David R. Henderson  

Krugman Gets Hoover Wrong

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No one whose opinion I respect doubts that Paul Krugman is very clever. Here's a recent example from his column in yesterday's New York Times, titled "The Urge to Purge":

When the Great Depression struck, many influential people argued that the government shouldn't even try to limit the damage. According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to "Liquidate labor, liquidate stocks, liquidate the farmers. ... It will purge the rottenness out of the system." Don't try to hasten recovery, warned the famous economist Joseph Schumpeter, because "artificial stimulus leaves part of the work of depressions undone."
Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldn't repeat the mistakes of the 1930s, would we?

Every single sentence in the above quote is correct. So why do I say that Krugman gets Hoover wrong?

Because contrary to the impression Krugman leaves the reader, and obviously wants to leave the reader, Hoover didn't take Mellon's advice. See more here.

HT to Mark Thoma.


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COMMENTS (23 to date)
Jehu writes:

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Aidan writes:

"When the Great Depression struck, many influential people argued that the government shouldn't even try to limit the damage."

There's a reason he refers to "Mellonism" and not "Hooverism." I see no lines in that column in which Krugman makes the claim that you attribute to him or even implies it. Did Hoover say that Mellon urged him to "Liquidate labor, liquidate stocks, liquidate the farmers"? Yes. As that is the only inference Krugman makes about Hoover, I don't see where he gets it wrong.

It's true that Hoover in his memoirs describes Mellon's advice in the terms Krugman quotes. But there's no (other) evidence that Mellon ever gave such advice. (In context, it's clear that Hoover was caricaturing Mellon to paint himself as an enlightened activist by contrast.) Mellon's public speeches don't include statements remotely similar. Mellon as ex officio FOMC member voted for rate cuts in 1930. He urged Hoover to increase federal construction spending.

I think the "many" in Krugman's first sentence is inaccurate. But at least he didn't try to implicate Hayek and Robbins, as others have.

For details see my article here.

David R. Henderson writes:

@Aidan,
I don't see where he gets it wrong.
Here's where he gets it wrong. With his last statement in the quote, he's implying that this mistaken thinking in the 1930s was followed. It wasn't.
Also, by the way, See Lawrence H. White's comment above.

F. Lynx Pardinus writes:

Lawrence H. White:

It's true that Hoover in his memoirs describes Mellon's advice in the terms Krugman quotes. But there's no (other) evidence that Mellon ever gave such advice.

Krugman in 2011:
“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression. To be fair, there’s some question about whether Mellon actually said that; all we have is Hoover’s version, written many years later.

John Hall writes:

The amazing thing is that this is such an obvious falsehood that he keeps repeating. There comes a point where there is a difference between ignorance and purposefully attempting to mislead your readeres.

Andrew writes:

I do like the hat tip!

Aaron Zierman writes:

@Aidan

This is why Professor Henderson points to Krugman as "clever". A clever argument begins by providing information that will be agreeable to most. The most clever arguments conveniently leave out information that damage the promoted theory.

blsdaniel writes:

Bravo, F. Linx, excellent quote.

Lord writes:

Let's see, liquidate labor, 30% unemployment, liquidate stocks, down 90%, liquidate farmers, large numbers of bankruptcies, unending bank failures, maintaining the gold standard, higher taxes trying to maintain a balanced budget in the face of this. No, they weren't all his intent but he managed to do so in spite of that, but most of all he was ineffectual. With government only 10% of the economy, it would have required dramatic, gargantuan, inventive efforts to counter it, and those he wasn't up to. Some things helped, some hindered, but mostly they were just inadequate to the nature and scale of the devastation.

Mad Mat writes:

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Lee Waaks writes:

@blsdaniel:

You like the quote from Krugman provided by "lynx", which certainly shows that Krugman recognizes that it is Hoover who is describing Mellon's alleged views. However, the issue that D. Henderson is underscoring is that regardless of who may have said what, Mellon's alleged policy advice was never followed (for good or ill).

ThomasH writes:

The point the Krugman was making was that back in the "bad old days" some influential people were recommending austerity during periods of high unemployment. Everybody supposedly recognized that policy was wrong except that after 2008 again some influential people were recommending austerity during periods of high unemployment. That Hoover may have "sexed up" his quote of Mellon is in fact support for Krugman's point that by the time Hoover was writing, the idea was supposedly discredited.

ThomasH writes:

I understand Henderson's sensitivity to "getting Hoover wrong" in that there are still people who blame Hoover for the Depression rather than the Fed. That's fine as far as it goes, but misunderstanding Krugman does not really help.

David R. Henderson writes:

@F. Lynx Pardinus,
Thanks for the quote, which, as you note, is from 2011, not from the article I'm criticizing. So Krugman himself recognizes Larry's point, but he doesn't let his readers today, in 2013, in on that.
@Thomas H,
That Hoover may have "sexed up" his quote of Mellon is in fact support for Krugman's point that by the time Hoover was writing, the idea was supposedly discredited.
It's not support, though, for the implication that Krugman leaves the reader, namely, that Mellon's advice was followed.
@Thomas H,
I understand Henderson's sensitivity to "getting Hoover wrong" in that there are still people who blame Hoover for the Depression rather than the Fed.
No, you don't. I blame Hoover as well as the Fed. That is not at all the issue here. The issue is that Krugman implies that Hoover followed Mellon's advice and, even if this was his actual advice, which Lawrence H. White above questions, Hoover didn't follow it.

Ken B writes:

The way the trick works, and it is a trick, is that Krugman confesses to an implied possible error, "I used to quote these .. with a certain smugness", and then elides into the bit about not repeating the errors of the thirties. This links quite opposite things as the putative errors.

egd writes:
After all, modern macroeconomics had shown how wrong they were, and we wouldn’t repeat the mistakes of the 1930s, would we?

That's the thing. Modern macroeconomics hasn't shown how wrong they were. They've asserted that they were wrong, but that's not really the same thing.

David R. Henderson writes:

@Ken B,
I don't understand your comment.

Ken B writes:

David
I am analyzing the mechanics of Krugman's verbal sleight of hand. When I suggest I made an error, or was too dismissive of the chance of it being an error, it suggests that said putative error is the subject of my remarks. So if in the same breath I say "Let's not repeat the errors of the thirties" I have suggested these are the same errors without saying so. In Krugman's case the putative errors, as you rightly note, are very different.

"You and I have debated Lend Lease. In discussions about foreign affairs I have sometimes erred on the side of intervention. Let's not repeat the errors of Lend Lease." I can say all that truthfully. But for me the real error of Lend Lease is that it did not come soon enough, and was not as generous as it should have been. That's pretty much the opposite putative error my quoted paragraph implies. Same trick.

Steve Horwitz writes:

Just to further a point David made:

Those of us who insist on getting Hoover right AGREE with the Krugmans of the world that Hoover bears significant responsibility for the Great Depression (in addition to the Fed for creating the boom and deepening the bust and FDR for lengthening it). What we disagree with Krugman about is WHY. Hoover deserves blame because his intervention made matters worse, not his "austerity."

gjx writes:
Mellon as ex officio FOMC member voted for rate cuts in 1930.

Open market operations in which the Fed can bid on government debt were finally made legal in a 1934 amendment to the Act. But yes, the Fed began such buying during WWI and continued into the 20s, presumably with Mellon's aid and advice, while the Treasury was happy to forget to assess the steep fines it was supposed to exact for this law-breaking.

Farming had already collapsed during the 20s when Wilson's "Grain to feed the world at any price!" war effort was no longer necessary. That land bubble set up the use-then-disuse conditions that primed it for the dust bowl years.

We may be unable to finger just one culprit for the Depression, but it seems clear that the central plans all failed, or fell short somehow.
That should not surprise. It should stand as a lesson.

It's very hard to see what Krugman thinks is the point. Hoover didn't take Mellon's advice and there was disaster. So, Krugman thinks Hoover was wrong to ignore Mellon?

Rich Berger writes:

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