Myth and Reality
8th April 2011
David Friedman drags us back to the facts.
Kristof has his historical facts precisely backwards. From 1929 to 1932 federal spending increased by 50% in nominal terms, doubled in real terms, tripled relative to national income. Judged by that measure, Herbert Hoover makes Barack Obama look like a fiscal conservative.
As I pointed out there, we do have an example of a Republican president who responded to a surge in unemployment in the way they think Hoover did. From 1920 to 1921, unemployment rose from 5.2% to 11.7%, almost as sharp an increase as from 1930 to 1931. Harding responded by sharply cutting spending. By 1922, federal expenditure relative to national income had dropped almost fifty percent. And the unemployment rate was back down to 2.4%.