One of the most pernicious myths in the economic history of the twentieth century is the belief that the Great Depression was caused, or at least worsened, by Herbert Hoover’s dogmatic commitment to a “do nothing” laissez-faire policy in the aftermath of the stock market crash ..
In fact Herbert Hoover was long known as a Progressive who favored much more government intervention in the economy. From his days with the U.S. Food Administration in World War I through his time in the 1920s as secretary of commerce, Hoover constantly pushed his beliefs that laissez faire did not work and that government must take a more active role. When the economy went south during his first year as president, it came as no surprise that he put those beliefs into action.
Hoover not only signed the Smoot-Hawley Tariff, as everyone knows, he also encouraged businessmen to keep wages up, expanded the real amount of government spending, reduced immigration to near zero, set up all manner of government lending facilities, and increased the budget deficit. Along with the Federal Reserve System’s failure to do its job, resulting in a 30 percent drop in the money supply, these Hoover interventions were responsible for turning what might have been a severe, but short recession into a Great Depression. So the “high school history” story is right to blame Hoover–but it does so for exactly the wrong reasons.
When people like Krugman come face to face with the failure of the ideas they’ve been peddling for decades, rather than confront that truth they retreat to the same old myths. Just as the defenders of intervention in the 1930s and ’40s needed the Myth of Hoover when the New Deal didn’t deliver as promised, so do their modern counterparts need the Myth of Austerity to explain away the failure of their interventionism today. There is no more important task for classical liberals right now than to prevent the Myth of Austerity from taking hold.
Is This How the Myth of the Laissez Faire Herbert Hoover Was Invented?:
Herbert Hoover was as much of a laissez faire president as Barack Obama has been or the leaders in Europe have been. From a free market perspective, the steps taken since 2007 have turned a market correction into an economy wide crisis and then a global crisis. Those steps were anything but "do nothing", and they were taken first by a Republican President and then pursued further by a Democratic President. We have never given "nothing" a chance. But mythologies need to be created in order to tell neat historical tales. Laissez faire Hoover is replaced by activist FDR and the nation is saved.