Obama Follows the Hoover Depression Plan

Robert Murphy debunks the myth that Hoover plunged the U.S. into the Great Depression by refusing to intervene in the economy. As he explains, Hoover had the exact same response as Bush/Obama:

Let’s first set the record straight on Herbert Hoover’s fiscal policies. Contrary to what you have heard and read over the last year, Hoover behaved as a textbook Keynesian after the stock-market crash. He immediately cut income tax rates by one percentage point (applicable to the 1929 tax year) and began ratcheting up federal spending, increasing it 42 percent from fiscal year (FY) 1930 to FY 1932.

But to truly appreciate Hoover’s Keynesian bona fides, we must realize that this enormous jump in spending occurred amidst a collapse in tax receipts, due both to the decline in economic activity as well as the price deflation of the early 1930s. This combination led to unprecedented peacetime deficits under the Hoover administration — something FDR railed against during the 1932 campaign!

How big were Hoover’s deficits? Well, his predecessor Calvin Coolidge had run a budget surplusevery single year of his own presidency, and he held the federal budget roughly constant despite the roaring prosperity (and surging tax receipts) of the 1920s. In contrast to Coolidge — who was a true small-government president — Herbert Hoover managed to turn his initial $700 million surplus into a $2.6 billion deficit by 1932.

It’s true, that doesn’t sound like a big number today; Henry Paulson handed out more to bankers by breakfast. But keep in mind that Hoover’s $2.6 billion deficit occurred because he spent $4.6 billion while only taking in $2 billion in tax receipts. Thus, as a percentage of the overall budget, the 1932 deficit was astounding — it would translate into a $3.3 trillion deficit in 2007 (instead of the actual deficit of $162 billion that year).

Read the entire thing here.

5 Responses to “Obama Follows the Hoover Depression Plan”

  1. ianharper Says:

    china is becoming a great power today because its invested in itself.

  2. rod francis Says:


  3. MoxKirby Says:

    And now China has Hummer and Italy (Fiat) has Chrysler, when will we learn to invest in ourselves, and when will our big businesses learn to make smart financial decisions.

  4. gold101.com Says:

    Itll get worse before it gets better…

  5. VeryVeritas Says:

    I want to preface what I am about to say with my bias(and everyone has one) on the political x-y axis. I am and always have been a Social Libertarian - that means I’m definitely on the side of Liberty with respect to personal freedom. However I am pretty much a centrist on Economic issues. And the reason is that ALL freedom is put in Jeopardy by the excessive concentration of wealth (which in turn means concentration of power) by a tiny minority. We can not say that Free Markets are best, if they ultimately result in Cartels, Monopolies and Oligarchies that in turn control the government and ultimately impoverishes and effectively “enslaves” the vast majority.

    I agree that George W. Bush and Obama are following the same WRONG HEADED fiscal policy. But it’s certainly not clear from this article that Hoover’s Policy was identical. Here is why:
    1) You make no distinction in WHERE the money that the government was printing was going During ANY of these administrations. You neglect to mention the distribution of wealth during these periods, and THAT is the single most important thing that defines a depression!
    2) You said Hoover gave a 1% tax cut, but you did not say to whom! It definitely matters who is getting the tax cuts, because when wealth distribution is radically lopsided, then the tax cuts on the wrong side of the distribution could make the situation better or worse.

    Do you realize that at the height of The Great Depression, the top 1% wealthiest people controlled 33% of the wealth in the USA. Today, the top 1% wealthiest people control 66% of the Wealth in the USA.

    Another problem is there is an astounding ignorance on the part of “some” fiscal libertarians with respect to the difference between “Investments” which are ASSETS and “Spending” which are LIABILITIES. This, and the lies about unregulated markets being “free markets” are the 2 things that that make Libertarians pawns of Corporatist Masters.

    A Earlier commentor pointed out that China is becoming powerful because it invested in its infrastructure. Note the keyword “INVESTMENT”!!!

    Our Federal Government budget policy is flawed not because it is simply too big, too many taxes, and there are “too many entitlements” etc…

    On a personal level we all understand this with our own finances. With an investment that is truly strong, some might argue that it’s better to leverage some debt to accelerate the growth and thereby return on the investment to the extent that the cost of the debt is a fixed % that is well below the % of the return adjusted for the risk. For example, if you had a stock that was hot, say it had the cure for cancer, a lot of people could justify borrowing 10% of their investment portfolio at 5% to yield a 1,000% return on such a stock. Or for those much more conservative. If one knew the US was an a radically inflationary fiscal path, and that the relative price of gold was yielding 50% appreciation per year… and one had the ability to borrow today’s dollars at 3.5% They might consider borrowing some money at this ridiculously low interest rate and buy Gold. Because if the economy is inflating in real terms (not the bogus CPI numbers) of 50%, then Gold will rise accordingly while at the same time the loan at 5% is negligible. Or one more example… borrowing $10,000 from dad at 10% apr for 6 months to buy a bank owned property at 20% of the going market price and then tripling the money by flipping it in the market. All of these are INVESTMENT scenarios where
    borrowing carries a low risk and a high reward potential.

    But when we think of DEBT we think of the total opposite. Borrowing to SPEND. We think of Credit Card Debt. We think of someone racking up $100,000 in credit card transactions for overpriced clothes, restaurants, useless gadgets, etc..
    and then winding up with $500 worth of stuff and a pot belly.

    It really baffles me why there is virtually no one in any party or in the media that seems to understand the difference between INVESTMENT and SPENDING when it comes to a Government Budget.

    Corruption aside, INVESTMENTS yield a RETURN!!!
    Corruption aside, SPENDING yields a DEBT!!!!
    With Corruption, INVESTMENTS may range from a lower return to a debt - it could go either way.
    With Corruption, SPENDING yields an even bigger DEBT!!

    Then there is another dimension. First, let’s look at in Fiscal terms what is “Rich” and what is “Poor”. Essentially being Rich means a strategy or habit of accumulating wealth and not having that wealth protected, insured or hedged against loss.
    Being Poor means a habit, lack of strategy, or FORCED CIRCUMSTANCE that does not allow one to accumulate wealth and/or is constantly exposed to liabilities and risk.

    So as a result, Money always trickles UP and flows TO the RICH - that’s why they are RICH. Money always flows away from the POOR and that’s why they are POOR.

    All GOVERNMENT SPENDING and INVESTMENT FLOWS IN A DIRECTION, DEPENDING ON THE DIRECTION SOMEONE ALWAYS BENEFITS AT LEAST IN THE SHORT TERM. IF the SPENDING and/or INVESTMENT goes to the POOR, it will ultimately flow to the RICH. But not without first FLOWING THROUGH the ECONOMY. The truth is that in terms of wealth some people are on the way up and some people are on the way down. Many stay where they are, but there is a degree of change.

    If the FLOW is TO THE SUPER RICH then it doesn’t flow through the economy, it just stays there! IT DOES NOT TRICKLE DOWN!

    So there are 2 very simple and important things that are wrong today.

    1) The GOVERNMENT IS SPENDING(mostly corruptly) and so it’s Maximizing the DEBT scenario.
    2) The GOVERNMENT IS SPENDING in the RICH DIRECTION which does nothing for the economy and accelerates Wealth disparity.

    What we need is GOVERNMENT INVESTMENT in things that provide a return!!! AND IT NEEDS To FLOW THROUGH the ECONOMY not go directly to the RICH. Now, fundamentally being a Libertarian, I can see the problem with what I just said. The Government??
    Yes, and here is the reason… We, as a people, have allowed 2 very significant and horrible things to happen.
    1) We allowed the Federal Government to get way too big, and this occurred not under the guise of entitlements but under the guise of National Security.
    2) We allowed the Super Rich via huge Corporations to control the Government.

    As a result of this, the Federal Government is so big, that it unfortunately must first be used to shift the flow of capital to correct the problems with the economy immediately and then it needs to be carefully right sized.

    So the Fundamental Policies we need Changed at the Federal Level today are:

    1) GOVERNMENT NEEDS TO CHANGE THE OUTFLOW OF CAPITAL FROM MOSTLY CORRUPT(like inflated hundred billion dollar no-bid contracts for illegal wars of agression ) TO SPENDING to MOSTLY INVESTMENT that is NOT CORRUPT (open to bids, cross evaluated for waste, ROI potential, etc… benefits to the COUNTRY as a whole, NOT a CLASS or PARTY or individual!)

    In order to accomplish this, we need to swiftly do one very important thing as well. That is to pass a law that Corporations can not contribute to politicians or political campaigns or utilize lobbyists AT ALL! And Political Contributions from Individuals should be capped at $100 each.

    Allowing wealth to accumulate into the hands of just a few, turns our country and our world into a FEUDAL SYSTEM, not a Democracy, not a Republic, not a 3 branch hybrid of checks and balances!

    A TRUE FREE MARKET economy is one were BOTH economic extremes (CORPORATISM/FEUDALISM vs. IDEOLOGICAL COMMUNISM) are mitigated by checks and balances. Note that while China is called a Communist Country it is in fact operating as a FEUDAL OR CORPORATIST STATE. THE USA is Rapidly becoming a FEUDAL OR CORPORATIST EMPIRE. The most economic FREEDOM for the most people exists in the CENTER of these extremes. And this is where it all got off track. Those with the most wealth and power, doing what they do best (accumulate more of it) marketed this idea that DEREGULATING EVERYTHING(creating an extreme in their favor) was better for ALL.
    It in fact is a BIG LIE. DEREGULATING EVERYTHING IS GOOD FOR THEM!! Once a Monopoly is formed and it’s so wealthy that it buys off our Government - A FREE MARKET no longer exists! And today we have a few hundred of these entities collaborating to control the US Government. AND SINCE THEY CONTROL THE GOVERNMENT ANTI-TRUST LAWS ARE NOT ENFORCED!

    So in Summary the best solution is as follows:

    1) Pull the plug on Corporate and super rich control of the Government - END corporate welfare (which is hundreds of times greater than any perceived welfare spending to give kids in poverty some food to eat)
    2) Change the FLOW of Government Capital Outflows to INVESTMENTS (Infrastructure, Disease Cures, Biofuels, Education, etc..) and away from rabid spending (for example 2/3 of the Federal Income Tax goes to WAR - War is not an investment it’s an expense, our expenses are TOO HIGH and WAR is by far the one that is the most out of line and goes totally unchecked.)
    3) Change the FLOW of Govenrment Capital Investment Outflows to Flow through the Economy (done by directing the capital flows to the bottom half of the Americans who are able to work)
    and stop just handing it to the Super Rich while squeezing the hell out of people on the bottom. This also means things like Eliminating the Income Tax on Payrolls for people making less than $100,000 per year for individuals and less than $500,000 for small businesses(regardless of entity type) and shifting the burden to the top 1%.

    The result would be:

    1) The worlds most incredible infrastructure
    2) The worlds most fantastic disease CURE system
    3) The worlds fastest growing and productive economy.
    4) An economy that would dwarf China again.
    5) An economy that would yield a SURPLUS NOT A DEFICIT.
    6) Fewer people in prison
    7) Fewer Children born into poverty
    8) Fewer people on welfare
    9) A better quality of life for all.

    Thank You.

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