National Affairs: Brothers in Arithmetic

Four years ago whenever Herbert Hoover went home to the White House, the silk hat on his head covered a multitude of political worries. At the same time, whenever Braintruster Raymond Moley tramped up the terrace steps at Hyde Park, the crushed fedora on his wrinkled brow covered manifold plans for Herbert Hoover’s downfall. Little did either of them then dream that in 1936 they would find themselves brothers under their hats. Yet last week Herbert Hoover, no longer President, spoke his mind in Philadelphia, and in Manhattan Raymond Moley, no longer a Braintruster, put his mind into print in Today. To their mutual astonishment they found a subject on which they agreed—arithmetic.

As brothers in arithmetic, they proceeded to take apart the New Deal’s fiscal bookkeeping, subject its parts to scrutiny and discard them, one after another, as unsound, inaccurate, misleading.

The Moley Audit:

1) At Pittsburgh three weeks ago President Roosevelt admitted that the Government debt had increased $13,000,000,000 since he took office but claimed that the New Deal should be charged with only $8,000,000,000 of this increase because there are several billion dollars of recoverable assets—chiefly loans made by the Government which will be repaid. However, as these loans are repaid, the Government is not using the money to pay off the debt. It is in fact treating the repay ments as income and spending them. “If the subtraction of recoverable assets from the gross debt is valid,” wrote Editor Moley, “then the Treasury’s handling of these receipts is, to use a charitable word, unsound. . . . Democratic orators should refrain from leading their listeners to believe that $8,000,000,000 is the total in crease in the national debt. . . .”

2) The President implies that the budget is to be balanced not by decreased expenditures but by increased revenue. The recoverable assets are being spent as they are recovered and the President promises there will be no new taxes. Hence the Government debt will not be reduced. It will probably stay at upwards of $35,000,000,000 until the next Depression when another layer of debt will be piled on top of it.

3) Part of the recoverable assets were RFC loans made by the Hoover Administration. Now as they are repaid, they are being spent as income. Editor Moley: “Thus the Roosevelt budget comes to be balanced out of Hoover deficits. This is a break for the New Deal, to say the least.”

4) Some of the recoverable assets which President Roosevelt counts as a deduction from the debt may not be recovered. Such is the $2,000,000,000 stabilization fund created out of the book profit of dollar devaluation. “Now that Mr. Morgenthau is going to stabilize foreign currencies with this fund, is it amiss to wonder whether it will be intact when he has closed his books?”

5) The President compares the increase in the national debt to the increase in the national income and asks whether the money spent was not a good investment. But the national income is figured as the sum of all individual incomes and there fore includes the expenditures of the Government. “Government expenditures are not part of the national ability to repay deficits.”

The Hoover Audit:

1) Franklin Roosevelt claims his Administration has increased the national debt $8,000,000,000, compared to a $3,000,000,000 increase under the Hoover Administration. If he were “intellectually honest” enough to credit the Hoover Administration with over two billion dollars of recoverable loans that it made instead of claiming credit for them himself, the score in billions would have been not 8 to 3 but 10 to 1.

2) The running expenses of the Government under the Hoover Administration were about 3⅔; billions a year. The New Deal reports ordinary expenditures, exclusive of relief and recovery, of less than 4 billions a year. In order to do so it has juggled its bookkeeping. One trick is to omit from the totals such items as pay ments to trust funds, certain District of Columbia expenditures, half the annual sinking fund payment for the Soldiers’ Bonus. These items are furtively listed only in the appendix of the budget report. The apparent saving from this source has been $188,000,000 to $238,000,000 a year. “This,” sarcastically declared the country’s only living ex-President, “is one of the easiest methods of reducing Government expenses yet discovered.”

3) Another method of making Government expenditures seem smaller is by deducting from each year’s expensesthe recoveries of loans made in previous years. “In 1935 over $180,000,000 of the expenseswere written off in this way . . . in 1936 apparently over $500,000,000. . . .”

4) A third method of reducing the apparent size of the Government’s ordinary expenditures is by using funds that have been appropriated for relief and recovery. One example: in 1935 the Department of Commerce reported spending only $11,000,000 or 75% less than it did under Hoover. However, $21,600,000 realized from the assets of the Shipping Board were deducted from the Department’s expenditures and $11,000,000 additional of the Department’s expenses were paid out of relief and recovery funds. Another example: in 1935 the cost of national defense was figured at $533,000,000 or 25% under that of the Hoover Administration. But $102,000,000 were deducted from War Department expenditures for checks not yet cashed and $176,000,000 of relief and recovery funds were spent on national defense. Cried Mr. Hoover: “A stroke of genius. . . .” In 1935 the Department of Agriculture cost only $62,000,000 compared to $319,000,000 “under the old-religion accounting.” But the Department spent $413,000,000 additional in the name of recovery and relief. Declaring that juggling with the books had reduced the apparent size of the Government’s ordinary expenses $900,000,000 in 1935 alone, Herbert Hoover estimated that the ordinary running expenses of a Democratic Government after all unemployment is past will be $6,000,000,000 a year.

Conclusion:

Editor Moley: “No corporate income-tax payer could long keep out of trouble with the Treasury if he persisted in using similar methods.”

Ex-President Hoover: “If an income-tax payer or any corporation kept books like this Administration, that is, if they showed similar morals in juggling their accounts, they would be put in jail.”