Hoover’s mistake repeated

On this date in 1930, President Herbert Hoover announced his grand plan to help the nation recover from a severe economic downturn.

From the standpoint of limiting federal expense, it was an excellent plan. He called on states to study ways to help the unemployed. He tasked the American Red Cross with helping the poor. He opened up federal lands for grazing to help farmers affected by drought. What he did not do was inject federal money into the economy.

Hoover’s stingy response was a disaster. The nation fell into the Great Depression, with unemployment hitting 25 percent. His penny-wise approach even damaged the federal budget he was trying to protect, because the widespread economic collapse undermined tax revenue. It was not until the massive federal expenditures precipitated by World War II that the nation completely escaped the depression.

The only positive that came from Hoover’s mistake was wisdom. Economists and politicians learned that the federal government had a critical role at times when consumer demand plummeted. Its role was to borrow money and use it to stimulate the economy until consumer demand recovered.

Former President George W. Bush understood this lesson from history and, despite criticism from within his party, implemented stimulus measures in 2007 and 2008. A newly elected President Barack Obama also understood, and pushed for more stimulus. He got less than he wanted, because he faced opposition from the GOP and some Democrats. In early 2010, when Democrats in the Senate lost their filibuster-proof majority, those who understood the lesson inadvertently taught by Hoover lost the power to act on it.

The stimulus measures pushed through by Bush and Obama helped. While they did not replace the loss in consumer demand, they did at least counteract the drop in state expenditures. The recession was worse than they thought, however, and the federal expenditures they pushed through were not enough.

Five years after the recession began, the nation still has an unemployment rate that exceeds 8 percent. Because the federal government did not do enough to respond to the recession, revenue remains anemic and the deficit continues to climb.

This should be a date when America can congratulate itself for learning from its past mistakes. Instead, it is a day when it must marvel at the fact that it learned nothing.


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Filed under Recession, stimulus, unemployment

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