Saturday, April 6, 2013

Krugman gets Hoover (essentially) right


I think there is some sloppiness out there on Hoover and there's some revisionism on Hoover. The sloppiness is on the part of people who say he cut or did not increase spending. I believe Krugman has done this before. If not him, certainly many have. It's easily verified that this is not true, but it's an impression we've had for a long time.

The revisionism comes in with the critics of Krugman and people like him that try to act like a lack of cuts makes Hoover an activist. This is extremely misleading. Hoover didn't cut, but there's a good reason that he's perceived as being austere (even aside from the tax increase austerity - I'm talking about if we just stick to the spending and deficit numbers). A recent example is this criticism of Krugman by David Henderson (although he's careful to note that Krugman never actually says anything that's wrong, which makes Krugman "clever"... I guess the idea is that Krugman is trying to be dishonest but knows how far to push it??? I don't know).

I put this together a while ago - it puts Hoover's spending in the context of Harding, Coolidge, and Roosevelt:
 

There is an uptick in spending under Hoover, but it's barely perceptible unless you do what the revisionists do and zoom in on that portion. When you zoom out, two things jump out at me:

1. - In the context of the fiscal injection that is credited with (in combination with monetary policy) getting us out of the Depression, the Hoover increase is a rounding error, and

2. Harding's budget - which is allegedly a paragon of austerity virtue - is higher than Hoover's budget. So someone please explain to me why proponents of austerity lionize Harding in 1921 but act like Hoover is some kind of Keynesian in the early 1930s.

When I posted on this before, this was my position and it's still my position:
"The early 1930s was a period of fiscal austerity. Tax rates were raised precisely when they should have been maintained or probably lowered. It's quite true that Hoover did not slash spending - he increased it. Indeed, he increased it through programs like the Reconstruction Finance Corporation that laudably generated important institutional infrastructure, which would serve the country well during the New Deal and the second world war. But the Hoover administration and the early Roosevelt administration spent at a level that was consistent with the post-WWI spending of the Wilson administration, the Harding administration, and the Coolidge administration. That was fine for the 1920-1921 depression and the 1920s, but it was not an appropriate fiscal policy response to the early 1930s. It was far too austere. While the Hoover administration and the early Roosevelt administration both increased spending levels, there was no practical difference from a macroeconomic stabilization perspective between their spending policy and that of the Coolidge administration. Both men did a lot of bad things and both men also did some good things, but the real regime change in fiscal policy did not come until the late 1930s and early 1940s."
David is principally concerned with the "impression Krugman leaves the reader". Of course any given account will vary, but in my view any account that is more or less like what I said above is giving the right impression, and I think Krugman does just fine (although as I said in the beginning - sometimes the account gets a little sloppy. He's not a historian - not big deal in my opinion. The important thing is the impression Krugman leaves that reader).

25 comments:

  1. (Essentially) right. The revisionism is much more misleading than any mistakes. To make their case, they will slide from intent to result and back whenever convenient. It is just as easy to reverse this. They assert his policies were disastrous when they really weren't much different from his predecessors or from the conventional wisdom of the day. They need to make him the villain to redeem the market.

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  2. You guys are something else. Does it matter that that Mellon quote--which Krugman uses to characterize the 1930s record in the eyes of his readers--was produced in Hoover's Memoirs, so that Hoover could explain that he did the opposite of what Mellon suggested?

    I'm trying to think of an analogy where the tables are turned, i.e. a right-winger trying to nail Obama in an analogous fashion, but I can't because this is so ridiculous. I guess if Obama in his autobiography had quoted his Marxist buddies and then said "I hate those guys" and then a libertarian said "See Obama is a marxist." Except, I don't think Obama said "I hated those Marxists" in his book.

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    1. I agree he did the opposite of what Mellon suggested (or allegedly suggested - it's not even clear that was his position). What makes you think I don't agree with that?

      It was still a relatively austere handling of the crisis.

      Read my post. I say pretty plainly that Hoover increased spending and set precedents for many New Deal programs.

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    2. Daniel wrote: " (although he's careful to note that Krugman never actually says anything that's wrong, which makes Krugman "clever"... I guess the idea is that Krugman is trying to be dishonest but knows how far to push it??? I don't know)."

      It seems pretty clear that that is the idea and that it is quite a natural interpretation of what Krugman did. I'm not sure why you'd use three question marks and add "I don't know".

      Like Bob, I continue to be amazed that you don't interpret Krugman here the way we do, and like Bob, I wonder how you would interpret a similar situation if the tables were turned. Then again, we all have our biases and for example a libertarian may quickly notice this sort of thing when Krugman does it but fail to notice it (or not interpret it as unfavorably) if a libertarian does it.

      Daniel wrote: "The early 1930s was a period of fiscal austerity. Tax rates were raised precisely when they should have been maintained or probably lowered. It's quite true that Hoover did not slash spending - he increased it. Indeed, he increased it through programs like the Reconstruction Finance Corporation that laudably generated important institutional infrastructure, which would serve the country well during the New Deal and the second world war. But the Hoover administration and the early Roosevelt administration spent at a level that was consistent with the post-WWI spending of the Wilson administration, the Harding administration, and the Coolidge administration. That was fine for the 1920-1921 depression and the 1920s, but it was not an appropriate fiscal policy response to the early 1930s. It was far too austere. "

      I'm not sure I understand what you mean here because you seem to be sort of pre-supposing your conclusion through the way you stretch the meaning of the term 'austere'. Typically one would call policy austere when it involves a decrease in spending (and one might continue to do that when it does happen to grow but only because of population growth, demographically increased # of entitlements etc).

      It's already more of a stretch of the term that policy is austere when even though spending is increased it is increased less than what was projected and/or hoped for and/or promised earlier. (that seems to be the way the term is being used in the media and politics these days)

      But you seem to go even further here by saying that Hoover's policy was austere because he didn't spend as much as was needed to get the US out of the Depression. Then the comparison is no longer with an earlier state or with an earlier projected state, but with a subjectively prescriptive state (how much he *ought* to spend.

      I'm not saying that this is an indefensible use of the term 'austere' per se, but there is a risk that by using that term to mean this other people who hear the term will interpret it in the more standard ways that I mentioned above, so that they would get the wrong idea when listening to somebody describing the current (or the Hoover) situation as one of 'austerity'. They may for example be less inclined to agree if by that you didn't mean that actual cuts had been made or that spending was less than projected, but only that spending is less than youd like it to be.

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  3. I mean, after the part quoted by Henderson Krugman writes: " Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldn’t repeat the mistakes of the 1930s, would we?"

    Doesn't the last sentence indicate that Krugman means that Hoover *took* Mellon's advice, that Mellon was wrong and that this resulted in Hoover's mistakes?

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  4. compare (and to be sure, the following situation is not in all respects analogous to the Hoover/Kuehn situation):

    If a free market guy calls some president who is widely regarded as a small government kind of guy because he cut spending by 40% a 'big government liberal' then the obvious reply would be: "But the president actually *cut* spending by 40%! That's why we call him a small government kind of guy!", to which the free market guy would say: "Yes, but he should have cut government by 80% so he's a big government liberal."

    Neither side is being unreasonable per se, but such terminological subjectivism may create confusion.

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  5. Daniel wrote: "I agree he did the opposite of what Mellon suggested (or allegedly suggested - it's not even clear that was his position). What makes you think I don't agree with that?"

    I don't think Bob thinks that. What makes you think he thinks that?

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  6. Henderson's attack on Krugman is nonsense. To express a fear that someone somewhere might draw a certain conclusion from Krugman and then use that to attack Krugman is a classic straw-man argument. An intelligent reader will know from Hoover's use of the word "urged" and the extreme language attributed to Mellon that Hoover did not follow Mellon's advice and there is nothing in Krugman's piece that would suggest that he did.

    Krugman is entitled to assume that his audience is literate. If Henderson is afraid that some of Krugman's readers are illiterate then he should attack the readers, not Krugman.

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  7. Dear Absalon,
    So we're supposed to conclude that whenever someone uses the term "urged," the person being urged didn't go along? Also, here's a test of whether readers were mislead: read the comments on Krugman's post.
    Also, here's a test for you because presumably you're not misled: what exactly is the mistake in the 1930s that Krugman thinks was made?

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    1. I'd think the mistake is Hoover's austerity, right?

      Hoover didn't follow the Mellon plan, but that seems different to me than saying he didn't follow austerity. Obama and Congress aren't following the Ryan plan, but they're still giving us a lot of austerity.

      What is the mystery here?

      The atmosphere of the early 30s was one of austerity - that is Krugman's point, right. Sure Hoover wasn't Mellon but the whole lot of them were looking at the problem wrong. That's the point.

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    2. Mr. Henderson - you are reading what you want into Krugman's piece and into my comment. In the post in question, Krugman is not even talking about the actual policies of the 1930s. He is attacking Mellon and those who today give the same advice as Mellon did.

      You cannot blame Krugman for his commenters - some of them go much farther than Krugman would - anymore than you can blame Daniel for me or I can blame Daniel for you.

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    3. This comment has been removed by the author.

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    4. Absalon, notice that we have proof that at least one person misunderstood Krugman's piece--Daniel. Daniel seems to think Krugman was talking about the actual record of the 1930s, contrary to your interpretation.

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    5. Bob - now I think you are misreading Daniel.

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    6. Absalon, Krugman himself was literally talking about the 1930s in his blog post: "Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldn’t repeat the mistakes of the 1930s, would we?"

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    7. Narrator - see my comment on April 6 at 9:48.

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    8. That's the post I was responding to.

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    9. Then go back and re-read what I actually wrote.

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  8. DRH nails it with:

    "what exactly is the mistake in the 1930s that Krugman thinks was made?"

    David, I guess 98% of Krugman's readers would have concluded from his op ed:

    "Ah, the mistake in the 1930s was that Hoover didn't repudiate Mellon's advice hard *enough*."

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  9. BTW Daniel I agree it's an interesting point about the absolute level of spending of Harding vs. Hoover. Obviously I could say, "It's the rate of change, not the level," but that's not the card I would play if Obama cut spending by $1.

    Notwithstanding that awkwardness, it is still crystal clear that Krugman is being slippery in his op ed. I'm not saying he's going "mwa ha ha" as he typed it, but rather that he wanted to tell his Hoover narrative and had to carefully word it so as not to literally lie.

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  10. Without researching a little to remember the details, what seems significant about Harding is that between 1920 and 1921 the level of spending decreased, and the same between 1921 and 1922. This was during a time of recession. Of course, this is subject to all the qualifications you make your RAE piece (and rate cuts that correlate with recovery).

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  11. But the fact remains that there's plenty of purging that should have been done but wasn't.

    "Giving banks money to rescue themselves from their own actions does not lead to a long term healthy economy in a capitalistic system.

    The alternative is the Swedish system: Insolvent banks have their deposits guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.

    This is what the US should have done with their own banks, but refused to. Both the Bush and Obama White Houses ceded their decision making on this issue to the former head of Goldman Sachs (Hank Paulson as Bush Treasury Secretary) and Citigroup Director and prior Co-Chairman of Goldman (Obama’s Economic advisor Robert Rubin)."

    http://socialdemocracy21stcentury.blogspot.kr/2011/08/skidelsky-versus-selgin-on-keynes-and.html?showComment=1312471178737#c4831051484263212147

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  12. I am guessing that your graph is in nominal figures. My memory of looking at the data some years ago was that, over the course of Hoover's term, federal expenditure went up about fifty percent in nominal terms, about a hundred percent in real terms, about two hundred percent measured as a fraction of national income.

    Assuming I am remembering correctly, I wouldn't describe that as "an uptick."

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    1. It's been a while so I don't remember if I had adjusted or not. That may be the case. I've talked on Bob's blog, though, about how the action that did come with Hoover came much later and that was part of the problem - so the growth over the whole term is backloaded (perhaps that's why you're using that figure?). Anyway, if a big source of the difference is a real balances effect that doesn't strike me as being entirely rosy.

      You also have to remember that we're talking about growth relative to a very small base. The case isn't that Hoover is some awful guy that didn't try some things - the case is that what he did try was a drop in the bucket. The fiscal response was sympathetic but awfully austere until WWII changed the game entirely.

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