Left-wing economist Thomas Piketty is treated like a “rock star” by many progressives for giving a veneer of legitimacy to the economic myths they cling to. But his false claims about economic history are refuted by readily available facts and figures (such as historical data you can find in the tables at the end of federal budgets submitted in recent years by presidents such as Obama).
Economist Robert Murphy recently debunked Piketty’s false assertions about the Great Depression. In his wrongly acclaimed book Capital in the Twenty-First Century, Piketty made the following claims on pages 506-507:
[T]he Great Depression of the 1930s struck the United States with extreme force, and many people blamed the economic and financial elites for having enriched themselves while leading the country to ruin. (Bear in mind that the share of top incomes in US national income peaked in the late 1920s, largely due to enormous capital gains on stocks.) Roosevelt came to power in 1933, when the crisis was already three years old and one-quarter of the country was unemployed. He immediately decided on a sharp increase in the top income tax rate, which had been decreased to 25 percent in the late 1920s and again under Hoover’s disastrous presidency. The top rate rose to 63 percent in 1933 and then to 79 percent in 1937, surpassing the previous record of 1919.
But as Murphy pointed out:
(1) The top rate was lowered to 25 percent in 1925, not exactly “the late 1920s” and certainly not by Herbert Hoover.
(2) The top rate was jacked up to 63 percent in 1932, not 1933, and it was done by Herbert Hoover, not by FDR. (Note that the 63 percent rate applied to the 1932 tax year, so we can’t rescue Piketty by saying he was referring to the first year of impact rather than the passage.)
(3) The top rate was raised to 79 percent in 1936, not 1937. . .
Now if there had just been one instance of Piketty being off by a single year, I would excuse it by saying maybe he got mixed up in interpreting how US tax laws work. But to say (or did he merely imply?) that Hoover was the one to lower tax rates to 25% is just crazy; Hoover wasn’t inaugurated until March 1929, and the top rate was lowered to 25% back in 1925.
Furthermore, notice that this isn’t an “arbitrary” screwup on Piketty’s part: On the contrary, it serves his narrative. It would be really great for Piketty’s story if the right-wing business-friendly Herbert Hoover slashed tax rates to boost the income of the 1%, thereby bringing in a stock bubble/crash and the Great Depression. Then FDR comes in to save the day by jacking up tax rates. Except, like I said, that’s not what actually happened.
As Megan McArdle noted years ago in 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.
In 2011, I wrote about how the federal government worsened the Great Depression, and slowed the inevitable economic recovery, at this link. President Herbert 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. Hoover’s successor, 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.
The Financial Times, which is slightly left-of-center (for example, it endorsed the unsuccessful Labor Party candidate for UK Prime Minister in 1992), has also found fault with Piketty’s book, noting that “a Financial Times investigation” found that the “French economist appears to have got his sums wrong. The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets.”