An interesting observation by Ezra Klein in the Washington Post:
I think there’s an argument to be made that Herbert Hoover gets a bit of a bum rap, but even a more sympathetic analysis would not leave the 31st President’s economic policies looking particularly good. And yet Hoover has won. Read his statement from March 8, 1932, and tell me that there’s one elected Republican who disagrees with any part of it:
Nothing is more important than balancing the budget with the least increase in taxes. The Federal Government should be in such position that it will need issue no securities which increase the public debt after the beginning of the next fiscal year, July 1. That is vital to the still further promotion of employment and agriculture. It gives positive assurance to business and industry that the Government will keep out of the money market and allow industry and agriculture to borrow the monies required for the conduct of business.
Frankly, that bears more than a passing resemblance to quite a bit of the Democrats’ rhetoric on the economy, as well. And yet Hoover had an excuse: The economics profession had not yet advanced to the point where it knew what to during a liquidity trap. What’s our excuse?
To be clear, most would agree that these statements by President Hoover are wise policy during ordinary times. But we are not experiencing ordinary times. We are in a “liquidity trap” — a period following on the heals of a great financial crisis, in which the banking system is flush with money, but banks won’t lend enough of it because they see insufficient demand in the economy at large. Consumers are so busy “deleveraging,” that is paying down their past indebtedness and adding to savings, that they don’t have enough left over to buy enough goods and services to generate healthy growth. In such unusual times, as in the Great Depression, fiscal austerity is the wrong thing to do. The best policy is for the government to make up for the missing demand by spending on such things as rebuilding the nation’s infrastructure, even if that increases the deficit temporarily, as it surely would. Over the long run, though, the growth thus generated would create far more tax revenue than the cost of the program.