Beyond The Commons

Aaron Wherry covers all the goings-on in and around Parliament Hill. Follow Aaron on Twitter: @aaronwherry

Categories: Beyond The Commons, Capital Read

Return to Hooverville

by Aaron Wherry on Tuesday, September 27, 2011 9:45am - 15 Comments

Like her colleague Douglas Porter, Sherry Cooper expresses her concern about the Prime Minister’s call for austerity.

“The misplaced belief that the road to economic prosperity is paved by near-term fiscal tightening, as espoused by our own Prime Minister Stephen Harper and British Prime Minister David Cameron last week, shows we have learned nothing from Herbert Hoover’s response to the Great Depression,” Ms. Cooper said.

Tags: Bank of Montreal, BMO, David Cameron, Douglas Porter, Great Depression, Herbert Hoover, Sherry Cooper, Stephen Harper

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TonyAdams

” …. shows we have learned nothing from Herbert Hoover’s response to the Great Depression”

I don’t know about ‘we’ but certainly Ms Cooper learned nothing about Hoover’s response to Great Depression. Globe is such a fascist newspaper, constantly interviewing bankers to get everyone worried and rarely, if ever, providing proper facts. Can always count on Globe to promote fear and recommend technocrats solve imaginary problems.

Jane Galt ~ July 2011 ~ The Atlantic:

Hoover did not tighten up on spending. According to the historical tables of the Office of Management and Budget, spending in 1929 was $3.1 billion, up from $2.9 billion the year before. In 1930 it was $3.3 billion. In 1931, Hoover raised spending to $3.6 billion. And in 1932, he opened the taps to $4.7 billion, where it basically stayed into 1933 (most of which was a Hoover budget). As a percentage of GDP, spending rose from 3.4% in 1930 to 8% in 1933–an increase larger than the increase under FDR, though of course thankfully under FDR, the denominator (GDP) had stopped shrinking.

Instead, he is associated in the public mind with slashing spending. But there doesn’t seem to be any question that Herbert Hoover raised both spending and government deficits by rather a lot, and quite bravely considering that his critics–a group led by a fellow named Franklin Delano Roosevelt–”accused the president of ‘reckless and extravagant’ spending, of thinking ‘that we ought to center control of everything in Washington as rapidly as possible,’ and of presiding over ‘the greatest spending administration in peacetime in all of history.’ Roosevelt’s running mate, John Nance Garner, charged that Hoover was ‘leading the country down the path of socialism.’ “
Anonymous

Austerity is a kitchen-table solution..it doesn’t work for countries.

It just makes things worse…exactly what they did wrong in the Depression.
john g

Corollary:

The misplaced belief that the road to economic prosperity is paved
by increasing overall indebtedness by spraying government lagresse around all over the place shows
we have learned nothing from the European financial crisis and Barack Obama’s response to the most recent recession

Anonymous

You can’t fix the economy by fixing the debt. You can fix the debt by fixing the economy.
TonyAdams

“The misplaced belief that the road to economic prosperity is paved by increasing overall indebtedness …. ”

WSJ ~ Aug 2011 ~ Why Americans Hate Economics:

Or consider the biggest whopper: Mr. Obama’s thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical “multiplier”—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there’s a fairy passing out free dollars.

How did modern economics fly off the rails? The answer is that the “invisible hand” of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new “macroeconomics,” a witchcraft that began to flourish in the 1930s during the rise of Keynes.

Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head as national policy.

As Donald Boudreaux, professor of economics at George Mason University and author of the invaluable blog Cafe Hayek, puts it: “Macroeconomics was nothing more than a dismissal of the rules of economics.” Over the years, this has led to some horrific blunders, such as the New Deal decision to pay farmers to burn crops and slaughter livestock to keep food prices high: To encourage food production, destroy it.

Anonymous

Why is that those who attack Keynes always do so on this specious grounds? Keynes insisted that debt be paid down during good economic times; it is this part of his economic legacy [ which helped to create enormous post war wealth] that has been ignored by self interested politicians and venal vested interests to all our costs. Keynes had it right. Don’t blame him because humans are weak and short sighted..

Anonymous

Because Libertarians talk nonsense.
TonyAdams

“Keynes had it right. Don’t blame him because humans are weak and short sighted.”

Hahahahahahhahaha. Keynes and his ideas would be correct if people were entirely different than they actually are?

Jane Galt – July 2010 ~ Is Keynes Still Right?

Random thought of the day: what if Lord Keynes was right . . . but only in 1932?
…. The deficit hawks who have suddenly gotten religion tend to hail from places where the population does not want the government to borrow and spend more money. The kind of massive stimulus that Paul Krugman wants simply is not politically feasible, no matter how many Senators he lambastes. Even if he convinced them intellectually, they’d be too afraid of their constituents to act on their beliefs.

Moreover, it occurs to me that one of these constraints is the welfare state. Richer countries can afford to borrow more–but in the current environment, richer countries have already borrowed quite a lot. That means that they have to repay any extra debt out of the remaining fraction of their income, which is shrinking. Obviously, that makes extra debt service more burdensome–and also makes both bondholders and taxpayers more reluctant.

Furthermore, countries with big welfare states already have to borrow quite a lot of money just to fund the obligations they’ve already taken on, leaving less tolerance in the political and financial markets for additional debt.

I don’t know that Keynes was ever right that government spending could jolt a country out of a liquidity trap. But even if he was, that doesn’t mean that he’d still be right–the political economy might have changed too much for his prescriptions to work.

Anonymous

‘Jane Galt’ is Megan McArdle…another flakey Libertarian.
Anonymous

Who writes for that far-right Conbot rag, the Atlantic Monthly.
Anonymous

@OrsonBean

They publish all kinds of views.

What IS your problem Bean?
Anonymous

@OrsonBean

They publish all kinds of views.

What IS your problem Bean?
Anonymous

Wow! You really convinced me their TA. I guess i’ll throw out all my previous views of arguably the leading economist of the 20th century on the say so of you and one conservative reporter.

Your earlier quote from Galt neglected to mention that US GDP shrank something like 25% after ’29 under Hoover[ quite an oversight eh!] - which puts his spending as a % of GDP in a little differnt light. Also absent was the now widely held view it was Hoover’s tight fisted monetery policy, tax increases and consequent rising interest rates and high tariffs that set up the depression.
Could you make an effort to post ALL the relevant facts before throwing around your childish views of G&M as fascist – get some perspective for godsake!
The lesson i draw from the depression [ for what it's worth] is don’t stay mired to ideas that can eventually become dogma. Hoover did with laissez faire economics; and Obama may be making a similar error with regard to Keynesianism….although i hope not…for all our sakes.
Anonymous

Tony doesn’t believe facts that don’t agree with him.Since he knows he’s right, reality be damned, any such “facts” are obviously just the construct of the vast conspiracy of social scientists.

Anonymous

Why is that those who attack Keynes always do so on this specious grounds? Keynes insisted that debt be paid down during good economic times; it is this part of his economic legacy [ which helped to create enormous post war wealth] that has been ignored by self interested politicians and venal vested interests to all our costs. Keynes had it right. Don’t blame him because humans are weak and short sighted..