Skip to: Content
Skip to: Site Navigation
Skip to: Search


Stefan Karlsson

Herbert Hoover was no deficit-cutter

Hoover is often blamed for deepening the Depression by cutting the federal deficit. He didn't. He expanded the deficit.

By Guest blogger / March 11, 2010

Herbert Hoover (shown here in 1918, when he was food administrator during World War I) is often depicted as a president who cut the deficit and worsened the Depression. In fact, he expanded the deficit more than any president in peace time.

Newscom/File

Enlarge

Again and again you hear the myth that we shouldn't reduce the deficit because that's what Herbert Hoover did and we all know how that ended. (This is the latest example.)

Skip to next paragraph

Recent posts

So let's again set the record straight. Hoover was not a deficit-cutter. In fact, he increased the deficit more than any other President in peace time (except for Bush, if you count his terms as peace time, the wars in Iraq and Afghanistan notwithstanding.) If you don't believe me, look at the official statistics on the subject.

Between Hoover's first budget, for fiscal year 1930, and his last, for fiscal year 1933, the budget balance went from a surplus of 0.8% of GDP to a deficit of 4.5%. This reflected in part a drop in revenues from 4.2% of GDP in FY 1930 to 3.5% in FY 1933, but mainly an unprecedented (at the time) increase in spending from 3.4% in FY 1930 to 8.0% in FY 1933.

Some might think that while he pursued "stimulus" policies during most of his term, he did tighten policy during the last year. But that is not true. While he did raise taxes (which non-Keynesians can agree was bad for non-Keynesian reasons), he increased spending even more, resulting in an increase in the deficit from 4.0% of GDP in FY 1932 to 4.5% in FY 1933.

Nor was it the case that the increase in the share of GDP going to government spending reflected merely a drop in private output. Real direct federal purchases increased a cumulative 45% between 1929 and 1933.

Because the price index for federal government purchases fell a lot less than the price index for private sector purchases (the federal purchase deflator dropped by 8.7%, while the GDP deflator dropped by 25.3%), even this number significantly underestimates how large the increase in government spending was.

Given that Keynesians keep arguing that direct government purchases (such as spending on schools, roads etc.) provide a more effective "stimulus" than tax cuts, this is especially significant.

The fact that Herbert Hoover pursued a radical deficit spending policy doesn't prove that deficit spending is bad. But to try to not only falsely present him as a deficit-cutter, but to imply or explicitly argue that his failure proves that reductions in deficit spending is bad, is worse than misleading.

Add/view comments on this post.

---------------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.