Did Herbert Hoover Cut Spending?
by Nathaniel Ward
Paul Krugman makes an astounding assertion in the New York Times:
Remember, Herbert Hoover … slash[ed] spending and raise[d] taxes in the face of the Great Depression. Unfortunately, that just made things worse.
Hoover “slashed spending”? Um–no. He was hardly a model of fiscal restraint, laissez-faire or anything of the sort.
| Year | Federal spending ($ billions) |
|---|---|
| 1929 | $3.8 |
| 1930 | $4.0 |
| 1931 | $4.1 |
| 1932 | $4.3 |
| 1933 | $5.1 |
That’s a 55% increase in nominal spending during Hoover’s term in office, which was a period of marked deflation. Put another way, spending increased from 4% of GDP to 9% of GDP–a doubling of spending in four years.
Krugman’s not wrong on one thing: Hoover sure did raise tax rates on income.
| Year | Revenue from taxes ($ billions) | Top tax rate |
|---|---|---|
| 1929 | $4.2 | 24% |
| 1930 | $4.2 | 25 |
| 1931 | $3.4 | 25 |
| 1932 | $2.5 | 63 |
| 1933 | $3.0 | 63 |
Nominal tax revenues collapsed even with Hoover’s higher tax rates (by today’s progressive definition, that means that from 1931 to 1932 he enacted a 25% tax cut). Even with the 160% higher rates, the percent of GDP taken increased just 25%, from 4% to 5% of GDP. Could there be a link between higher tax rates and reduced economic activity and reduced revenue?
Comments
Unlike Herbert Hoover, Obama passed Stimulus Immediately and continues to recognize that Gov’t Spending Curbs Recession. The Hoover Administration and Treasury were dealt a bad hand but slow policy response did exacerbate the Economic Slowdown in Product.
One question! Did you think that maybe The RISE in %GDP Spent is due to the fact that the GDP was dropping simultaneously at a Faster Rate? Kinda like bailing out a sinking boat using a thimble.
Regarding Tax Revenues in Recessions, keep in mind that Bush fudged his economic data with Cuts.
You see, Govt’s need money to function and Govt’s are an important part of Modern Societies. A Tax Cut (especially for Upper Income []s) motivates momentary spending in a Service-Capitalist Economy. At the same time, the cutters encourage Americans to “Spend” that rebate, do your part and spend!
Also realize that the Cuts for the Rich were specifically cited as leading to helpful Luxury Purchases of GM CARS like trendy SUVs. In reality, This Policy was Cover-Ass and didn’t actually fix anything by creating a false economy of the moment.
Later on, America and a New President responds to a GutShot with dwindling Gov’t Revenue as Sheep with Fox IV’s complain about Communism/Socialism and Debt. Get a clue, McCarthy!
Ok, my tone was petty in parts, but did you edit for Inflation and such? I want America to be Strong Too