Obama Peddles Myths About the Great Depression: No, Hoover Didn’t Cut Taxes or Spending
Herbert Hoover increased marginal tax rates on the wealthy to 63 percent, and more than doubled government spending as a percentage of the economy. But in his political speeches, President Obama continues to falsely claim that Hoover gave “tax cuts” to the rich and slashed the government to promote “trickle-down economics.” In his November 14 remarks at a campaign event in Ko Olina, Hawaii, Obama said:
So this competition for new jobs and businesses and middle-class security, that’s the race I know we can win. But you don’t win it by saying every American is on their own. We’re not going to win it if we just hand out more tax cuts to people who don’t need them, let companies play by their own rules without any restriction, and we just hope somehow that the success of the wealthiest few translates in the prosperity for everybody else.
We have tried that, by the way. We tried it for 10 years. It’s part of what got into the mess that we’re in. It doesn’t work. It didn’t work for Herbert Hoover, when it was called trickle-down economics during the Depression. It didn’t work between 2000 and 2008, and it won’t work today.
Obama is dead wrong. Data from the White House’s own website shows that Hoover increased, rather than cut, spending in the Great Depression, and ran up deficits that were huge by historical standards.
That is illustrated in Table 1.1 on page 21 of a document on the White House’s website, a document entitled, “Historical Tables: Budget of the United States Government, Fiscal Year 2009.” It shows that Hoover increased the federal budget from $3.1 billion in 1929, the year he took office (and the Great Depression began), to $4.7 billion in 1932, his last full year in office, and $4.6 billion in 1933, the year he left office. The budget deficit went from a surplus in 1928 to a deficit of $2.7 billion in 1932. Table 1.2 on page 24 of that document shows that government spending and deficits rose considerably as a percentage of the economy under Hoover. (See Table 1.2, “Summary of Receipts, Outlays, and Surpluses or Deficits (–) As Percentages of GDP: 1930-2013)” and Table 1.1, “Summary of Receipts, Outlays, and Surpluses or Deficits (–): 1789–2013)”). By 1932, the government was spending more than $2 for every dollar that it took in.
Newspapers such as the Richmond Times-Dispatch and Washington Times also have noted that Hoover actually increased spending during the Depression. Financial writer Megan McArdle of The Atlantic noted that Hoover more than doubled federal government spending as a percentage of GDP, increasing spending even as the economy shrank and deflation occurred. I have made the same point in The Washington Post, New York Times, and many other newspapers (see here, here, here, and here), citing “data from the federal Office of Management and Budget.” But Obama seemingly does not read newspapers, or even his own budget requests (which contained these figures).
I explained how the federal government worsened the Great Depression, and slowed the inevitable economic recovery, at this link. Hoover aggravated the Great Depression by signing the massive Smoot-Hawley tariff increase, which sparked trade wars that wiped out most of the jobs in America’s export sector. Franklin Roosevelt slowed the recovery from the Depression by pushing through costly new labor laws (like the NLRA, which led to a wave of costly strikes in 1937-38), imposing an undistributed profits taxes on business that discouraged investment, and trying to centrally-plan and cartelize the economy through the NIRA (which the Supreme Court struck down in the Schechter Poultry case), among other things.