With the after-effects of the so-called “Great Recession” still lingering — unemployment is still at close to 9%, even after the “stimulus” spending of nearly a trillion dollars (spending that was supposedly necessary to keep the unemployment rate below 8%), and economic growth is still sluggish — and the landslide election victories for Republicans in November 2010, there is now real debate around cutting government spending at the local, state, and federal level.
Predictably, such calls for fiscal discipline bring the inevitable references to President Herbert Hoover and his response to the stock market crash of 1929 and his response to what would become the Great Depression. According to the conventional narrative, it was Hoover’s supposed laissez faire inaction that was the catalyst for the economic malaise that consumed the United States for the next decade and a half. As is often the case, however, the conventional narrative departs from the truth: Hoover, far from the caricature, was not a free market, limited government advocate; rather, he fit in with the progressives of his day, seeing government as a tool for shaping a better world. He sought a much more aggressive, progressive, activist government than had been the hallmark of his predecessor Calvin Coolidge.
When Hoover took office, the top marginal income tax rate was 25%. The top bracket started at an annual salary of $100,000 — quite a sum at that time. Hoover’s response to the building economic crisis was to raise taxes. Only on the “rich” of course. President Hoover dispatched his Treasury Secretary, Andrew Mellon, to Congress to lobby for an increase in the top tax rate from 25% to 63% on those making over $1,000,000 per year. He was successful: Congress granted his request, and the tax increase was enacted. Taxes were also increased on estates (today known as the “death tax” by opponents) and corporations. Secretary Mellon, who was reluctant to request the increase and ultimately lamented it, was later chastised as one of the greedy capitalists, “economic royalists” in Roosevelt’s vernacular, responsible for the depression.
President Hoover also sought to shore up the economy by protecting American businesses, particularly farmers, from overseas competition. He pressed Congress to pass the Smoot-Hawley Tariff Act, which raised tariffs on nearly every sector to historically high rates. As predicted in a letter written to President Hoover by 1,028 economists urging him to veto the act, enactment of the new tariffs spurred reprisals from other countries — a “trade war” — resulting in a worldwide slowdown in trade and commerce that further exacerbated the economic malady.
So the Hoover approach to a “credit crunch”, bank closures, and a crisis on Wall Street was to raise taxes on corporations and “the rich”, and to increase tariffs on imported goods and services. But that wasn’t all: Hoover also greatly increased federal government intrusiveness and expense. As detailed by economist Don Boudreaux of George Mason University, “spending rose significantly during Hoover’s term in the White House…The overall increase in real per-capita spending from 1928 to 1932 was a whopping 53.5 percent.” In her book The Forgotten Man, Amity Schlaes also details how President Hoover called business and industry leaders to the White House to harangue them on matters economic.
President Hoover’s tax increases, protectionism, and expansion of the size, scope, intrusiveness, and expense of the federal government did nothing to halt the steady economic decline of the early years of the Great Depression. Of course, that didn’t stop Hoover’s successor, Franklin Roosevelt, from doubling down on the Hoover approach — FDR simply raised taxes even further and spent even more in a desperate attempt to fight off economic decline. The result was the worst economic period in the history of the United States: rampant joblessness persisted until the country mobilized to fight World War II, and prosperity did not return until the war was ended and the governmental shackles were loosened.
That is the real Herbert Hoover record: tax increases, spending initiatives, and trade interference. It is modern-day budget-busting big spenders — not budget-cutting restrainers of government — that carry on his legacy.