Wednesday, June 22, 2011

Republicans Now Think Herbert Hoover was Wrong

On his blog yesterday, Andrew Sullivan bemoaned the fact that Republican economic orthodoxy is preventing a reasonable deficit reduction deal:

The notion that Herbert Hoover was right has become quite a dogged meme on the reality-challenged right. It's bonkers.

He's half right--Republican orthodoxy that "government spending kills jobs" is "bonkers." But he's wrong that the right thinks Hoover was correct.  It's worse than that--they think he was wrong, but not in the way we usually think.

The conservative consensus is not that Hoover was right and Franklin D. Roosevelt was wrong--it is that Hoover and Roosevelt were essentially the same and both were wrong.

The book most responsible for this "revisionism" is The Forgotten Man: A New History of the Great Depression by Amity Shlaes. Despite the subtitle, Shlaes is not a historian.  She is a financial columnist. But her book on the Depression, because it fits the right's ideological predispositions, has become the conservative bible on how not to deal with economic depressions.

Shlaes, making the conservative argument against government efforts to combat depression, lumps the two presidents together:

From 1929 to 1940, from Hoover to Roosevelt, government intervention helped make the Depression Great.

While this characterization would surprise both men, it is the conventional wisdom on the right these days.

The Forgotten Man is the popularization of a position pushed by the libertarian Ludwig von Mises Institute.  An article on their website, titled "Hoover's Attack on Laissez-Faire," makes this argument:

Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez-faire canons.

According to this view, there was no appreciable difference between Hoover and FDR.  Both were "progressives" who together led the U.S. down the primrose path to economic perdition.

There is some kernel of truth in this. Historian Joan Hoff Wilson's book Herbert Hoover: Forgotten Progressive makes the argument that Hoover has been caricatured as a knee-jerk devotee of laissez-faire, when in fact he tried to combat the depression.

Hoover indeed had more in common with the Theodore Roosevelt progressive wing of the Republican Party than the Warren Harding/Calvin Coolidge/Andrew Mellon pro-business wing that dominated the 1920s and set the stage for the depression.

The laissez-faire right has seized upon this interpretation to explain away an inconvenient truth: the fact that the depression deepened and reached its worst depths during the presidency of a Republican, and then improved under FDR. If the New Deal was so terrible (an article of unquestioned dogma on the right), then how can this be?

The answer is to transform Hoover into the "the founder of the New Deal."

That's only half of the equation, however. By morphing Hoover into FDR, they maintain the illusion that government intervention worsened the depression. But how to prove that laissez-faire ends depressions?

Enter the "forgotten depression" of 1920. The same article quoted above compares Hoover's attack on laissez-faire to the policies of Harding and Mellon in the early 1920s:

In the 1920–1921 depression, ... wage rates were permitted to fall, and government expenditures and taxes were reduced. And this depression was over in one year — in what Dr. Benjamin M. Anderson has called "our last natural recovery to full employment."

Glenn Beck has popularized this view with videos such as this one, in which he makes the explicit case that "bailouts" and "stimulus" are precisely the wrong ways to approach economic downturns--instead, large tax cuts and draconian budget cuts are the solution.

And that, of course, is the faith-based economic policy of the Republicans today.

You could hardly ask for a better example of the influence of the popular perception of history on contemporary politics. Shlaes' book became the economic bible for Republicans in this recession. A concerted effort by libertarian economists over many decades up-ended the conventional historical wisdom.

Their view is now the orthodoxy of a political party with effective veto power over fiscal policy due to its control of the House. They control the debate. They seem poised to use the debt limit to force their view on all of us.

We may be on the verge of testing their theory. And the beauty of it all politically is that if they are wrong, they can still blame President Obama for the worsening economy, and ride the failure of their economic theory to political victory in 2012.

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