It is important to remember that recessions are cyclical and can hit in any administration regardless of their policies. However, the length and magnitude of a recession can be indicative of presidential policy. In 1929, when the Great Depression started, it was for the first year merely a common recession. It was therefore, Hoover policies of pro regulation and anti-laissez-faire that turned the recession into a Depression. Remember, Hoover was trained in the Woodrow Wilson administration and had been greatly influenced by the policies leading to the reconstruction of Europe after World War I.
Hoover’s initial reaction to deal with the recession was to promote volunteering efforts. This policy should sound familiar; it is a policy that President Obama has been preaching. Obama wants to reward volunteers with government subsidies and entitlements to carry out his ideology. Obviously, this Hoover policy was misguided and flawed at best. After all, even a strong community volunteer effort alone would not rescue the United States from a full blown recession.
In 1930, Hoover had some bad luck that made the current recession worse. That year, the Midwest was hit with a massive drought that destroyed the agriculture business sector. Once the agriculture business sector collapsed, it began to have a ripple effect on the entire economy. Hence, the recession got worse and Hoover began to realize that he had to act.
Hoover’s first mistake was passing the Smoot-Hawley Tariff Act in 1930 which placed a tax on over 20,000 goods imported by the United States. The act’s intent was a form of “protectionism policy” to force American citizens to buy American made products. Of course, our global trade partners around the world retaliated and placed higher tariffs on American products they imported. Hoover’s action only resulted in higher prices for goods and services around the world and therefore, made the recession not only worse in the United States, but around the globe. Hoover’s second mistake was passing the “Estate Tax” and the “Check Tax”. The Estate Tax doubled taxes on estates and the Check Tax placed a 2 cent tax on every check drafted. The Check Tax is partly to blame for the 5000 banks that failed during the depression. By this time, the United State and the world were no longer in a recession, but a depression. And let’s not forget the negative impact of the Federal Reserve (Fed) on the depression. The Fed was created in 1913 by Woodrow Wilson to protect the American economy. However, first, the Fed failed to prevent the 1929 recession and secondly, it failed to mitigate the recession once it started. During the Great Depression the Federal Reserve tightened money supplies because it feared inflation. Thus, it was nearly impossible for anyone to receive a loan. As money dried up, the recession got worse.
By 1932, Hoover was desperate because all of his policies had failed miserably and the economy continued to get worse. As federal government revenues fell dramatically and U.S. debt got worse, Hoover proposed the Revenue Act of 1932. This act raised the taxes on wealthy Americans from 25% to 63% and corporate taxes were increased as much as 15%. Obviously, this policy limited consumer spending and led to even further unemployment. To make matters worse, Hoover passed the Emergency Relief and Construction Act. This act put aside expenditures to start public work projects. Many believe the New Deal started under FDR, they are wrong. The New Deal started with this act under Hoover, FDR only expanded Hoover’s policy. After all, it is called the Hoover Damn, not the FDR Damn.
During the 1932 election campaign season FDR attacked Hoover for spending and taxing too much. FDR’s running mate even had the audacity to claim that Hoover policies are leading us down the road to socialism. Once elected, FDR would increase taxes and spending on public work projects. Needless to say, the American economy never fully recovered from the 1929 recession until full employment ensued during World War II.
Historians can blame Coolidge for the Great Depression, but anyone who looks at the facts knows they are misguided. I have lived my life believing and practicing Coolidge philosophies of fiscal constraint and personal responsibility. It has worked for me; as it worked for Americans during the Roaring 20s.
My Book: Is America Dying? (Amazon.com, Barnes and Noble)
No comments:
Post a Comment