Herbert Hoover

Cut the Capital Gains Tax and Government Spending to Create Jobs and Promote Technological Advances

by Hans Bader on October 17, 2011

in Deregulate to Stimulate, Economy, Employment, Politics as Usual, Zeitgeist

In today’s Wall Street Journal, Amity Schlaes notes that cuts in the capital gains tax were one of the key factors that paved the way for Steve Jobs and other innovators, and increased the flow of venture capital that created jobs and resulted in technological advances. (Schlaes recently wrote an interesting book about the economic history of the Depression, The Forgotten Man: A New History of the Great Depression.)

I wrote earlier about double standards contained in the capital gains tax, which result in it being higher and more burdensome than people commonly assume; and how it effectively punishes investors for investing during periods of inflation, since the government ignores inflation in calculating the cost of your investment. Moreover, while capital gains are taxable, capital losses often are excluded from consideration, and cannot be taken into account, in calculating your overall income for the year in which they occur; for example, you cannot list more than $3,000 in net capital losses on your tax return, but you have to list all of your net capital gains. That results in a “heads I win, tails you lose” situation in which the government effectively rips off investors. This encourages people to hold cash rather than invest in risky start-up enterprises that could create jobs, since it makes sense to hold cash rather than investing if you think you could lose money on a large scale due to either a depression or a jump in investor risk aversion that cuts the resale value of risky stock (for example, a shift by the investing public away from risky assets during a financial panic, or period of falling public confidence in the economy).

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Jerrold Nadler’s Fiscal Fantasies: Herbert Hoover Increased Spending, He Did Not “Slash the Budget” During the Great Depression

by Hans Bader on October 5, 2011

in Economy, Employment, Politics as Usual, Sanctimony

Attacking the idea of a Balanced Budget Amendment, “Congressman Jerrold Nadler (D-NY), the top Democrat on the House Judiciary Subcommittee on the Constitution,” issued a press release on October 4 promoting the falsehood that Herbert Hoover cut spending during the Great Depression, when in reality, Hoover more than doubled government spending as a percentage of GDP:

“Did Herbert Hoover win the last election?” asked Nadler. “If, in the middle of a recession, when tax revenues are down, and unemployment is up, we begin to slash the budget in ways my Republican colleagues are now suggesting, much less the far more draconian measures that this amendment would require, we will go from the Great Recession, right into another Great Depression. It’s been tried before, and if we want the Constitution to enshrine Hooverism for all time, we will get what we deserve.”

Nadler is wrong about the facts here, as he so often is. As I recently noted in the Edmonton Journal:

Former U.S. president Herbert Hoover did not practice austerity, so it is incorrect for politicians to claim that he “helped plunge his country into the Great Depression through austerity measures.”

Hoover’s administration increased federal government spending from three per cent of the U.S. economy in 1929, the year he took office, to eight per cent in 1933, the year he left office.

The U.S. budget deficit became so large as a result that by 1932, the country’s government was spending more than $2 for every dollar it took in.

It was not austerity that caused the Great Depression, but misguided government meddling in the economy, such as the Smoot-Hawley Tariff of 1930.

That increased tariff backed by Hoover ignited devastating trade wars between the U.S. and other countries that wiped out countless jobs.

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Herbert Hoover, Father of the New Deal

by Ryan Young on September 29, 2011

in Economy, Zeitgeist

Whether you love the New Deal or loathe it, its policies were not entirely new. FDR’s predecessor, Herbert Hoover, set the precedent. History remembers him as a laissez faire president; a do-nothing who simply let the Great Depression happen. This requires an odd definition of “laissez faire” and an even stranger understanding of “do-nothing” to actually be true.

A new Cato paper from St. Lawrence University economics professor Steve Horwitz takes a closer look:

In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt’s advisers knew that Hoover had started the New Deal. One of them wrote, “When we all burst into Washington … we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself.”

Read the whole paper here.

Wasteful Stimulus Package Fails Even In Short Term

by Hans Bader on May 19, 2009 · 5 comments

in Bailout Watch, Economy, Employment, Politics as Usual, Stimulus to Nowhere

1.2 million Americans have lost their jobs since the $800 billion stimulus package was signed into law. The Congressional Budget Office predicted it would shrink the economy “in the long run,” but create jobs in the short run.

But the stimulus package turned out to be harmful even in the short run, because it was so badly designed. It poured money into sectors of the economy where no help is needed because unemployment is low, while siphoning money out of sectors where unemployment is high. Moreover, an Associated Press study “found that states hit hardest by the recession are getting the least amount of stimulus spending.”

The stimulus package has directly destroyed tens of thousands of jobs. A provision in the stimulus package that blocked 97 Mexican truckers from U.S. roads “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs.

It also ignited a trade war with Canada. In response to vague “buy American” provisions in the stimulus package, “A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

Yet, Obama had the audacity to claim that only passing the stimulus package would save us from “irreversible decline” and economic ““disaster”.

Obama’s policies echo those of Herbert Hoover, who helped spawn the Great Depression through his protectionism and tax increases.

Stimulus Ignites Job-Killing Trade War With Canada

by Hans Bader on May 15, 2009 · 1 comment

in Economy, Employment, Energy, Environment, Global Warming, International, Odds & Ends, Politics as Usual, Stimulus to Nowhere, Trade

The $800 billion stimulus package pushed through by Obama has ignited a trade war with Canada, reports the Washington Post. In response to vague “buy American” provisions in the stimulus, “A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

A trade war is also underway with Mexico, thanks to a provision in the stimulus package that blocked a measley 97 Mexican truckers from U.S. roads. That minor NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs.

Obama’s protectionism echoes Herbert Hoover’s protectionism, which helped spawn the Great Depression. President Hoover signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Unemployment is now even higher than what Obama predicted it would be without the stimulus. The White House now admits that there will be no job growth until 2010. The Congressional Budget Office repeatedly predicted that the stimulus would shrink the economy “in the long run,” but increase it in the short run, i.e., by the next election.

But so little of the stimulus money has gone into sectors of the economy where unemployment is high (like construction and transportation) that it seems to be doing nothing for the economy even in the short run. The $100 billion it pours into education — a sector where unemployment is very low, and where the U.S. also spends more per capita than almost every other country — appears likely to be wasted. Only 5.9 percent of the stimulus will go to transportation, a small amount compared to the amount of money it showers on state governments, which are using it to continue to provide lucrative pension and health benefits for state employees, whose wages continue to rise much faster than private sector workers.

Obama is following in Herbert Hoover’s footsteps on taxes and spending. In the Great Depression, Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. Similarly, Obama has proposed higher marginal tax rates, which will produce another $1.9 trillion in tax increases. One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

Hoover imposed regressive taxes that burdened consumers, like the Revenue Act of 1932. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

Ideologies Are Like Cults

by Hans Bader on April 8, 2009 · 2 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Herbert Hoover ran up big budget deficits in response to the 1929 stock market crash, in an unsuccessful effort to stave off the Great Depression. That’s incontrovertible history. Even the web site maintained by the Obama White House, which has proposed record-setting budget deficits over the next decade, says Hoover ran up deficits.

But when someone points out that Hoover was a deficit-spender, liberal ideologues falsely claim in response that Hoover pushed for a balanced budget. Nothing supports those claims. But they are necessary to argue that deficit-spending is a miracle cure for the recession — and to defend Obama’s unprecedentedly-large deficits from criticism by economists and financial experts.

Yesterday, the Washington Post carried my letter to the editor noting that Hoover ran up big deficits. In my letter, I noted that contrary to the claim that

“‘President Herbert Hoover’s response” to the 1929 stock market crash ‘was to balance the federal budget.’ Hoover actually ran up massive deficits, as the federal Office of Management and Budget notes. Hoover inherited a large budget surplus, which he quickly turned into a deficit. By 1932, when he lost his bid for reelection, the deficit had reached $2.7 billion — the third-largest budget deficit America had ever experienced. Hoover increased government spending from $3.1 billion to $4.7 billion in a failed effort to stimulate the economy. And he increased marginal tax rates to 63 percent.”

When I cited to the federal Office of Management and Budget, it was to a document on the White House’s own web site, “Historical Tables: Budget of the United States Government, Fiscal Year 2009.” Most of my figures came from Table 1.1 on page 21 of that document.

But all this evidence was to no avail. A hostile commenter on the Post’s web site asserted just the opposite, based on — nothing. He wrote, “Check out the ‘Competitive Enterprise Institute’ website . . . It’s a right-wing organization whose kookiness is akin to the Flat Earth Society. Hoover DID try to balance the budget in the middle of a recession and, consequently, trigered [sic] the Great Depression.”

Needless to say, the hostile commenter didn’t cite any evidence or any sources for his claims about Hoover, because there aren’t any. And the evidence I cited was from the White House’s own web site. (By the way, I have an economics degree, a law degree from Harvard, and graduate level econometrics coursework, not signs of belonging to the “Flat Earth Society”).

Earlier, I noted the parallels between Obama and Herbert Hoover on international trade, taxes, and spending. I linked to source after source supporting my argument. For example, I noted that

“In the Great Depression, President Herbert Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. He also signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

“Obama is on the same path. His deficit-exploding $800 billion stimulus package blocked 97 Mexican truckers from U.S. roads. That NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade.” The CBO admits that the stimulus package will actually shrink the economy in the long run.”

Confronted with these incontestable facts, found in newspapers and government reports, an Obama-phile simply asserted that everything I said was false, and that Hoover caused the Great Depression by cutting government spending. After regurgitating Obama Administration talking points, he claimed that “Hoover’s downfall was largely that he CUT spending rather than making sound investment in STIMULATING the already reeling U.S. economy.”

Keep in mind that Hoover increased spending by roughly 50% from $3.1 billion to $4.7 billion from the year he took office in 1929 to his last year in office, 1932. (That increase actually understates Hoover’s big-spending proclivities, for two reasons. First, deflation occurred during the Great Depression, so the increase in the budget after inflation was actually bigger than 50%. Second, Hoover’s influence on the budget wasn’t really felt until well after he took office. When it finally was, spending rose at a much more rapid rate.)

The commenter also claimed that Obama’s $800 billion stimulus package was “much-needed.” The Congressional Budget Office says that package, despite its enormous cost, will actually shrink the economy over the long run, by exploding the national debt and crowding out private investment. That contradicts Obama’s apocalyptic claims that the stimulus package was necessary to avert “irreversible decline” and economic “disaster.” (Note that the Congressional Budget Office’s figures cannot be dismissed as “radical” or right-wing “garbage,” since it is generally non-partisan, but subject to oversight by liberal Congressional leaders).

Obama Follows in Hoover’s Footsteps

by Hans Bader on April 1, 2009 · 3 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Energy, Environment, Global Warming, International, Politics as Usual, Regulation, Stimulus to Nowhere

During the Great Depression, Herbert Hoover damaged the economy, and impoverished the American people, with costly, artificial attempts to stimulate the economy through increased government spending, financed by heavy taxes like the Revenue Act of 1932.

Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. That tax fulfills his prediction in 2008 to the San Francisco Chronicle (which didn’t report it) that “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s regressive excise taxes were in 1932. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air.

The $2 trillion that Obama’s proposed “cap-and-trade” carbon tax on energy use and utility bills is expected to raise is far more than the $646 billion the Administration earlier estimated. That’s at least $3,100 per family per year.

Obama is also emulating Herbert Hoover’s protectionism. Hoover signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Similarly, the bill incorporating Obama’s carbon tax contains protectionist measures that will likely trigger an economically-destructive trade war. Indeed, Obama already started a trade war through a provision in his $800 billion stimulus package that blocked a measley 97 Mexican truckers from U.S. roads. That minor NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs. (Even before that, the Congressional Budget Office admitted that Obama’s stimulus package would actually shrink the economy in the long run).

The $2 trillion raised by Obama’s cap-and-trade carbon tax may be dwarfed by the money it siphons from consumers to well-connected corporations that have learned how to game cap-and-trade schemes.

In the Great Depression, President Herbert Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. Similarly, Obama has proposed higher marginal tax rates, which will produce another $1.9 trillion in tax increases.

In spite of its massive size, Obama’s carbon tax won’t begin to pay for all his spending increases, such as a budget that will generate $4.8 trillion in increased deficits, Obama’s trillion-dollar toxic-asset program, and his $800 billion, economy-shrinking “stimulus” package, all of which contradict Obama’s campaign pledge of a “net spending cut.”

Obama’s carbon tax, like the tobacco tax increase he already signed into law, is a violation of his campaign promise not to raise taxes in “any form” on anyone making less than $250,000 per year.

Stimulus Plan Repeats Mistakes That Spawned Great Depression

by Hans Bader on February 3, 2009 · 3 comments

in Bailout Watch, Economy, Labor, Legal, Politics as Usual, Regulation, Stimulus to Nowhere, Trade

The European Union is threatening a trade war over provisions in the $800 billion “stimulus” package backed by Obama and Congressional leaders. The Great Depression resulted partly from the trade war that followed the Smoot-Hawley Tariff signed into law by Herbert Hoover, which Congressional leaders wrongly thought would help end the recession that followed the 1929 stock market collapse.

The stimulus package also contains tons of red tape and strings attached to the money it showers on state governments, in order to benefit big labor unions, like “prevailing wage” mandates that result in taxpayers paying inflated wages for construction projects. Economists have recently described how red-tape misguidedly imposed during the Roosevelt Administration lengthened the Great Depression by as much as seven years.

The “stimulus” package is losing favor among economists and the general public. Only 42 percent of the public supports it, and most independents oppose it, according to pollster Rasmussen Reports. And even economists who once supported the idea of a stimulus (like Martin Feldstein, the pro-bailout economist often cited by Congressional leaders to support bailouts and the need for a “stimulus”) turned against the bloated stimulus package when its pork-filled contents were revealed. Many economists oppose the stimulus package, which is based on economic fallacies.

A similar trillion-dollar stimulus package failed in Japan in the 1990s, producing a decade of economic stagnation known as “The Lost Decade.”