Herbert Hoover: The working man’s hero

An economist argues that Hoover's "pro-labor policies" turned a bad recession into the Great Depression

Topics: How the World Works, Unemployment,

I did not need a cup of coffee to wake up this morning — I just checked my e-mail, and saw the subject header: “Hoover’s pro-labor stance helped cause Great Depression, UCLA economist says.”

Without reading the message, I knew instantly who the economist must be — Lee Ohanian, a tireless Great Depression/New Deal revisionist whose work is oft-cited by Amity Shlaes, the author of “The Forgotten Man: A New History of the Great Depression.” Last we saw of Ohanian at How the World Works, he was arguing that FDR’s New Deal policies extended the Great Depression and resulted in “less work than average” for American workers. Which might be true, if you don’t count anyone who got a job through “the Works Progress Administration (WPA) or Civilian Conservation Corps (CCC), or any other of Roosevelt’s popular New Deal workfare programs.” Makes sense — if you don’t count Roosevelt’s pro-labor programs, he doesn’t end up very pro-labor!

So now we have “What — or Who — Started the Great Depression?,” a 68-page paper Ohanian has been working on for four years that is sure to become a never-to-be-extinguished talking point for New Deal haters, union-busters, and opponents of all kinds of government intervention in the economy. Here are some key points, taken from the press release pushed out by UCLA.

Pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation’s gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression, a UCLA economist concludes in a new study.

“These findings suggest that the recession was three times worse — at a minimum — than it would otherwise have been, because of Hoover,” said Lee E. Ohanian, a UCLA professor of economics.

According to Ohanian, these pro-labor policies including pressure for job-sharing and propping up wages handcuffed industry’s ability to respond flexibly to the post-crash economic contraction.



After the crash, Hoover met with major leaders of industry and cut a deal with them to either maintain or raise wages and institute job-sharing to keep workers employed, at least to some degree, Ohanian found. In response, General Motors, Ford, U.S. Steel, Dupont, International Harvester and many other large firms fell in line, even publicly underscoring their compliance with Hoover’s program.

“By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product,” Ohanian said. “His policy was the single most important event in precipitating the Great Depression.”

Hoover as the pro-labor liberal! Never mind that Hoover spent decades after his spectacularly failed presidency bemoaning the country’s New Deal turn to Bolshevism. And never mind that the definitive conservative economic treatment of the Great Depression, Milton Friedman and Anna J. Schwartz’s “A Monetary History of the United States,” pinpoints monetary policy mistakes by the Federal Reserve as the crucial catalyst that turned a stock market crash and recession into a Depression. Never mind the now-fading cultural memory of the United States, which somehow remembers Hoover as being bad for labor, and Roosevelt being good. All that pales against the necessity of making a key political point relevant to today’s financial crisis.

Hoover’s approach is unlikely to be considered today as a means of responding to economic crisis, but it does illustrate the perils of ill-conceived government policies in times of economic upheaval and confusion, says Ohanian, a macroeconomist who specializes in economic crises.

“Hoover’s response illustrates the danger of knee-jerk policy reactions in a time of crisis,” he said. “Almost always when bad policies are adopted, it’s during a period of crisis. The real risk is picking a cure that turns out to be worse than the disease.”

I will do what I can today to find out what other economists and labor historians think of the Ohanian-Hoover thesis. These are the dog days of August, so it might take a little while to find someone who can authoritatively address the key contention — that Hoover’s “pro-labor policies” caused two/thirds of the drop in the U.S. GDP. But in the meantime, I’m wondering this: What dazzling feats of revisionist history will future conservative economists and historians dream up as they attempt to find a way to blame the great financial crisis of 2008-2009 on workers?

UPDATE: An e-mail from Brad DeLong calls  Ohanian’s thesis “completely wrong.”

 

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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