More Hoover mythology

The portrayal of Herbert Hoover as a practitioner of laissez-faire economics and believer in the power of markets to self-correct is one of the most enduring myths of U.S. economic history and a subject I have addressed before. This nugget from Burton Folsom Jr. also helps illuminate the man's true approach:

Hoover, who had been secretary of commerce in Coolidge's cabinet, often dissented from the president. In turn, Coolidge labeled him "Wonder Boy" and said privately, "That man has offered me unsolicited advice for six years, all of it bad." Hoover believed that targeted intervention could improve the economy without losing any of the gains from Coolidge's free markets.

Once in office, Hoover signed the highest tariff in U.S. history and then started a flow of federal subsidies (and loans) to farmers, bankers, industrialists, and those unemployed. The Federal Reserve, which is somewhat independent of the president, also intervened and contributed to the Great Depression that followed, by raising interest rates and shrinking the money supply. As the country wallowed in federal deficits, Hoover signed a bill raising income taxes to a top marginal rate of 63 percent. Entrepreneurs retrenched, and jobs rapidly disappeared.

With unemployment at 25 percent in 1932, Gov. Franklin Roosevelt of New York, the Democratic nominee for president, was poised to oust Hoover from office. In doing so, FDR decided to campaign as a constitutionalist, someone much less interventionist than Hoover.

Calvin Coolidge could have written FDR's campaign speech in Pittsburgh two weeks before the election. Hoover's deficits, FDR announced, were "so great that it makes us catch our breath." Such spending was "the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime Government, anywhere, any time." Of Hoover's tax hikes, FDR concluded that such a burden "is a brake on any return to normal business activity. Taxes are paid in the sweat of every man who labors because they are a burden on production and are paid through production. If those taxes are excessive, they are reflected in idle factories...."

I suppose one could argue that Obama took a similar approach to FDR on the campaign trail, given his talk of a "net spending cut" and tax cut for 95 percent of all Americans.