Wednesday, October 1, 2008

George W. Bush, Herbert Hoover, and the Great Depression

George W. Bush has not been a very popular President. Many Republican Party members believe he has not done enough to push their religious agenda, or believe he has run up too big of a national deficit. Democratic Party members hate him because he is a Republican.

Now, on top of all that, there is the distinct possibility that George W. Bush will be tarred with an economic recession serious enough to be called a Depression. A serious recession may still be averted, but it is not unreasonable to contemplate Herbert Hoover at this time.

Hoover was Secretary of Commerce in the early 1920's and was elected President in 1928 by a landslide. He was an impressive guy. His background was humble. He became an engineer. Then while working in that capacity in China he was fated to deal with a humanitarian situation. After that he was frequently tapped to deal with large scale humanitarian food crises. He was probably the best-known humanitarian of his times. Because the Republican Party had become synonymous with economic prosperity in the 1920's and because he was personally popular, in the 1928 election Herbert Hoover carried every state in the Union except Rhode Island, Massachusetts, and 6 states in the Democrat-dominated racist Deep South.

When the stock market "crashed" in October 1929, no one thought that much about it. I once went back and read Wall Street Journal from that era, and no one said "Hey, this could be the start of a Great Depression." It was a market correction; everyone knew that stock prices were in a bubble, just like the Internet bubble that burst in 2001. Herbert Hoover did not burst the stock market bubble of 1929. George W. Bush did not burst the Internet bubble; he just happened to be President when enough people realized the party was over.

1930 was not a particularly bad year for the economy, just an ordinary recession year. So neither Hoover nor Congress did anything extraordinary. In the Congressional elections in the Fall of 1930 the Democratic Party did well, partly because of the recession and partly because the Republican Party had been in power for such a long time. The Democrats gained control of the House of Representatives, but the Republicans held on to the U. S. Senate.

As the economy worsened in 1931, Hoover tried to do more, including various kinds of aid for the unemployed and new public works projects, but Congress was not cooperating. Remember that they still did not know they were in anything but an ordinary recession. The Democrats in Congress were not New Deal Democrats. Many were segregationists from the South; many represented conservative business interests. The Democrats had little reason to cooperate with Hoover, and the most conservative Republicans, who saw Hoover as a flaming liberal, did not want to spend any taxpayer money on relief for those suffering from the recession.

In early 1932 the Reconstruction Finance Corporation was formed, but Congress underfunded it. It would later become the cornerstone of the New Deal.

In simplistic histories, especially those written by liberal academics, Hoover is said to have been a conservative, do nothing President. Certainly in the Presidential election of 1932 the Democrats and Franklin Delano Roosevelt blamed the nation's economic troubles on the Republicans and Herbert Hoover. That is what partisan politicians do.

Will we see history repeat itself this year? Apparently the public at large is really mad about the plan to restore the credit markets. The Press and certain politicians have characterized it as a bailout of Wall Street. I am not for giving money to the rich, but I don't see restoring credit markets as a giveaway program.

Many institutions are in place now that were not there when the Great Depression got underway in late 1932. We have Social Security and Unemployment Insurance, both of which allow many people to spend money during recessions.

The main negative difference, and where the danger lies, is that in 1928 the U.S. had almost no national debt. Right now we have a national debt that makes me wonder at the folly of people who are buying U.S. Treasury bonds as if they are a truly safe haven in times of distress. Failure of the U.S. government to pay its obligations is no longer unthinkable.

So let's not go there. The crisis should be a lesson to all of us (and businesses in particular): don't get into debt you can't do without. We have seen again that the adage, "A banker is a guy who will lend you an umbrella when it is sunny and ask for it back when it is raining," is just the nature of things.

Like him or not (I don't) George W. Bush is President, and that means his administration is charged with dealing with the crisis. Sabotaging Bush in this situation, because he is disliked for other reasons, is appallingly stupid. In a few months he's history. Let's hope when a new President takes office the economy is still functioning.

If there is a serious recession getting underway, it will be interesting to watch the blame game. It is funny to see House Republicans pretend they are suddenly all against Wall Street, but then I guess that, too, is what politicians do.

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