[Defiant]

I've looked at the record of Hoover's response to the 1929 stock market crash and the events that followed, and it seems that his every impulse was interventionist and Keynesian, before there was Keynes. I have also reviewed the situation facing Harding, and it was pretty bad. Their response was to get government out of the economy, to eradicate the interference by Wilson in the market. Harding's approach worked, Coolidge followed it up brilliantly, and the country prospered. Hoover made a bad situation worse, and then Roosevelt made it into a never ending depression. Just like Bush and Obama.

Hoover was firmly in the progressive wing of the GOP. That cannot be doubted, and it colored the difference in his reaction to economic problems. One of the best books I have read about this was "The Forgotten Man" by Amity Shlaes. It describes in detail the programs that Hoover was putting in place to "fix" the problem, and they were all big government responses to a cyclical problem that made a problem far worse than it should have been.

[Pelham]

The 1929 Crash is what people often focus on but it’s really not what caused the Depression. The culprit was the collapse of the banking system, which is far less known except to economic historians. It doesn’t have the attention grabbing cache of a good stock market crash. A banking collapse is more like watching a slow motion mud slide.

The Keynesian response by Hoover and FDR gets greatly exaggerated, mostly because the government’s portion of GNP back then was less than 10%. More like 5%-6% at the beginning. By contrast, in the post-WWII era, government’s portion of the GNP has never been below 15%. 18%-23% has been typical IIRC.

There simply wasn’t a massive amount of government spending because the starting point was too low. It was way more than what people had been accustomed to, but it’s astonishingly low compared to what we think of as normal in our lifetime. The heavy gov’t spending in the runup to WWII was the jump start that finally gave many people their jobs back. People like to bitch about it but gov’t spending does serve as a stabilizer during times of serious recession, when private firms will logically be cutting back and laying people off.

I haven’t read Schlaes’ book but I’ve heard interviews with her about her subject. She likes to equate the depression of 1921 with that of 1930, but there was no systemic banking collapse in 1921. And that is a huge difference. The only other time that we have had a major threat to the banking system is during our recent 2008 financial crisis. Bernanke is a student of Friedman and Schwartz’s writing on the ‘The Great Contraction’ and he implemented the policies that the Fed failed to do in 1930-33. That, and the existence of FDIC, may well have protected us from something far closer to the experience of the 1930s.