Hoover's spending increase is another conservative fiction.

Discussion in 'Business & Economics' started by nirakar, Mar 7, 2009.

  1. nirakar ( i ^ i ) Registered Senior Member

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  3. John99 Banned Banned

    Things are pretty bad in U.S and it makes no sense for anyone to want to come here for immigration purposes.
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  5. ashura the Old Right Registered Senior Member

    What that chart doesn't show you is government spending as a percentage of GDP, the criticsm of increased government spending includes the implication that when the economy and private sector is in a slump, the public sector should cut back as well. Hoover didn't do this and began deficit spending, increased gov't spending as a percentage of GDP and did everything in his power to prop up the failing economy. This chart is a better one to demonstrate what I'm talking about:


    And it's not just Hoover's spending that's used to argue against Keynesian pump priming, it's FDR's as well. And Japan's policies during its lost decade. It's also important to remember that it's not a simple crude criticism of spending in numbers, but also a criticism of the type of spending. And Hoover's type of spending was marked by a huge increase in market intervention.

    Have I gained a little of my credibility back?

    Please Register or Log in to view the hidden image!

    (I agree with your other thread that GDP is a piss poor indicator of economic health, but it's a good way to get a more holisitic view of government spending in an economy. Not a great way but what can you do...)
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  7. nirakar ( i ^ i ) Registered Senior Member

    You would have gained more credibility if you did not bring up spending as a percent of GDP. Some author recently wrote a revisionist version of the great depression and conservative media has been promoting his ideas possibly because his ideas make conservatives feel better about opposing Obama.

    Using spending as a percent of GDP in this context was just wrong. I don't think the author was an idiot. Some of the conservative talkers may not be able to figure out for themselves that that spending as a percent of GDP is the incorrect way to measure spending in the context of whether government stimulus can help end a depression, but any author of a book on economics can presumably figure out that spending as a percent of GDP is irrelevant when talking about government spending. So because the Author chose to emphasize the wrong statistic I have to assume that the author was writing a propaganda book and not an economic history book.

    What happens to GDP during a recession? GDP goes down during a depression. So what happens to government spending as a percent of GDP during a depression when when nominal government spending stays level? Spending as percent of GDP goes up during a depression even if nominal spending stays level. If nominal spending stays level while spending as a percent of GDP goes up during a depression is the government practicing Keynesian stimulus? The answer to that is no, nominal spending must go up to say that Keynesian stimulus is being practiced.

    I can't agree that Hoover did everything in his power to prop up the economy. You could say that what FDR did was unprecedented and it was unfair to expect Hoover to do what FDR did and furthermore the congress Hoover had and even the Congress that FDR had in 1933 would not have allowed Hoover to do what FDR did. But your sentence and what some others have been saying have been leaving the impression that Hoover spent like FDR and the spending failed to help. Hoover did not spend like FDR.

    When there is a recession businesses must cut back production and lay off employees. If a business produces products for which there are no buyers the business will get wiped out. You can't just give corporations and very wealthy individuals money during a recession and expect them to invest the money in increased productive capacity. That might work during good times when there is plenty of demand but it will not work when demand is weak.

    You can do nothing during a depression and every round of business cut backs will lead to more fall in demand and therefore still yet more business cutbacks which int turn lead to still yet more fall in demand. Eventually the downward spiral will stop on it's own. It is hard to say what stops the upward bubble spirals and the downward spirals but they do stop on their own eventually. There is some demand for basic survival that just won't go away no matter how bad things get.

    I don't thing government is competent or honest, but I do think we are better off if government tries to intervene to stop upward and downward spirals than we would be if we just waited for these spirals to stop on their own.

    As far as the end of World War 1 recession goes, that was very different from the Great Depression because their was no domestic over supply and their was no leverage based crisis in the financial system and there were not bubbles in Stocks and Real Estate. I have barely looked at the 1920 recession. I would like to know more about it but I don't want to learn about it from somebody who is using it for propaganda purposes.

    Japan ran into a wall. Japan's economy was based on taking market share from American and to a lessor degree European companies. Japan has few natural resources. If they want to be prosperous they must make products for other nations and use the proceeds to buy natural resources. Everything was going fine for Japan until half of the rest of the world decided to copy Japanese techniques at lower wages.

    The USA under Reagan and continuing under Bush, Clinton, and Bush (and probably Obama) chose to ignore economics 101. We said trade deficits don't matter and budget deficits don't matter. I am giving Nixon, Ford and Carter a pass because the long term implications of the deindustrialization would not be come obvious to anybody who was economically literate while not being easily moved by hype until the fact the we were on a path of deindustrialization became obvious.

    Clinton and Obama would say If everybody just goes to college everything will be fine. This won't work. There is an exponential grown of University graduates in India and China and they are working at wages much lower than our graduates while performing at levels only a little lower than our graduates. Only a drastic fall in the dollar an other first world currencies can restore the world's economy to a sustainable path.

    I think we bounce out of this downward spiral in about two or three years with the the help of government stimulus but this does not solve the deeper underlying problem with the US economy.

    I am no fan of Obama or the Democrats. I was a Perot supporter.

    I don't know if you gained your credibility back but I like you more. I was never concerned about your credibility. I am concerned about the people who influenced you. I think the USA and the world can benefit from every economically literate person that they can get their hands on. Just be careful not to let ideological purity get in the way of economic understanding.

    I will also try to not be fooled by my ideological loyalties.
  8. nirakar ( i ^ i ) Registered Senior Member

    What government spending as a percent of GDP does tell you is how big of a part of the economy the government is. This is beast measured when the business cycle is neutral rather than in a boom or bust. Because government is incompetent small government is better. The government just needs to protect us from rich thugs, poor thugs and foreign thugs.
  9. Buffalo Roam Registered Senior Member

    History repeating it's self.

    Herbert Hoover
    Herbert Hoover has been accused of being a do-nothing president who allowed the country to continue to slide into its worst depression ever. Some will grudgingly admit that Hoover did take some action, but that it was too little, too late. But the truth is far more complex. Hoover did intervene after the Stock Market crash, but the acts passed by Congress and signed by Hoover were the worst kind of intervention: they actually exacerbated the problem. The most famous of these interventions was the Smoot-Hawley Tariff Act. Raising tariffs was one of the worst things that could be done. Remember, both free market advocates and Keynesians agree that lowering prices would cure a depression, it's just that the Keynesians believe government intervention is necessary. A tariff does exactly the wrong thing by raising prices. Thus Smoot-Hawley was guaranteed to worsen any depression, not improve it. Other acts passed during Hoover's administration had similar effects of either raising prices or keeping them artificially high when they should have been dropping. Thus, it's not that Hoover was a do-nothing president, it's that he intervened in exactly the wrong way.

    Ironically, FDR, the president who implemented so many government programs himself, was elected on a platform of a balanced budget and economic non-intervention. So what did he do upon getting into office? He promptly expanded on Hoover's programs. Some of these programs, the ones that increased spending, would get approval from Keynesians. Others, however, like the minimum wage and the Davis-Bacon Act, suffered from the same problems that Hoover's programs did: they reduced price flexibility, often setting a minimum and thus continued to exacerbate the Great Depression.
    FDR's policies seemed to work at first. The economy began to expand again in 1933 and continued to do so until May of 1937. At that point, a second depression began and lasted until June of 1938.

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