Lessons from Hoover and Harding

From 1929 to 1932 federal spending increased by 50% in nominal terms, doubled in real terms, tripled relative to national income. Judged by that measure, Herbert Hoover makes Barack Obama look like a fiscal conservative.

….. we do have an example of a Republican president who responded to a surge in unemployment in the way [many people] think Hoover did. From 1920 to 1921, unemployment rose from 5.2% to 11.7%, almost as sharp an increase as from 1930 to 1931.

[Warren] Harding responded by sharply cutting spending. By 1922, federal expenditure relative to national income had dropped almost fifty percent.

And the unemployment rate was back down to 2.4%.

More from David Friedman at his blog.

Comments (7)

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  1. Joe S. says:

    Good post. This should be read by everyone interested in Keynesian fiscal policy and why it doesn’t work.

  2. Larry C. says:

    I also like this post. It’s a great annecdote to the typical Keynesian line.

  3. Vicki says:

    So history is the opposite of what we have always been told.

  4. Tom H. says:

    In the 60s we would have called this revisionist history.

  5. Bruce says:

    There is a whole literature on how Hoover made everything worse becase he tried statist interventions. This literature is largely unknown to the general public, however.

  6. Erik says:

    It can also be argued that the reduction of government intervention caused a double dip resulting in the great depression.

    We can see by current events that “Supply Side” economics is an utter failure brought to us by a high tax republican – Reagan. Where are the Jobs?

  7. Devon Herrick says:

    This is very interessting. I have also always heard that the protectionist trade policies that were put into place on account of the Depression actually made it worse.