washington, dc

The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

Pushing Back Against Hooverism

New York Times economic columnist David Leonhardt wrote a piece yesterday that every Democratic activist and elected official should read and then try to put into as plain a form of English as possible. Its title is plain enough: “Why Budget Cuts Don’t Bring Prosperity.” And its content wouldn’t have seemed that striking until very recently, when one of America’s two major political parties suddenly embraced the belief that government spending had somehow caused a private-sector housing and financial crisis and then a demand-side recession, and that radical cuts in government spending would put the economy on the right track via “business confidence” or some such magical term.
The simplest term for this delusion is probably Hooverism, since many Americans are aware, however dimly, that the Great Depression was significantly worsened by the policies of a president who was ideologically opposed to any major stimulation of the economy by the public sector. Now it’s true that many of today’s conservative activists deplore Hoover’s handling of the Depression, but only because they believe he was too active in trying to use government to revive consumer demand and prevent the collapse of public and private investment–or according to one recent conservative account, he was too “pro-labor” in his wage policies!
Here’s Leonhardt’s take, which is what virtually every politician in either party would have odded at until quite recently:

[N]o matter how morally satisfying austerity may be, it’s the wrong answer. Hoover’s austere instincts worsened the Depression. Roosevelt’s postelection reversal helped, but he also prolonged the Depression by raising taxes and cutting spending in 1937. Only the giant stimulus program known as World War II finally ended the Depression. When the private sector is hesitant to spend, the government has to — or no one will.

Leonhardt makes the crucial point that interest-rate signals simply aren’t supporting the common conservative argument that the public sector is gobbling up resources for pointless programs and redistribution that the private sectors needs to produce jobs:

In the early 1990s…government borrowing was pushing up interest rates. When the deficit began to fall, interest rates did too. Projects that had not previously been profitable for companies suddenly began to make sense. The resulting economic boom brought in more tax revenue and further reduced the deficit.
But this virtuous cycle can’t happen today. Interest rates are already very low. They’re low because the financial crisis and recession caused a huge drop in the private sector’s demand for loans. Even with all the government spending to fight the recession, overall demand for loans has remained historically low, the data shows.

The impact of budget cuts on the current economy seems to be lost on
Republicans who are constantly predicting gloom and doom over entitlement spending projections that extend for the next several decades. And again, the credit markets are showing no signs at this point of panicking over long-term deficits and debt, much less short-term deficits and debt. Indeed, the U.S. economy is actually doing better than those of countries who have adopted austerity policies. As Leonhardt observes:

For the sake of the economy, the best compromise in coming weeks would be one that trades short-term spending for medium- and long-term cuts. Beef up the cost-control measures in the health care overhaul and add new ones, like malpractice reform. Cut more wasteful military programs, like the F-35 jet engine. Force more social programs to prove they work — and cut their funding in future years if they don’t.
By all means, though, don’t follow the path of the Germans and the British just because it feels morally satisfying.

So here we are, with Republicans threatening to shut down the federal government and create a debt-limit crisis unless Democrats agree to deep short-term spending cuts, exactly what the economy does not need. This is a manufactured crisis that Democrats need to expose early and often, and if impugning Herbert Hoover’s memory helps get the job done, so be it.

Leave a Reply

Your email address will not be published.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.