MONEY

Hooverround – Will Government Spending Get Us Out of this Mess?

When Archie and Edith sang “mister, we could use a man like Herbert Hoover again” at the start of every episode of All in the Family, it was supposed to be a joke: no one but a reactionary old coot would feel actual nostalgia for the president who turned a stock market crash into the Great Depression.

But these days, there are a lot of politicians who are singing that same old song, though thankfully not literally — Edith’s voice was bad enough. In the wake of the biggest financial mess since the Depression, John McCain and other Republicans on the Hill are calling for a spending freeze; a new coalition of conservative Democrats are talking balanced budgets, and South Carolina Gov. Mark Sanford says he want to use stimulus money not to stimulate, but to pay down debt, thus defeating the whole point of the stimulus in the first place.

So what rationale do these neo-Hooverians give for rejecting the stimulus? They claim that the New Deal “didn’t work” back then, and that it won’t work now, and (showing considerable imagination, if nothing else) they argue that Hoover failed not because he stood pat but because he was a secret New Dealer before the New Deal was even a gleam in Roosevelt’s eye. Behind these odd notions lies an odd book: Amity Shlaes “The Forgotten Man: A New History of the Great Depression.

Bad ideas like these deserve a good debunker, and we’ve got one in the form of The New Republic’s Jonathan Chait. In a long but rewarding review essay, Chait takes apart the curious arguments of the neo-Hooverians-who-won’t-even-admit-they’re-Hooverians-in-the-first-place.

At the most basic level, he points out, they confuse what’s good for an individual’s budget with what’s good for society: “When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon ‘the paradox of thrift': what makes sense for individuals turns into a disaster for society as a whole.”

In such a situation — the situation we were in back in 1932, and the situation we’re in now — with everyone from big corporations to bankers to journalists sitting on their wallets, the only entity that can spend enough to bring back demand is the government. The main problem with the New Deal wasn’t that it went too far; it was that it didn’t go far enough. While the New Deal did stimulate the economy, it was war spending that finally pulled the country out of the Depression for good. As for Hoover’s alleged New Dealishness, please: while Hoover launched a few programs that superficially resembled Roosevelt’s later ventures, they were poorly funded and in reality did very little.

Those who misremember history are condemned to repeat it.

– David Futrelle

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