Good question. And one that bears directly on the kind of employment depression we are continuing to experience today.
The article below, a review of a new book by Charles Rappleye, is titled “In Defense of Herbert Hoover.” The reviewer, David Bahr, is right that historians have mostly made a muddle of the start of the Great Depression and the Hoover presidency. But he is wrong that Hoover deserves rehabilitation.
The standard story, taught in most high schools and repeated by Bernie Sanders during his recent campaign, is that Hoover refused to do anything as the Depression broke. Finally in 1933 Franklin Roosevelt responded energetically and brought it to an end. Neither statement has a shred of truth to it. Hoover dramatically intervened in the economy to stop the slide. His worst mistake was threatening businesses to prevent them from cutting wages in response to falling prices. This forced employers to lay off much of their work force to avoid bankruptcy. Everything wrong that Hoover did, Roosevelt did even more of, and as a result the economy could not recover. This is in contrast to the equally severe 1921 Depression. In that case, neither Fed nor President intervened and it was over in 16 months.
One of our two presidential candidates in economic campaign speeches repeats this same old Hoover/Roosevelt fallacy that forcing wages higher will help the economy. The reader can guess which one. If forcing higher wages, why not just pass a law doubling wages? Why stop even there? Why not triple or quadruple them? The truth is that wages are an economic cost and all costs must be in balance with prices in order to ensure that revenues cover costs. The balance is what creates jobs and raises. It is tragic that almost a century after the Great Depression even a presidential candidate can be so economically illiterate.
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