Monday, March 9, 2009
Romer Adds to the Near-Lying About the Hoover Record
What is it about these Keynesians? Why can't they just admit that Herbert Hoover ran unprecedented (peacetime) deficits, and then claim they didn't work because they were too little? That would be a decent argument.
Instead, they keep repeating the myth ("lie" is a strong word, since it implies that the people realize the facts) that Hoover ran balanced budgets. Here is Obama's head of the Council of Economic Advisers Christina Romer (pdf) in her just-released paper, "Lessons from the Great Depression for Economic Recovery in 2009" (HT2 Greg Mankiw):
Again, it would be difficult to be more misleading without actually lying. Her statement sure as HECK makes it sound like Hoover ran a balanced budget (or very close), and that he jacked up taxes to keep it balanced, doesn't it?
Well go again to my new favorite website and check out the Hoover record. Note in particular the column saying Deficit as a % of GDP.
Now here's the really fun part. Look back up there again. Romer pooh poohs Roosevelt's "unprecedented" deficit spending because it only bumped up the deficit as a percentage of GDP from 4.5 to 5.9 from (fiscal) 1933 to 1934.
Hmm. Budget-balancing, arch conservative, liquidationist Herbert Hoover increased the deficit by 3.4 percentage points from 1931 to 1932. So on Romer's own measure of wild-spending Keynesian, Herbert Hoover was twice as bold as FDR.
I'd like to say she stopped looking at the data at 1933, and so didn't know what Hoover had done with the deficit after the stock market crashed... But then how could she responsibly inform us that balanced budgets had been the norm before FDR?
P.S. I stopped reading Romer's paper at this point. If she clarifies later on, someone please let me know and I will apologize for my strong words.
Instead, they keep repeating the myth ("lie" is a strong word, since it implies that the people realize the facts) that Hoover ran balanced budgets. Here is Obama's head of the Council of Economic Advisers Christina Romer (pdf) in her just-released paper, "Lessons from the Great Depression for Economic Recovery in 2009" (HT2 Greg Mankiw):
One crucial lesson from the 1930s is that a small fiscal expansion has only small effects....The key fact is that while Roosevelt's fiscal actions were a bold break from the past, they were nevertheless small relative to the size of the problem. When Roosevelt took office in 1933, real GDP was more than 30% below its normal trend level....The emergency spending that Roosevelt did was precedent-breaking--balanced budgets had certainly been the norm up to that point. But, it was quite small. The deficit rose by about one and a half percent of GDP in 1934. One reason the rise wasn't larger was that a large tax increase had been passed at the end of the Hoover administration. Another key fact is that fiscal expansion was not sustained.
Again, it would be difficult to be more misleading without actually lying. Her statement sure as HECK makes it sound like Hoover ran a balanced budget (or very close), and that he jacked up taxes to keep it balanced, doesn't it?
Well go again to my new favorite website and check out the Hoover record. Note in particular the column saying Deficit as a % of GDP.
Now here's the really fun part. Look back up there again. Romer pooh poohs Roosevelt's "unprecedented" deficit spending because it only bumped up the deficit as a percentage of GDP from 4.5 to 5.9 from (fiscal) 1933 to 1934.
Hmm. Budget-balancing, arch conservative, liquidationist Herbert Hoover increased the deficit by 3.4 percentage points from 1931 to 1932. So on Romer's own measure of wild-spending Keynesian, Herbert Hoover was twice as bold as FDR.
I'd like to say she stopped looking at the data at 1933, and so didn't know what Hoover had done with the deficit after the stock market crashed... But then how could she responsibly inform us that balanced budgets had been the norm before FDR?
P.S. I stopped reading Romer's paper at this point. If she clarifies later on, someone please let me know and I will apologize for my strong words.
Comments:
Not only she does NOT clarify anything on that matter later on, but she actually states such @#!%@# as (pg. 5):
"While the direct effects of fiscal stimulus were small in the Great Depression, I think it is important to acknowledge that there may have been an INDIRECT effect. Roosevelt's very act of doing something must have come as a great relief to a country that had been suffering depression for more than three years. To have a President step up to the challenge and say the country would attack the Depression with the same fervor and strength it would an invading army surely lessened uncertainty and calmed fears. Also, signature programs such as the WPA that directly hired millions of workers no doubt contributed to a sense of progress and control. In this way, Roosevelt’s actions may have been more beneficial than the usual estimates of fiscal policy suggest. If the actions President Obama is taking in the current downturn can generate the same kind of confidence effects, they may also be more effective than estimates based on conventional multipliers would lead one to believe."
"While the direct effects of fiscal stimulus were small in the Great Depression, I think it is important to acknowledge that there may have been an INDIRECT effect. Roosevelt's very act of doing something must have come as a great relief to a country that had been suffering depression for more than three years. To have a President step up to the challenge and say the country would attack the Depression with the same fervor and strength it would an invading army surely lessened uncertainty and calmed fears. Also, signature programs such as the WPA that directly hired millions of workers no doubt contributed to a sense of progress and control. In this way, Roosevelt’s actions may have been more beneficial than the usual estimates of fiscal policy suggest. If the actions President Obama is taking in the current downturn can generate the same kind of confidence effects, they may also be more effective than estimates based on conventional multipliers would lead one to believe."
Wow. I am virtually certain that Hoover used the war metaphor himself, and with some justification--inasmuch as he broke with the laissez-faire policies of his predecessors.
I'm glad I stopped reading. Are you seeking counseling, Matej?
I'm glad I stopped reading. Are you seeking counseling, Matej?
Bob,
Good stuff. I don't have the time but I suspect that Roemer changed her view on the multiplier also. Mankiw linked to some stuff early on about Roemer after she was named head of CEA where I'm pretty sure he referenced a study by her that showed the multiplier was pretty close to 1.0.
I suspect she flipped on all this stuff after joining Team Obama. If someone has the time, there is some important research to be done here.
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Good stuff. I don't have the time but I suspect that Roemer changed her view on the multiplier also. Mankiw linked to some stuff early on about Roemer after she was named head of CEA where I'm pretty sure he referenced a study by her that showed the multiplier was pretty close to 1.0.
I suspect she flipped on all this stuff after joining Team Obama. If someone has the time, there is some important research to be done here.
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