How should we evaluate Herbert Hoover? By Scott Sumner

The Economist recently reviewed a biography of Herbert Hoover:

Why was it that Hoover, hitherto so talented at overcoming crises, was unable to overcome the Great Depression? Perhaps he had come to believe his own propaganda about ordinary people collectively solving problems without government aid. Or maybe the scale of the problem was too great even for someone of Hoover’s abilities. Mr Whyte does an excellent job of describing the qualities that brought Hoover his early successes–but provides too little guidance as to why, in the end, he failed his severest test.

Hoover is widely regarded as one of the most talented people ever to serve as President of the United States. He was very successful in business, and also in managing complex and difficult relief efforts in Europe (during and after WWI). He was clearly a highly skilled individual.

Elsewhere I’ve argued that people tend to overestimate the influence of the President over the economy (or anything else.) And that’s still my view. But I also think it needs to be said that to the extent that Hoover did have influence, he almost invariably got things wrong:

1. He supported inefficient farm policies.

2. He advocated much higher taxes on the rich (in 1932).

3. He signed the Smoot Hawley tariff in 1930.

4. He opposed tinkering with the gold standard (until it was too late.)

5. He was not a good leader.

There’s a big difference between being a good manager or entrepreneur, and being a good politician. Hoover may have been very good at putting together resources in order to achieve a well-understood goal, but not at all good at identifying the proper goals of government. Lots of very smart people thought that his policy views were quite sensible. But they weren’t.

Given the fact that (under the gold standard) Presidents had only limited control over monetary policy, I view Smoot Hawley as Hoover’s biggest mistake. In the US, industrial production fell by 12.3% between July 1929 and December 1929, and then by only 2.3% between December 1929 and April 1930. Stocks rose strongly during the latter period. Thus the Depression was not yet “Great” in the early spring of 1930. Things seemed to be stabilizing a bit. So what went wrong?

During the spring of 1930, stocks fell repeatedly on news that Smoot-Hawley was progressing through Congress. In June 1930, stocks saw their biggest single day plunge of the year on the day following Hoover’s decision to sign Smoot-Hawley. (This despite the fact that Hoover was expected to sign the law—but there had been some uncertainty about this due to his reputation as being a “globalist”.) If Hoover had vetoed the bill then stocks likely would have soared dramatically higher, and an international trade war would have been avoided.

The economy did extremely poorly after the spring of 1930, with industrial production plunging by another 17.3% between May and December 1930.

Most economists don’t agree with my view of Smoot-Hawley, as the tariff itself was not all that consequential. It made the US economy a bit less efficient, but nothing even close to explaining the severity of the Great Depression. What they miss is the way that Smoot-Hawley interacted with monetary policy to produce a decline in “animal spirits” (aka NGDP growth expectations.) So yes, the Depression was primarily about bad monetary policy leading to falling aggregate demand, but Smoot-Hawley played an indirect role. There is no “monetary offset” under a gold standard.

It’s true that the gold standard has a stabilizing feature that we lack today—level targeting—but that mechanism was weakened after WWI, when central banks propped up the global price level to a position nearly 50% above pre-WWI levels. Thus there was plenty of room for prices to fall before the stabilizing properties of the gold standard kicked in.

Of course Hoover didn’t understand any of this, and why should he have? If FDR had been elected President in 1928, he might also have gone down in history as a failed president. His one successful policy (dollar depreciation) would have been politically unacceptable in 1930. And FDR’s other policies made the Depression worse. The one area where he would have clearly done better is trade; FDR probably would not have supported Smoot Hawley.

So was Hoover a victim of bad policies or bad luck? Both.