Bush = Hoover 2.0, Part 2 - “Hoover’s Socialism”
But not because of the reasons you may believe
Part I - “The False Claims” - Can be found HERE
Labor Market Intervention
Within a month of the peak of the stock market in September 1929, President Hoover began a campaign of coordination between industry and government that is still seen today. He was under the belief that falling wages would exacerbate the coming recession and that they must be held steady in order to preserve purchasing power.
Although rarely discussed today, Hoover’s first major step was to conference together most of the major industrial leaders of the day; from these conferences came agreements from the attendees to artificially hold their wage rates higher than the market demanded in order to prevent depression. This agreement he contended would prevent purchasing power from falling and thus prevent demand from falling, therefore preventing the economic downturn. On December 3rd, Hoover stated to Congress-
I have instituted … systematic … cooperation with business … that wages and therefore earning power shall not be reduced and that a special effort shall be made to expand construction … a very large degree of individual suffering and unemployment has been prevented.
This action - the boldest non-war intervention into the labor markets in American history - did exactly what it was aimed at preventing, an intensification of the downturn. The effects of this were an government created loss of profitability of the major firms (thus putting firms out of business ), an overpricing of labor (thus pushing up unemployment), and a prevention of the reallocation of the resource of labor from their previously unsustainable, boom time allocation.
Beginning in 1930 it was apparent that the downturn was intensifying and spreading beyond the brokerages on Wall Street. Instead of reverting to the tried and true methods of the past, which meant liquidation of malinvestment and the destruction of some unprofitable enterprises, Hoover took the opposite approach and began to escalate efforts to stave off a prolonged downturn.
The next step Hoover took that intensified the downturn was involvement in the industry of agriculture, which at the time represented a much greater share of the overall economy when compared to today. The Federal Government had, since the mid 1910s, been highly involved in the agricultural markets. The normally laissez faire President Calvin Coolidge stated that the government “must encourage orderly and centralized marketing” in agriculture. His policies reflected that belief and had the effect of preventing agricultural prices from falling to their natural market levels, creating artificially high levels of production prior to the economic downturn. In 1929 the Agricultural Marketing Act was passed, from which Hoover established the Federal Farm Board (FFB). The actions of this board were most profound in the wheat markets. At one point wheat prices were 50% lower in Canada than the US due to the price supports, thus effectively ending the ability of American farmers to sell abroad. By the end of the Hoover Administration over $300 million (equivalent to $42 Billion today as % of GDP) was spent on buying wheat off the market, much of which was destroyed or dumped overseas, at a time when Americans were beginning to struggle to feed their families. The details of the interventions of the Hoover Administration into the agricultural markets are too long to give justice to in this article, but the effects were nothing short of complete cartelization agriculture with the Federal Government and its agents directly controlling nearly every facet of the marketplace. The 30’s legacy of agricultural socialization should be attributed to Hoover not FDR.
The Infamous Smoot-Hawley Tariff
In ill conceived effort to stimulate domestic production to help alleviate the economic downturn and to help prop the before discussed agricultural market manipulation, President Herbert Hoover signed a “Christmas in June” protectionist act that raised the tariff on over 20,000 imported goods. In spite of a petition of 1,000+ US economists opposing the legislation as counter productive, the President willingly signed the legislation which brought import tariffs to record levels. The legislation sparked worldwide protectionist retaliations. Jakob B. Madsen (2002) estimated the effects of increasing tariff and non-tariff trade barriers on worldwide trade during the period 1929–1932. He concluded that real international trade contracted somewhere around 33% overall. His estimates of the impact of various factors included about 14% because of declining GNP in each country.
Many important policies, including the issues of money, credit, and the Federal Reserve, were unfortunately not outlined in this article, but it is clear the policies of Hoover were by no means laissez faire. They were by most all counts socialistic in nature when compared to any previous President. The notion that President Herbert Hoover sat in the Oval Office and watched the economy cascade into a decade long depression and did nothing to stop it must be rejected. President Hoover laid the foundation for the election and the New Deal, not through inaction, but through too much action which prevented the normal liquidation of malinvestment and reallocation of scare resources. If he had taken the laissez faire policy of years past then the economy would have crashed in 1930 and likely been on a rebound by the 1932 election. America would be a radically different nation. The parallels between Bush’s efforts prevent the inevitable liquidation of bad debt are ringing eerily similar to the efforts of Hoover.
Continued with Part III - “Bush’s Parallels to Hoover”
Also - I would like to give thanks and credit to Murray Rothbard and his book America’s Great Depression for providing some quotes and figures key to this series of articles