Barack Obama as Herbert Hoover
This is a post I originally posted over at Yves Smith’s site, Naked Capitalism, a few weeks back just before the G-20 meeting. My intent here is not to malign Obama, Roosevelt or Hoover or make facile comparison but to identify important differences between the economic situation facing Obama and the one that faced Roosevelt.
In my view, Obama faces a situation more akin to the one Herbert Hoover was forced to deal with because the economy is sill bottoming, unemployment is still rising and consumer spending is still falling. On the other hand, Roosevelt had the advantage of coming into office just as recession ended. This is an important difference in terms of political and economic constraints.
Here’s the original post below.
For months now, we have been hearing the Obama – FDR comparisons, all suggesting that Barack Obama is a modern day Franklin Delano Roosevelt, with the opportunity to lead us out of Depression with a new New Deal. I have some serious problems with this comparison. In my view, a comparison between Barack Obama and Herbert Hoover is more apt.
Let’s look back at the Depression for a second. Now, if you recall, Herbert Hoover became president in March 1929 when signs of a slowing economy were evident. By August 1929 recession hit.
This recession turned into the Great Depression, with the economy hitting bottom in March 1933. So, the entire recession we remember as being the depths of the Great Depression occurred while Herbert Hoover was President, not during FDR’s presidency.
Fast forward to December 2007 when this recession began and we can see that George W. Bush presided over one year of recession. So, Obama comes into office during recession unlike Hoover, but also unlike Roosevelt. However, the key difference here is that the economy had already hit bottom when Roosevelt entered and is continuing to worsen for Obama.
What historical period should Obama be looking to then? Clearly, he should be looking to Hoover. And I believe this is very important with the G-20 right around the corner. Any number of pundits from Simon Johnson to Wolfgang Munchau will tell you the G-20 summit will be a big failure. While the Americans are trying to reflate the bubble and bring back the same unbalanced system which got us here, the Europeans are putting their heads in the sand, wishing all of this would go away.
And that’s not a good thing at all. If one thinks back to Hoover again, after a long period of globalization, an interconnected world meant problems in one country quickly became manifest elsewhere. The world’s major nations failed to come together and build a common solution. Some thought themselves immune. But, when the depths of Depression finally came, it was little Austria which ushered it in. And soon, depression was everywhere.
This was 1931. Herbert Hoover was president, not Franklin Roosevelt.
Business Cycle Expansions and Contractions – NBER
Pathetic. Hoover & Roosevelt both ran their campaigns promising a balanced budget.
This is a very good observation. With the recession still young and the economy still falling, Obama is running into a mainstream of opinion (including his own) that does not yet appreciate the seriousness of the economic situation. So there is a tendency to do things in small measures, while promising to reduce the deficit next year. Wall Street is bloodied but unbowed. The electorate is unhappy, but has no clear direction. The economy probably won’t bottom for another couple of years, at which point Obama will be looking like a one-termer unless he comes to grips with the Hooverian seriousness of the situation…
Dan: there are two Hoover comparisons here. The one has to do with government spending and taxation where the ideological battle is waged. While I try to see both sides of that issue, I see a need to move away from overinvestment in financial services and real estate and that is going to lower aggregate demand. The government can fill in some of the gap, but it is essential this overinvestment is eliminated.
The other comparison is the one I am making here which is non-ideological. Obama is much earlier in the economic cycle. I also think he is earlier in the secular cycle as well (akin to 1937 or 1974 versus 1982 for example). This means he needs to act differently rather than depending upon stimulus to pull him through.
Agree on the overinvestment in financial and real estate, but as to the demand side of the equation, what other than stimuli – and I mean de jure jobs creating stimuli – can he do. If he does nothing in this latter area, he indeed risks the plunge the 1937 economy took. Michael Hudson discusses these questions in detail today at Counterpunch:
Your take on his analysis?
I linked to the UMKC econ blog version of that article. He’s on the money. I don’t see any way out of this without a hiccup in GDP. But the goal is to redirect resources away from FIRE toward the real economy. My preferred way was through public sector investment but that’s a non-starter now.
Marshall may have more ideas here.
My recent post on what Obama can do to improve the economy gives you a taste of the possibilities.
Typo first sentence. April 2009 (as your subtitle correctly indicates)
This remains an important analogy. I wish Prof Krugman understood your point.
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