Before reading Scott Alexander’s delightful recent post on Herbert Hoover, I knew a bit about his achievements prior to the presidency, but I learned much more. Read the whole thing; Hoover was an amazing man.
I have strong views on Hoover, which is not surprising given that I spent over a decade researching the Great Depression. Hoover was not the most talented person to ever become President, but he was probably the most competent. Unfortunately, his areas of competence did not dovetail with the problems facing the US during the early 1930s. Hoover was very good at organizing large endeavors, but the problems faced by the US during the early 1930s were macroeconomic in nature. Unfortunately, being a good administrator doesn’t have much correlation with understanding macroeconomics.
Alexander’s post summarized a book on Hoover written by Kenneth Whyte. Whyte seems to have been a big fan of Hoover, which is certainly justifiable given that he was arguably one of the most successful humanitarians in human history, saving the lives of millions of people during and after WWI. He really was a great man.
But I’m not convinced that Hoover was a good president. Alexander is agnostic on Whyte’s claims regarding the Hoover presidency (1929-33) so let me add my two cents worth.
1. We probably would have had a Great Depression regardless of who had been president. But given the chaotic nature of monetary systems we actually can’t be sure, even if we assume that Hoover had little impact on the course of events. Those familiar with the “butterfly effect” in chaos theory will know what I’m talking about.
2. So let’s focus on what we do know. Did Hoover do more harm that good? I’d say no, and indeed Hoover made three important mistakes:
a. He pursued a high wage policy after the 1929 stock crash, which made wages stickier than in the 1920-21 depression (from which we recovered quickly after nominal wages were cut.)
b. Hoover took no leadership in the design of the Smoot-Hawley tariff bill. This led to the bill to spinning of out control and become too protectionist. When the tariff bill was finally completed in June 1930, he decided to sign it against the overwhelming advice of experts. (Over 1000 economists signed a letter calling on him to veto the bill.)
c. He opposed the sort of dramatic monetary policy shift that would have made a real difference, and favored the sort of weak monetary stimulus that was ineffective under a gold standard regime experiencing massive hoarding of gold and currency.
Presidents don’t have a lot of impact on monetary policy, so let’s focus on the first two issues. It’s at least possible (though unlikely) that had Hoover not erred and endorsed high wages and protectionism in 1930, the initial slump would have been considerably milder. It’s also possible that if the initial slump were milder then the series of banking crises that began in November 1930 would not have occurred. And in that case it’s possible that 1930 would have ended up being just an ordinary recession. That’s the butterfly effect argument I made earlier.
But if we just consider the direct effect of his policy errors, they were not even close to being severe enough to cause a major depression. It seems likely to me that Hoover’s policies contributed only modestly to the Depression.
Alexander suggests that Whyte claimed that Hoover’s well-meaning attempts at recovery were often sabotaged by bad actors like the French (who wanted to punish Germany) and FDR (who refused to cooperate or support Hoover’s efforts during the interregnum of November 1932 to March 1933, when the economy collapsed.) This sounds like sour grapes, but there’s actually a bit of truth in both claims. And I say this as someone who regards Hoover as a bad president, and I’m not trying to convince you otherwise.
Hoover offered a bold plan to address the war debts crisis in 1931, and US stock prices soared on the news. When the negotiations got down to the nitty gritty, however, the French refused to fully cooperate and the plan ended up being far weaker than Hoover envisioned. People at the time, however, probably over-estimated the role of war debts in the Great Depression (and underestimated the role of the gold standard.) So perhaps his bold plan would not have helped that much, even if fully implemented.
The role of FDR is interesting and complicated, and FDR supporters generally don’t accept my views on this issue. But I’ll do my best to explain it.
There was a modest recovery in the US between July and October 1932, arguably triggered by a QE program encouraged by Hoover. But even by October there were some sharp price breaks on Wall Street on news that FDR was likely to win the election. Uncertainty about the election led to doubts about the US adherence to the gold standard, and this killed the nascent recovery. The period from November 1932 to March 1933 was really bad—-so bad that it led the US to reduce the length of the interregnum from 4 months to the current 2 1/2 months.
There were several problems, but the main problem was FDR’s refusal to commit to staying on the gold standard. FDR supporters will say, “Why should he have, that’s Hoover’s failed policy.” Perhaps, but in that case he should have either lied, and said he’d keep the US on gold, or come right out and say that he intended to devalue. Countries on fixed exchange rate regimes normally lie about any intention to devalue right up until the last moment, as to do otherwise will cause a currency crisis and force an immediate devaluation.
A patriotic FDR would have presumably lied and insisted that he would keep the US on the gold standard. Or perhaps he should have announced that he intended to devalue, which would force an immediate devaluation. Why did he reject both options?
Hoover’s sympathizers believe that FDR wanted things to be bad, so that he had a free hand to do whatever he wanted after taking power. FDR even refused to cooperate with Hoover’s attempt to institute an emergency banking holiday in the desperate days right before the inauguration. It wasn’t that FDR disagreed with Hoover’s plan; he simply wanted no part of working with Hoover. But this meant that Hoover could not do anything to address problems with the gold standard, the war debts crisis, or even the deterioration of banks, as any last minute action would have no credibility. Everyone was waiting to see what FDR would do as the economy spiraled out of control in February 1933.
FDR probably did not want the strong growth of July to October 1932 to continue until March 1933, because then it would look like the recovery was triggered by Hoover’s actions in early 1932, not by the actions that FDR was about to take. That may sound cynical on my part, but there’s lots of evidence suggesting its true.
On the other hand, I’m way less sympathetic to Hoover than are some of his supporters. He made a series of bad choices over 3 1/2 years, so it’s a bit rich to suddenly blame FDR for the problems at the very tail end of his administration. And if FDR truly believed that he had the answer to America’s problems, then he might have truly believed that in the long run America would be better off if he took office during an acute crisis when he’d have no problem ramming all sorts of emergency measures though Congress.
Readers of this blog know that I believe process matters, and that I don’t accept this sort of moral reasoning. But I’m in the minority; lots of other people do think this way. Some Democrats believe that a recession right now might be in our long run interest if it got rid of President Trump, and some Republicans favored opposing everything Obama did so that he’d be a failed president. I believe that FDR was a fairly normal politician, at least in that regard.
READER COMMENTS
Mark Z
Mar 19 2020 at 12:38am
Hoover could have vetoed the Smoot-Hawley Tariffs. Apparently (according to wikipedia) he ultimately gave in to it – despire his own opposition and urging from the business community to veto it – because his cabinet threatened to resign. On the one hand, in retrospect we might see that as Hoover’s failed heroic moment to veto that disastrous bill in glorious defiance to his own cabinet, but it’s possible the tariffs were popular at the time and that itself would’ve cost him the election.
It was of course around this time that a bunch of things in Europe beyond the president’s control happened: most of the Allies (except Britain I think), as part of an agreement with Germany to forgive most of its remaining reparations, repudiated their war debt. Shortly thereafter, Germany began careening toward extreme nationalism was taken over by leaders (like Schleicher and von Papen) who were publicly sympathetic to defaulting on its considerable debt to the US, which it would ultimately do under Hitler. I have no idea though to what extent all these defaults contributed to American economic woes.
Steve
Mar 20 2020 at 3:02pm
I would judge a great president as one who does the “right” thing regardless of how it affects his re-election chances.
Alan Goldhammer
Mar 19 2020 at 8:45am
Hi Scott – good post but the final paragraph is quite obtuse. I don’t know how the final sentence about FDA relates at all to “process matters.”
MikeDC
Mar 19 2020 at 9:15am
He seems to not want to come out and say, “Refusal to contribute toward the common good deserves condemnation, but is so universal as to require acceptance”.
Politicians are snakes.
Complaining about the nature of a snake won’t change it.
Pretending a snake isn’t a snake also won’t change it.
Practically speaking, I’m interested to know what Sumner thinks is the best way to deal with snakes?
If I think out the implications, it seems to me that the lesson is that the right policy should be pursued, and then the onus is put on those threatening to be obstructionist to actually do it.
That is, Hoover should have acted, and then forced his opponents to publicly carry out their threats. “OK cabinet, go ahead and resign. OK FDR, I’m going to loudly propose a bank holiday, and you are free to loudly disagree”.
Michael Pettengill
Mar 19 2020 at 2:41pm
Why are policy makers wrong to oppose redistributing wealth from the cash poor workers who must borrow to buy assets like land, barns, motor vehicles from the cash rich?
Why do you think it’s a virtue to cut income to workers so they can’t service the debt on 50% of asset value, which in a deflationary environment rise to 80% or more of current market asset price, forcing foreclosures on defaulted debt which transfer assets from the workers to the cash rich who now charge rents to workers generally equal to the debt service they couldn’t pay?
Pre-Eccles, et al, banks would lend no more than 50% of market asset price, and only for a five year term, no matter how durable the asset was.
But the end of the 30s, everyone thought it normal to offer debt for 30 years in century durable assets up to 80% of the initial asset price, wiping away the earlier borrower 50% skin in the game on temporary debt. Still, those born before 1960 generally saw debt as a weakness and worked to pay off debt in less time than allowed. At least, well into the 80s.
I still can’t wrap my head around perpetual debt on assets and debt financed consumption that are foundational in Reaganomic, and hyper critical to Trumponomics. But I’m sold on the wisdom of Keynes in his 1935 opus, a strong defender of real capitalism. When debt finances consumption,, capitalism is dead.
Ricardo Cruz
Mar 23 2020 at 12:18am
Michael,.it has nothing to do with opposition to wealth redistribution. Do you understand the concept of sticky wages and how it contributes to a recession during deflation? (This concept originated by Keynes btw)
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