Scott Alexander on Herbert Hoover
Before reading Scott Alexander’s delightful recent post on Herbert Hoover, I knew a bit about his achievements prior to the presidency, but I learned much more. Read the whole thing; Hoover was an amazing man.
I have strong views on Hoover, which is not surprising given that I spent over a decade researching the Great Depression. Hoover was not the most talented person to ever become President, but he was probably the most competent. Unfortunately, his areas of competence did not dovetail with the problems facing the US during the early 1930s. Hoover was very good at organizing large endeavors, but the problems faced by the US during the early 1930s were macroeconomic in nature. Unfortunately, being a good administrator doesn’t have much correlation with understanding macroeconomics.
Alexander’s post summarized a book on Hoover written by Kenneth Whyte. Whyte seems to have been a big fan of Hoover, which is certainly justifiable given that he was arguably one of the most successful humanitarians in human history, saving the lives of millions of people during and after WWI. He really was a great man.
But I’m not convinced that Hoover was a good president. Alexander is agnostic on Whyte’s claims regarding the Hoover presidency (1929-33) so let me add my two cents worth.
1. We probably would have had a Great Depression regardless of who had been president. But given the chaotic nature of monetary systems we actually can’t be sure, even if we assume that Hoover had little impact on the course of events. Those familiar with the “butterfly effect” in chaos theory will know what I’m talking about.
2. So let’s focus on what we do know. Did Hoover do more harm that good? I’d say no, and indeed Hoover made three important mistakes:
a. He pursued a high wage policy after the 1929 stock crash, which made wages stickier than in the 1920-21 depression (from which we recovered quickly after nominal wages were cut.)
b. Hoover took no leadership in the design of the Smoot-Hawley tariff bill. This led to the bill
to spinning of out control and become too protectionist. When the tariff bill was finally completed in June 1930, he decided to sign it against the overwhelming advice of experts. (Over 1000 economists signed a letter calling on him to veto the bill.)
c. He opposed the sort of dramatic monetary policy shift that would have made a real difference, and favored the sort of weak monetary stimulus that was ineffective under a gold standard regime experiencing massive hoarding of gold and currency.
Presidents don’t have a lot of impact on monetary policy, so let’s focus on the first two issues. It’s at least possible (though unlikely) that had Hoover not erred and endorsed high wages and protectionism in 1930, the initial slump would have been considerably milder. It’s also possible that if the initial slump were milder then the series of banking crises that began in November 1930 would not have occurred. And in that case it’s possible that 1930 would have ended up being just an ordinary recession. That’s the butterfly effect argument I made earlier.
But if we just consider the direct effect of his policy errors, they were not even close to being severe enough to cause a major depression. It seems likely to me that Hoover’s policies contributed only modestly to the Depression.
Alexander suggests that Whyte claimed that Hoover’s well-meaning attempts at recovery were often sabotaged by bad actors like the French (who wanted to punish Germany) and FDR (who refused to cooperate or support Hoover’s efforts during the interregnum of November 1932 to March 1933, when the economy collapsed.) This sounds like sour grapes, but there’s actually a bit of truth in both claims. And I say this as someone who regards Hoover as a bad president, and I’m not trying to convince you otherwise.
Hoover offered a bold plan to address the war debts crisis in 1931, and US stock prices soared on the news. When the negotiations got down to the nitty gritty, however, the French refused to fully cooperate and the plan ended up being far weaker than Hoover envisioned. People at the time, however, probably over-estimated the role of war debts in the Great Depression (and underestimated the role of the gold standard.) So perhaps his bold plan would not have helped that much, even if fully implemented.
The role of FDR is interesting and complicated, and FDR supporters generally don’t accept my views on this issue. But I’ll do my best to explain it.
There was a modest recovery in the US between July and October 1932, arguably triggered by a QE program encouraged by Hoover. But even by October there were some sharp price breaks on Wall Street on news that FDR was likely to win the election. Uncertainty about the election led to doubts about the US adherence to the gold standard, and this killed the nascent recovery. The period from November 1932 to March 1933 was really bad—-so bad that it led the US to reduce the length of the interregnum from 4 months to the current 2 1/2 months.
There were several problems, but the main problem was FDR’s refusal to commit to staying on the gold standard. FDR supporters will say, “Why should he have, that’s Hoover’s failed policy.” Perhaps, but in that case he should have either lied, and said he’d keep the US on gold, or come right out and say that he intended to devalue. Countries on fixed exchange rate regimes normally lie about any intention to devalue right up until the last moment, as to do otherwise will cause a currency crisis and force an immediate devaluation.
A patriotic FDR would have presumably lied and insisted that he would keep the US on the gold standard. Or perhaps he should have announced that he intended to devalue, which would force an immediate devaluation. Why did he reject both options?
Hoover’s sympathizers believe that FDR wanted things to be bad, so that he had a free hand to do whatever he wanted after taking power. FDR even refused to cooperate with Hoover’s attempt to institute an emergency banking holiday in the desperate days right before the inauguration. It wasn’t that FDR disagreed with Hoover’s plan; he simply wanted no part of working with Hoover. But this meant that Hoover could not do anything to address problems with the gold standard, the war debts crisis, or even the deterioration of banks, as any last minute action would have no credibility. Everyone was waiting to see what FDR would do as the economy spiraled out of control in February 1933.
FDR probably did not want the strong growth of July to October 1932 to continue until March 1933, because then it would look like the recovery was triggered by Hoover’s actions in early 1932, not by the actions that FDR was about to take. That may sound cynical on my part, but there’s lots of evidence suggesting its true.
On the other hand, I’m way less sympathetic to Hoover than are some of his supporters. He made a series of bad choices over 3 1/2 years, so it’s a bit rich to suddenly blame FDR for the problems at the very tail end of his administration. And if FDR truly believed that he had the answer to America’s problems, then he might have truly believed that in the long run America would be better off if he took office during an acute crisis when he’d have no problem ramming all sorts of emergency measures though Congress.
Readers of this blog know that I believe process matters, and that I don’t accept this sort of moral reasoning. But I’m in the minority; lots of other people do think this way. Some Democrats believe that a recession right now might be in our long run interest if it got rid of President Trump, and some Republicans favored opposing everything Obama did so that he’d be a failed president. I believe that FDR was a fairly normal politician, at least in that regard.