.

And a country with our population density? Do you mean the population density of the Boston-Washington corridor, the population density of southern Utah, the population density of Southern California, or some insanely irrelevant average or median of the above?

And by every serious study do you rule out any of the studies not funded by Cato or Heritage or other such organizations created for the sole purpose of lying?

[Hartmut]

cleek, slight correction there. Command economics was also part of the fascist states and Nazi Germany (the latter also had x-year-plans. The man responsible for implementation was Göring btw). Contemporaries saw strong parallels between FDR's policies and those in Europe (but were quite split on whether that was a good thing).
---
When the World Economic Crisis hit, the German chancellor Brüning went full austerity and deflation. The results are known. What is less known is that Brüning later claimed that he intentionally exacerbated the crisis to get rid of the war reparations and also to prepare the field for a coup d'etat from the right*. He got that but it was the New not the Old Right that took over.

*Restoration of absolute monarchy with Hindenburg as regent ruling under martial law until a proper emperor could be found (Old Willie was not considered an option).

[Eric Martin]

Of course, I could just as easily have been referring to the sweeping market reforms that Western Europe underwent in the 1990s

Except, by your own admission upthread, you were referring to Communism!

It's relevant to the notion of Communism, which you raised, because it demonstrates that even Communists no longer believe government spending can grow an economy. That's why I say the notion should have died in the 1990s -- if the Cold War didn't kill it

Weird.

1) Hoover didn't cut spending, he raised it quite a lot;

Not really. He had modest increases in the first three years, and then a bigger spike in the fourth, when it was too late. Time is of the essence. Besides, I never said he cut spending.

2) Ireland and Greece did cut spending, a lot;

They are more extreme Hoovers than Hoover.

therefore
3) Greece and Ireland are not practicing "Hoovernomics" and your premise is totally wrong.

No, it just shows that you can be even more Hooveristic than Hoover. Adding, it doesn't seem to be working out for Greece and Ireland.

And isn't cutting spending what you recommend?

You really think there are trillions of dollars of economically efficient infrastructure projects in this country? Really? The fact you even bring up high speed rail tells me you haven't thought this notion through. High speed rail is a ridiculous notion for a country with our population density; every serious study says it can't be a paying concern. And Japan already tried the "massive infrastructure investment" trick and they got a country full of Bridges to Nowhere and no growth.

Wow. Wrong on just about every count.

1. I never said high speed rail was the only answer, but it makes perfect sense in many areas of the country with...high density! And there are plenty of major studies that argue in favor of high speed rail. I mean, really. None? Heh.

2. Japan did not spend a ton on infrastructure. That's the point. They stayed overly cautious in terms of spending. Hence, the lost decade. Nevertheless, their broadband and wireless networks are superior, and the high speed rail is a boon.

3. There are definitely trillions in infrastructure projects.

From a James Fallows article in January:

"The American Society of Civil Engineers prepares a “report card” on the state of America’s infrastructure—roads, bridges, dams, etc. In the latest version, the overall “GPA” for the United States was D, and the cost of bringing all systems up to adequacy was estimated at $2.2 trillion over the next five years, or twice as much as is now budgeted by all levels of government. In 1988, the comparable study gave an overall grade of C, with many items getting B’s. Now, the very highest grade was for solid-waste systems, at C+, or “mediocre.” Roads, dams, hazardous-waste systems, school buildings, and public drinking water all received a D or D–. The average dam in the United States is 50 years old. “More than 26%, or one in four, of the nation’s bridges are either structurally deficient or functionally obsolete,” according to the latest report. Improving existing bridges would cost about $17 billion per year, or about twice as much as currently budgeted. Worn-out water systems leak away 20 gallons of fresh water per day for every American; replacing systems that are nearing the end of their useful life would cost $11 billion more annually than all levels of government now plan to spend. “Engineers don’t usually put things dramatically, but the alarm about infrastructure is real,” Stephen Flynn, of the Center for National Policy, told me. “Our forebears invested billions in these systems when they were relatively much poorer than we are. We won’t even pay to maintain them for our own use, let alone have anything to pass to our grandchildren.” "

That's 2.2 trillion over five years just to bring them up to a state of adequacy. That involves no new major forward looking initiatives. Just repair and refurbish.

So, yeah.

[jonnybutter]

There are definitely trillions in infrastructure projects.

He said 'economically efficient' infrastructure projects, and of course *he* defines (narrowly) what 'economically efficient' means.

The point for these guys is not to be merely wrong, but to be *perfectly* beautifully wrong.

[Nate]

One of my the classes I was in last year was an Infrastructure rehab class for my CEE degree. One of our projects was to find examples of deteriorated concrete in structures, and make up a repair plan for them.

My group looked at a local bridge, which had some pretty big concrete losses on the underside. The thing was, these deterioration spots had faded orange spray paint on them. When we went and checked the DOT's online bridges page, it had photos from about six years ago, showing these spots circled with orange paint, and much smaller.

Now, none of these were directly structurally threatening, yet. But that's only because of the safety factors built in. I don't know if this bridge has even been repaired yet, either. So this is just an anecdote, but we have bridges where obvious problems have been left untreated while small (a hand applied concrete patch could have fixed them before) until they become bigger. Or how about the total overhaul that Georgia Power's been doing to the wiring under Savannah, where the wiring was old enough that they had explosions from old insulation catching fire. (At the time these happened I was interning about three blocks away.) Just repairing the infrastructure we have is a huge project.

Also, a lot of the "free market" folks and Austrian Business Cycle people like to talk about things like it's a matter of money that we can't get things done. Well, no. Money is imaginary, and we use it to make many things in life easier, but the real problem, as Matt Yglesias put it a few weeks ago, is mobilizing real resources. Most of our current problems are due to people and companies not having work to do. But there's plenty of things that need doing! Staying at the status quo because "the markets" say we "have" to is a waste of real resources, time, trained people, skills that deteriorate, and trillions of man-hours of things that could be done. Sitting back and waiting until the bankers think they can make more profit by doing something instead of sitting on their butts is not efficient in any way, which is supposed to be the selling point of markets.

Or, as Fred over at Slacktivist put it, "...when we have A) work that needs to be done, and B) people who need work to do, then we don't actually have two problems, we have one obvious solution."

[russell]

Interesting. Every factual assertion above is either completely false, completely irrelevant, or both.

I'm getting that vibe from TallDave also.

Dave's making two reasonable points:

1. Federal budgets increased under Hoover, rather than the opposite, so it's unclear that "Hoovernomics" is a good name for austerity measures in Ireland and Greece.

2. 45% of GDP is a big number.

Noted on both counts.

Rather than "Hoovernomics", let's just call it "austerity".

And yeah, 45% of GDP is a big number. Thanks for bringing it to our attention.

[Slartibartfast]

Point of interest:

Hoover, as the historian David M. Kennedy writes, had shown “himself capable of the most pragmatic, far-reaching, economic heterodoxy,” a trait that “would in the end carry him and the country into uncharted economic and political territory.” New Dealer Rexford Tugwell would, many years later, claim that “practically the whole New Deal was extrapolated from programs that Hoover started.” Indeed, “Hoover had wanted—and had said clearly enough that he wanted—nearly all the changes now brought under the New Deal label.”

Tugwell’s appraisal, though considerably exaggerated, nonetheless testifies to the boldness of Hoover’s program. The only problem was that it did not work. The nation’s credit system still would not thaw, banks kept falling like dominoes, unemployment rates and human suffering continued to rise. For all of his willingness to break with precedent and intervene directly in the economy, Hoover remained unable to turn his back fully on what Kennedy describes as the prevailing “legacy of perception and understanding of economic theory.”

So, too little too late, and also lacking in lateral scope?

[Phil]

High speed rail is a ridiculous notion for a country with our population density

Shhhh! Nobody tell Ohio!

[Phil]

I mean, the fact that that Acela route in the east flopped so badly just demonstrates that there's no place for high-speed rail in this country.

Oh, wait -- the exact opposite of that happened:

Acela Express trains are the only true high-speed trainsets in North America; the highest speed they attain is 150 mph (240 km/h), though they average less than half of that. Acela has become popular with business travelers and by some reckoning has captured over half of the market share of air or train travelers between Washington and New York. [4] Between New York and Boston the Acela Express has up to a 37% share of the train and air market. [5] [6]

The Acela Express is one of the few Amtrak lines to operate at a profit; the two train lines generate more than half of Amtrak's total revenue

Yeah, boy, nobody in American's densely-packed metropolitan areas wants high-speed rail, huh?

[hairshirthedonist]

Ditto Nate at 8:43. These things NEED getting done. When is the best time to do them? The government can either compete for scarce resources (high opportunity costs) when output is already near capacity, placing inflationary pressures on the economy, or it can do the things that need getting done while we're fairly well below capacity, putting unemployed people to work and utilizing resources that would otherwise go to waste (low opportunity costs). It's really a no-brainer. We're only being stopped by stale, dysfunctional economic dogma.

[Bernard Yomtov]

MDF,

[recovery from the Depression] really didn't have all that much to do with FDR's stimulus policies per se.

Take a look at the table that Tony so beautifully formatted. It's dated Aug. 18, 6:32 PM.

Take your time and look carefully.

Study the first column, GDP. This is inflation-adjusted, by the way. You will see very nice growth from the bottom, in 1933, through 1937, at which point things go flat for a couple of years -1938-9.

Now look at the last two columns, spending and deficit as % of GDP. Note that the deficit and spending dropped in 1937 and 1938. In 1939 spending picks up and, lo and behold, in 1940 GDP jumps nearly 10%.

Now, I suppose all that could be coincidental, as could be the fact that unemployment followed a similar pattern. But I'd say something was going on.

Yes, FDR made some mistakes. Who, exactly, faced with a problem like the Great Depression, would not have gotten a couple of things wrong? But his biggest was abandoning successful policies under political pressure to balance the budget in 1937.

[Eric Martin]

But HSH, it's not real employment unless the workers are actually soldiers fighting in WWII, because that was the precise scenario during the Great Depression.

QED.

Yes, it was a huge increase in demand via massive government spending -- to orders of magnitude more than any goverment is willing to consider in peace time -- combined with the complete destruction of supply in the rest of the world, that ended the Great Depression. It was not FDR's stimulus policies. So unless you are going to try to convince the Japanese to attack Pearl Harbor again, it is unlikely that any Obama stimulus, no matter how large, is likely to make much of a real difference.

But the Great Depression ended before WWII, and the manufacturing capacity of Europe wasn't really a factor until the postwar years (as they weren't really building or buying much during WWII).

[Hogan]

Maybe we should call it Mellonomics.

[hairshirthedonist]

I'm not even sure what the point is here anymore. Is it that austerity regimes are effective at getting economies out of recessions and depressions? Is it that the government can only spend more than it is now if we're fighting a world war? If the point is simply that we don't have the political will short of world war, maybe that's true, but I would argue that it's stupid and wrong.

And I'd ask what we would have been able to do about WWII if we had been under an austerity regime for the ten years leading up to it. Can you imagine the decay and loss of productive capacity that would have occurred over a decade of austerity during the Great Depression? Would we have been able to ramp up the way we did? I don't think so. Maybe Parisian school kids would be speaking German in class right now.

[Slartibartfast]

I think the first point; that it was WWII and nothing else that got us out of the Depression has obvious timeline issues.

What FDR did that was effective vs. what he did that was ineffective is a conversation I'm interested in, but that's probably already been done to death.

[Eric Martin]

Is it that austerity regimes are effective at getting economies out of recessions and depressions?

That is the argument, sometimes. But then TD points to Ireland and Greece and notes that they are cutting spending, and hence not Hoovers, and therefore...their austerity measures are working?

Is it that the government can only spend more than it is now if we're fighting a world war?

That does seem to be TD and MDF's points - or that only major war spending will do the trick due to the corresponding lack of manufacturing capacity in Europe. Even though the timelines for recovery under FDR don't match that narrative. And even though there is nothing really unique about war spending.

And I'd ask what we would have been able to do about WWII if we had been under an austerity regime for the ten years leading up to it.

Bingo.

[hairshirthedonist]

OT: Wow - Andrew Mellon's ex-wife was still living the year I started kindergarten. That's weird.

[russell]

Study the first column, GDP. This is inflation-adjusted, by the way. You will see very nice growth from the bottom, in 1933, through 1937, at which point things go flat for a couple of years -1938-9.

Now look at the last two columns, spending and deficit as % of GDP. Note that the deficit and spending dropped in 1937 and 1938. In 1939 spending picks up and, lo and behold, in 1940 GDP jumps nearly 10%.

Feh.

Reality is for weaklings.

[Eric Martin]

But Bernard, the growth from 1933-1940 is only attributable to WWII. Which we entered, I believe, around 1934.

[Hartmut]

The US was preparing to go to war with the Brits of course at that time* but then someone noticed that a different course was more profitable ;-)

*not as silly as it sounds. There was a major naval rivalry that according to some historians could have turned into a war, if the London and Washington treaties had not stopped a repeat of the pre-WW1 British-German arms race with the US taking the part of the Kaiser.