Amusing: Dan Hannan thinks austerity helped Great Depression


by Tim Fenton    
2:02 pm - March 16th 2012

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Some events from the past can be inconvenient to those who would rather they had not happened that way. There is always the option of merely ignoring historical reality, but increasingly in vogue with some is the selective re-telling of what had been accepted for so long as fact.

Thus the approach of occasional Tory and MEP Daniel Hannan, with the added zest of abuse, as he stresses that those of contrary view have not been properly educated.

Dan’s chosen period for revision is the years following the Great Crash of October 1929, where he trots out the lame idea that Franklin Roosevelt somehow prevented economic recovery in the USA.

This comes after the gaping omission of what happened in the aftermath of the Crash: Herbert Hoover and his administration effectively did nothing. A budget surplus was run. No intervention was made. And the economy continued to decline.

By the time Roosevelt became President, unemployment was at around 25%. No intervention led to no recovery.

Hannan does get one thing right when he tells of the loosening of monetary policy by the Federal Reserve in the late 1920s, but fails to reveal the full picture: this was at the urging mainly of the British, following Churchill’s disastrous return to the gold standard in 1925 which had effectively increased the price of many UK exports by 10% and therefore hobbled the economy.

He also skips over the devaluation of Sterling by exiting from the gold standard – by around 17% – which helped those export industries, although much trade had already been lost for good. Even then, the UK economy did not return to significant growth for three more years, and most of that growth was in the South East. Dan can sneer at the Jarrow marchers, but that was reality on Tyneside in 1936.

And the idea that Roosevelt held back recovery is bunk: the assumptions underpinning the study he references include growth rates which border on the heroic. The reality is that the US economy recovered steadily, until the clamour for a balanced budget – with Dan’s favoured cuts – induced a slump in 1937, which in turn affected the UK economy the following year.

As such, his repeat hatchet job on Keynes fails yet again.

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Tim is a regular contributor to Liberal Conspiracy. He blogs more frequently at Zelo Street
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Reader comments


The Right never gives up does it?

It has attempted to revise the history of the Great Depression many times and failed.

The Right will continue to fail in this regard, particularly as its solutions to the current crisis – itself made by following erroneous rightwing economic policies – continue to pull economies down.

“Herbert Hoover and his administration effectively did nothing. A budget surplus was run. No intervention was made. And the economy continued to decline.”

Hi myth, I would love you to meet reality: http://www.cato-at-liberty.org/chuck-schumer-endorses-hoover-plan/

Gosh, this is amazing stuff.

“Herbert Hoover and his administration effectively did nothing. A budget surplus was run.”

It’s almost like it all happened in some other universe. For Hoover took the budget surplus from 1% of GDP in 1930 to a deficit of 3% in 1933. He increased spending as well.

Maybe that’s not enough but it’s different from continuing to run a budget surplus, isn’t it?

. “The reality is that the US economy recovered steadily, until the clamour for a balanced budget – with Dan’s favoured cuts – induced a slump in 1937,”

That’s also from some parallel universe. 1936 to 1937 the federal spending increased from 83 billion to 92 billion even as the deficit narrowed from 4% of GDP to 2.6 % and then 1.2% in 1938.

So it was tax rises that Roosevelt used, not spending cuts.

Ho hum.

4. Biffy Dunderdale

Quite aside from your determination to cling to your received wisdom, this debate about Keynes generally omits one vital point about the modern situation. Keynes only advocated counter-cyclical spending if it was matched by running a surplus in the good years. The Labour Party, Gordon Brown, Polly Toynbee, Ed Balls, Liberal Conspiracy habituees, Richard Murphy and various other fellow travellers of the Left don’t really believe in that do they? They want to run a deficit all the time, at the top and bottom of the cycle and all points inbetween. That’s not Keynsianism and he would disown you all if he were alive.

Tim F,

Any evidence here? I only ask because Mr Hannan has kindly provided us with one academic work to the none I see cited here – and Mr Hannan acknowledges that there was a previous accepted wisdom which it would appear you are clinging to.

I also doubt Mr Hannan, who is an advocate of the southern European countries exiting the Euro to devalue, is unaware of the devaluation you mention – I think I’ve seen him cite this as an example of how Greece might start to get back on its feet. What you mean is that he does not mention the devaluation which you seem to believe is responsible for the UK upturn – fair enough, but you’ve got to argue the point. Devaluation does not mean automatic upturn after all – it can be part of a downwards spiral. You don’t substantiate why your interpretation is better.

Unfortunately, overall this is simply unsupported. If you put this in as an A-Level essay, it should (and probably would) be sent back to you with a request for some actual evidence. You do not disprove someone else’s argument by making assertions – at best, you are equalling Mr Hannan; I’d say his piece is better argued and supported myself (but that is an opinion). For someone who is generally a good thinker and argument maker, this is disappointing – are you simply playing to the crowd of believers and assuming you are correct or do you seriously think this is an argument?

Biffy Dunderdale.

So economically illiterate it’s funny.

@3

More yet again means Worstall.

The Great Crash came in 1929. The following year, the Hoover administration, by your own admission, ran a surplus.

After that, it is hardly surprising that there was a deficit in 1933: by that time, unemployment had gone from 3% to 25%, with manufacturing output down by a third.

The late 30s slump followed the move to balance the budget in 1937. OK the effects worked through over the following year, but 1937 was when the move was made which precipitated the slump – “a recession within a depression”. The recovery stalled in the UK soon after.

You could agree to disagree with me, but far easier to adopt a position of superior judgment and put the boot in. Still, there’s been no recurrence of using terms such as “Twat”, so that’s all right, then.

Hannan is just regurgitating the standard far right wing bullshit that passes for history in the US about that period. These clowns live in a parallel universe, where up is down and right is left.

Nothing must stop the rich elites from stealing the worlds wealth.

You could agree to disagree with me, but far easier to adopt a position of superior judgment and put the boot in.

It’s not a matter of judgement or agreement: it’s one of facts.

Year GDP-US $ billion Total federal spending
1928 97.4 11.75 i
1929 103.6 11.27 i
1930 91.2 13.07 i
1931 76.5 15.92 i
1932 58.7 21.19 a
1933 56.4 22.38 i

Your statement was “Herbert Hoover and his administration effectively did nothing. A budget surplus was run. No intervention was made.”

As you can see, Hoover doubled Federal spending in nominal terms as both the economy contracted and there was deflation.

This can be described as many things but “doing nothing” it ain’t.

@9

So the late 30s slump did indeed occur.

As to the rise in Federal spending, this has to be set alongside the need to spend more to counter the steep fall in revenues, and moreover when compared to the 1936 and 1937 figures – your figures – the 1933 figure is around 25% of that for 1937, despite the deflation.

For the ordinary citizen, those existing in countless Hoovervilles on the edge of cities, the administration had indeed done nothing.

This is a good paper by Christina D. Romer about the Great Depression.

http://www.brookings.edu/~/media/Files/events/2009/0309_lessons/0309_lessons_romer.pdf

Honestly, people, whether we take different political views, we have to try and have a shared area of facts. We may interpret them differently, but without some kind of common ground of verifiable reality, we might as well dig trenches and fire guns at each other.

The writer of this post needs to read Benjamin M. Anderson’s ‘Economics and the Public Welfare’. He could also try Muray N. Rothbard’s ‘America’s Great Depression’.

13. Charlieman

@6. BenM: “So economically illiterate it’s funny.”

What was the point of that comment? Any quick web search about Keynes will throw up this short and snappy piece: http://en.wikipedia.org/wiki/Countercyclical The article presents the Keynesian position and those of monetarists et al.

I am not qualified to judge whether Biffy Dunderdale’s comment contains a blundering error. Had I the knowledge to assist Biffy Dunderdale, I would do so.

Seek reason in vain with him. He’s a deluded bitter demagogue.

15. Charlieman

@10. Tim Fenton: “As to the rise in Federal spending, this has to be set alongside the need to spend more to counter the steep fall in revenues, and moreover when compared to the 1936 and 1937 figures – your figures – the 1933 figure is around 25% of that for 1937, despite the deflation.

For the ordinary citizen, those existing in countless Hoovervilles on the edge of cities, the administration had indeed done nothing.”

The two paragraphs above appear to me to be written in different languages. The second one is written in common English in order to deliver a political message. That’s a fine thing to do after you have made your argument.

The first paragraph is written in jargon — the words aren’t a problem but the argument uses shortcuts (presumptions that the reader understands that X follows Y). I am not a nodding dog so I have to ask you to repeat it in plain terms.

Take “the need to spend more to counter the steep fall in revenues”? Do you mean that tax revenue fell and government needed to borrow more? Or do you mean that citizen and company incomes fell, resulting in the need for hand outs to them to keep going? A bit of both, perhaps?


Terms used by economists and financiers are not commonly understood. English language words are used but the meaning may be different.

A mortgage on a property is considered by a bank as an asset; most of the time this is true, because if the mortgagee cannot maintain payments the bank owns a house; but when the loan exceeds the value of the property, the bank loses money. In common speech, it is a liability (the bank can sell the house but will lose money), but in jargon it becomes negative equity or negative asset.

So Pres Roosevelt somehow really prevented economic recovery in the USA?

Try these handy charts plotting US GDP from 1929-1939 and other time series, including government spending:
http://www.usstuckonstupid.com/sos_charts.php

As mentioned before, a good recent, concise history of those times is by Eric Rauchway, of the University of California Davis: The Great Depression and the New Deal – A Very Short Introduction (OUP 2008). As he explains, Roosevelt had no prescriptive grand economic theory explaining the Great Depression – Roosevelt certainly wasn’t a “keynesian” and had campaigned in 1932 for balanced budgets, which would have made matters worse.

The New Deal measures were a series of ad hoc administration responses to the consequences of an unprecedented depression where the banking system was on the verge of collapse in 1932 and a quarter of the workforce was out of work.

Hoover, Roosevelt’s precedecessor as president, had initiated a public works programme to create jobs – such as the Hoover Dam and the Golden Gate Bridge at San Francisco. Hoover even recognised a notion of aggregate demand as the driver of the economy but what he did wasn’t enough for the challenges and Hoover was acting well outside the mainstream Republican tradition committed to a minimalist role for government. The orthodox Republican policy guideline was to do nothing – and if that didn’t resolve the problem, to do a little as possible.

Hannan MEP could fix his education gap with Olivier Blanchard et al: Macroeoconomics – A European Perspective (Financial Times 2011). The front cover carries an endorsement by Charlie Bean, deputy governor of the Bank of England and prievously, its chief economist. Blanchard is currently chief economist at the IMF.

17. Arthur Seaton

Hannan is of course absurdly wrong about this as he is about most things: see also the NHS. Funnily enough though, for an extreme right-winger I find him quite genial to read, *almost* likeable. There’s a certain generosity of spirit, ideological consistency and intellectual curiosity about him which makes him readable -see for instance his defence of Michael Foot after his death. I could actually imagine having an interesting, intelligent coversation with him, in a way it is impossible to envisage with the rest of the mainstream journalist far-right: clogged with thugs, morons, toffs, sadists and hysterics like Littlejohn, Dellingpole, Heffer and Phillips.

Try Andrew Mellon – US Treasury Secretary 1921-32 – on the stock market crash of 1929:

“‘It will purge the system,’ said Secretary of the Treasury Andrew Mellon to President Herbert Hoover after the stock market crash of 1929. ‘…High costs of living and high living will come down. People will work harder and lead a more moral life. Values will be adjusted and enterprising people will pick up from those less motivated.’”

There’s an illuminating piece in the new issue of The Economist just out: Public borrowing could be safely cut if only firms would stop hoarding money
http://www.economist.com/node/21550279

It seems that there is too much saving going on.

Here’s another excellent source for anyone interested in the happenings during the Great Depression, this is Marriner Eccles testimony to congress in 1933,

http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf

If only we had someone like him today, unfortunately we’re stuck with the ramblings, of the economic illiterate Austrian cult.

The war on reality continues – reality, having as is well know, a liberal bias ;)

“Try Andrew Mellon – US Treasury Secretary 1921-32 – on the stock market crash of 1929…”

Or Henry Morgenthau, – US Treasury Secretary 1933 – 45 – in 1939, on the effects of the FDR programme:

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot.”

Henry Morgenthau: “I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot.”

Try the charts linked @16 again. In fact, the unemployment rate in 1939 was well below the 25pc mark of 1932/33. True, the US economy dipped in 1937/38 when the Roosevelt administration tried to balance the US federal budget. Roosevelt believed that balanced budgets were a good thing but the fact is that private spending at the time wasn’t sufficient to sustain an economy with unemployment down to acceptable levels – it took the government spending for WW2 to do that.

Sometimes, there can be something in what President Reagan said: “Government is not the solution to our problem. Government is the problem.”

In addition to the Iraq war, among other failings of the New Labour government was the failure to rein in bank lending – especially on easy mortgages. In other words, we need to recognise that the lack of regulation can inflict as least as much harm as bad regulation. We can have government failures of omission and commission as well as market failures.

The only antidote is open debate about policy options and their expected consequences.

ALos worth noting that part of FDR’s new deal consisted of burning food in order to reduce the quantities available, thus driving up prices, and so increasing incomes for thse in rural areas – a shameful policy in my view.

I suspect though, that the reason people voted for FDR rather than for Hoover, was nothing at all to do with economics, but was rather to do with FDR’s promise to repeal the Volstead Act. Most people consider that kind of thing to be far more important.

Hoover did nothing?! Are you out of your mind? Hoover was far from the lassiez-faire picture that is so often painted of him; he meddled in the market to a great extent following the crash. Read “The Forgotten Man” for the first part of your history lesson.
Also, explain the crash of 1921 and the short, quick recovery in which the government did nothing. Pick up some Rothbard then see how accurate your understanding of history and money is.
The property of something having long been accepted as true does not make it so.

@23: “was rather to do with FDR’s promise to repeal the Volstead Act. Most people consider that kind of thing to be far more important.”

The Volstead Act (= prohibition) could only be repealed once – and that was up to Congress. The economy was in dire straights in 1932-33 and no one knew how bad it was going to get. Thousands of banks collapsed. At the very least, the Roosevelt administration generated hope and confidence that the economy would get better. The “do nothing” prescription of the Republicans couldn’t do that,

Daniel: “Hoover did nothing?! Are you out of your mind? Hoover was far from the lassiez-faire picture that is so often painted of him; he meddled in the market to a great extent following the crash”

I didn’t say that Hoover did nothing. Check out @16. Hoover wasn’t for laissez-faire but he was not in the Republican mainstream. Compare Coolidge, Hoover’s predecessor as president, who was Republican mainstream.

Hoover and Roosevelt took economic intervention by the state to new depths, and the result was a depression which lasted longer than any previous depression.

As noted @ 23, while people were hungry and even starving, Roosevelt’s policies were ordering crops and livestock destroyed, in an attempt to boost agriculture prices.

Roosevelt was a fascist demagogue, who hugely overstepped the powers vested in him by the Constitution – mainly due to the acquiessence of Congress. Still, if anyone wants to defend, for instance, his confiscation of everyone’s gold, followed by his law making it illegal to own a gold coin, which stood until Jimmy Carter’s time, go right ahead, but I doubt you’ll be able to find a liberal justification, and you’ll be forced to fall back on ‘might is right’ or the mystical power of the state.

26 – well done, thanks for showing your true colours as a lunatic fringe nutter so the rest of us can scroll past your ‘contributions’ in future.

@ Joe,

at least I’ve made a ‘contribution’, rather than a mere snidey ad hominem. Your evident delusion of superiority comes from ignorance. You can’t dispute the arguments laid out in the books I referred to @12.

Load of rubbish. One only needs to read Rothbard’s America’s Great Depression to debunk this myth.

@ 29

I agree, although you will know that the book you refer to is focused on Hoover’s time in office, rather than Roosevelt, but it certainly debunks the ludicrous idea that Hoover was laissez-faire.

The problem is, the people who disagree will never read that book. Evidence that contradicts their settled opinion is to them like holy water to a vampire.

Since the academics who study this period still argue about the Great Depression don’t expect any agreement anytime soon. The first elementary mistake people make is by assuming because the Wall St. crash occurred just before the Great Depression that one must have caused the other. They are entirely unrelated. The reason that the Great Depression became great is because of a collection of bad policy errors by various public officials. You will get nowhere looking at the fiscal policies of Hoover and FDR. The fundamental problem was bad monetary policy that fiscal budgets could not cure. Did FDR policies help or make things worse? Both is the answer. He raised the gold price in stages from $20.67 an ounce to $35 an ounce and stopped the demand deflation that was crushing the US economy. The improvement was immediate.
http://uneasymoney.files.wordpress.com/2011/09/glasner-ind-prod.jpg

However, he was also behind the National Industrial Recovery Act that made things a lot worse. The Act caused real and money wages to jump by 20% overnight, with government sponsored cartels perversely cutting back output to raise prices. The recovery was slowed to a crawl by the Act and the Supreme Court ruled it unconstitutional in 1935. The relapse back into depression 1937-38 was again monetary by raising the required reserves. So it is possible to look at the nuance and see some good and some bad. Unfortunately, the ideologues only see things in black and white.

In some respects, Churchill gets a bad rap for returning sterling to the WW1 parity. He suspected that it was a mistake all along and was talked into by Montagu Norman and City financiers. He wrote in his diary:

“The governor [Norman] shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed.”

Of course, the initial mistake was Britain fighting WW1 in the first place. However, fight it they did and Britain left her wealth squandered in muddy European trenches. Returning to the prewar parity was a ludicrous misjudgement when the price level was much higher. The City view that “the pound must look the dollar in the face” was completely wrong considering how much Britain had lost in WW1. Almost the entire 1920s was a Great Depression in Britain, but that fateful decision made things much worse and more importantly caused the Americans to follow bad policies to support sterling. Ultimately, Churchill was the man to make the decision and he did not have the backbone to make the correct decision. However, many powerful people were advising him that it was the correct decision. Moreover, the Conservative benches in the HoC erupted with cheers when he announced a return to the prewar parity during the budget speech.

As I said, arguments about fiscal policy during the Great Depression miss the point entirely. The problems were bad monetary policy. The Gold Standard per se did not cause the Great Depression. However, it did play a part in amplifying and spreading the problems. The Churchill decision, the insane gold hoarding by the Bank of France and later gold hoarding by the Americans were root causes. All the later things like protectionism and bad fiscal policies were symptoms rather than causes. If we really want to be pernickety all those later things would not have happened if Britain had not entered WW1. The Germans could have had their living space (lebensraum) by having France and the French could have moved to Quebec. The people who took Britain into WW1 were the real villains for later monumental suffering.

@26: “Hoover and Roosevelt took economic intervention by the state to new depths, and the result was a depression which lasted longer than any previous depression.”

The trough of the depression was in 1932/33 and the depth of that trough was unprecedented.

The Roosevelt administration came into office in January 1933. Thereafter the US economy grew steadily to 1937/38 when it dipped again after the Roosevelt administration tried to balance the federal budget.

We simply don’t know what the economy would have done had Hoover been re-elected in 1932. What we can tell from the charts is that the US economy was in free-fall from 1929 through 1932. Modern research puts the start of the fall in GDP before the stockmarket cash starting Black Thursday on 24 October 1929. Hoover had only come into office as president in January 1929.

The market had been on a six-year run that saw the Dow Jones Industrial Average increase in value fivefold, peaking at 381.17 on September 3, 1929. Shortly before the crash, economist Irving Fisher famously proclaimed, “Stock prices have reached what looks like a permanently high plateau.”
http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

Evidently, Fisher, the leading economist at the time, didn’t believe that Hoover had tipped the economy over the edge during the few months he had been in office as President. In September, Fisherr thought the economy was doing just fine. Andrew Mellon continued in his post as Treasury Secretary from 1921 through 1932.

Richard @31

Thanks for this brilliant exposition.

Once again, you prove that you are wasted on this site.

Just like Obama is stifling growth in the USA by stimulating the economy while the UK powers ahead on its programme of austerity…NOT

Hannan, of course is on record as orgasmically praising the Icelandic and Irish economies and the way they were run, just before they both went spectacularly pete tong. He is a true human bellwether of what works: just take the opposite view on everything he says and you’ll be right.

36. tigerdarwin

Hannan is a neo con.

There are close links with many Tories and the US Neo cons, indeed some funding streams to think tanks are the same. I think the TPA has some US funding.

They are licking their wounds in the US so they are concentrating on the UK.

This bollocks by Hannan is exactly what the Heritage Foundation

http://www.niacinsight.com/2010/01/15/neocon-think-tank-us-should-prepare-for-nuke-war-with-iran/

and other right wing think tanks have been pontificating in the US for years. Its revisionism at its worst.

These think tanks by the way are now gearing and arguing for a war with Iran.

Fantastic

37. tigerdarwin

The war on reality continues – reality, having as is well know, a liberal bias


Reactions: Twitter, blogs
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  2. Matthew Kerr

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  6. Owen Blacker

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  10. Thinkshift

    Amusing: Dan Hannan thinks austerity helped Great Depression …: Some events from the past can be inconvenient … http://t.co/RKRLUuVI

  11. Daniel Hannan

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

  12. Isaac

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

  13. Marcelo de Oliveira

    But their piece is full of references from the econ literature! Wait… RT @DanHannahMEP http://t.co/aYnscxmt

  14. Daniel Cook

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

  15. Lorri Martini

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

  16. Charlotte Woolven-B

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

  17. Daniel Harley

    There is an unintentionally hilarious piece on Hoover, FDR and the Depression here: http://t.co/8EPcenis

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