Obama Peddles Myths About the Great Depression: No, Hoover Didn’t Cut Taxes or Spending

by Hans Bader on November 21, 2011 · 9 comments

in Economy, Employment

Herbert Hoover increased marginal tax rates on the wealthy to 63 percent, and more than doubled government spending as a percentage of the economy. But in his political speeches, President Obama continues to falsely claim that Hoover gave “tax cuts” to the rich and slashed the government to promote “trickle-down economics.” In his November 14 remarks at a campaign event in Ko Olina, Hawaii, Obama said:

So this competition for new jobs and businesses and middle-class security, that’s the race I know we can win. But you don’t win it by saying every American is on their own. We’re not going to win it if we just hand out more tax cuts to people who don’t need them, let companies play by their own rules without any restriction, and we just hope somehow that the success of the wealthiest few translates in the prosperity for everybody else.

We have tried that, by the way. We tried it for 10 years. It’s part of what got into the mess that we’re in. It doesn’t work. It didn’t work for Herbert Hoover, when it was called trickle-down economics during the Depression. It didn’t work between 2000 and 2008, and it won’t work today.

Obama is dead wrong. Data from the White House’s own website shows that Hoover increased, rather than cut, spending in the Great Depression, and ran up deficits that were huge by historical standards.

That is illustrated in Table 1.1 on page 21 of a document on the White House’s website, a document entitled, “Historical Tables: Budget of the United States Government, Fiscal Year 2009.” It shows that Hoover increased the federal budget from $3.1 billion in 1929, the year he took office (and the Great Depression began), to $4.7 billion in 1932, his last full year in office, and $4.6 billion in 1933, the year he left office. The budget deficit went from a surplus in 1928 to a deficit of $2.7 billion in 1932. Table 1.2 on page 24 of that document shows that government spending and deficits rose considerably as a percentage of the economy under Hoover. (See Table 1.2, “Summary of Receipts, Outlays, and Surpluses or Deficits (–) As Percentages of GDP: 1930-2013)” and Table 1.1, “Summary of Receipts, Outlays, and Surpluses or Deficits (–): 1789–2013)”). By 1932, the government was spending more than $2 for every dollar that it took in.

Newspapers such as the Richmond Times-Dispatch and Washington Times also have noted that Hoover actually increased spending during the Depression. Financial writer Megan McArdle of The Atlantic noted that Hoover more than doubled federal government spending as a percentage of GDP, increasing spending even as the economy shrank and deflation occurred. I have made the same point in The Washington Post, New York Times, and many other newspapers (see here, here, here, and here), citing “data from the federal Office of Management and Budget.” But Obama seemingly does not read newspapers, or even his own budget requests (which contained these figures).

I explained how the federal government worsened the Great Depression, and slowed the inevitable economic recovery, at this link. Hoover aggravated the Great Depression by signing the massive Smoot-Hawley tariff increase, which sparked trade wars that wiped out most of the jobs in America’s export sector. Franklin Roosevelt slowed the recovery from the Depression by pushing through costly new labor laws (like the NLRA, which led to a wave of costly strikes in 1937-38), imposing an undistributed profits taxes on business that discouraged investment, and trying to centrally-plan and cartelize the economy through the NIRA (which the Supreme Court struck down in the Schechter Poultry case), among other things.

contrararian November 22, 2011 at 11:22 am

Wasn;t it the case the Hoover initially supported tax cuts, then his advisors persuaded him to increase government spending?

It’s one thing to argue increased government spending is a bad thing…

But I don’t think obama’s speech (mangled as it was) was as wrong as you imply…

Mebane November 22, 2011 at 1:15 pm

No. Hoover quite deliberately increased spending and taxes — ignoring advice from advisers like Treasury Secretary Mellon, who advised him against these things.

He increased spending and government because he was a control freak who disregarded the successful free-market policies of his predecessors like Calvin Coolidge.

StewartIII November 22, 2011 at 12:10 pm
tcbritta November 22, 2011 at 8:41 pm

“On October 21, 1929, Hoover signaled his intention to ask for a tax cut. Treasury Secretary Andrew Mellon told lawmakers that he expected a budget surplus in each of the next two fiscal years. As a result, he suggested, Congress would have ample room to cut taxes. Ways and Means Chair Willis Hawley, R-Ore., responded warmly. “In the past,” he told reporters, “each reduction in taxes has stimulated business and resulted in another surplus the subsequent year.”8
Three days later, Wall Street took the first of several swoons. Mellon insisted that plans for a tax cut remained intact. It was, he implied, simply a routine refund of excess revenue to overburdened taxpayers.9″ ~ http://www.taxhistory.org/thp/readings.nsf/ArtWeb/65D62AC290A5E538852574CE00735F76?OpenDocument

tcbritta November 22, 2011 at 8:42 pm

‎”Prior to the start of the Great Depression, Hoover’s first Treasury Secretary, Andrew Mellon, had proposed and seen enacted, numerous tax cuts, which cut the top income tax rate from 73% to 24% (under Presidents Warren G. Harding and Calvin Coolidge).” ~ H Hoover wiki

Obamacare Lies November 22, 2011 at 9:54 pm

and now we know why it took 25 years in a world war and pull the US out of depression. Higher taxes and spending. Obama’s answer to pulling us out of the current depression. And make no mistake it is a depression.

Real unemployment is probably between 15 and 25%. The Great Depression saw unemployment of 20 to 25%. Pretend and extend it did not work in the 1935 and it will not work Now.

Paul Marks November 23, 2011 at 4:22 am

Perhaps most importantly of all – Herbert Hoover used all his powers (all the powers the Progressive movement, rather than the Constitution, had given to this office) to prevent prices and especially wages adjusting to the credit money bust of 1929.

To Hoover nominal-incomes-must-not-be-allowed-to-fall as this would threaten “demand”. Yet in when the World War One credit money bubble finally bust (in 1921) wage rates had been allowed to fall (President Warren Harding did not bully private business enterprises) and government spending did not “prop up demand” either. Indeed President Harding CUT government spending by 25% (one of the largest cuts in American peace time history). Tax rates? They were CUT as well (including for “the rich”).

The economy was in recovery within six months. Yet Herbert Hoover learned nothing – on the contrary he blamed himself for not convincing Harding “in time” to let him (Hoover) order everyone about (in true Herbert “The Forgotten Progressive” style).

However, Barack Obama is not alone – the education system (both at college and school level) lies about government policy under Herbert Hoover – pretending he was a “free market” or even “laissez faire” person. Nor do they honestly teach about about the effects of government policy in 1921 (when allowing wage rates to adjust to the credit money bubble collapse, and vastly CUTTING government spending – produced a quick and strong recovery).

Comments on this entry are closed.

{ 2 trackbacks }

Previous post:

Next post: