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  • Myths of Austerity Failures

    Evidence shows that “austerity” during a sharp downturn in 1920 coincided with quick economic recovery and robust growth throughout the rest of the decade. Nevertheless, there is a belief that the example of President Herbert Hoover from 1929–1933 was a failure of austerity, which pushed the economy into the Great Depression. It was not. Hoover never cut spending or slashed tax rates.

    In fact, Hoover doubled spending in real terms during his four years in office. When FDR arrived at the White House, according to Cato economist Steven Horowitz, FDR’s advisors noted that, “‘When we all burst into Washington . . . we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administra­tion itself.’”

    Economist Tim Taylor adds that “The budget ran a small deficit of .6% of GDP in 1931, followed by much larger deficits of 4.0% of GDP in 1932 and 4.5% of GDP in fiscal year 1933.”

    And in 1932, Hoover raised taxes from a top individual income rate of 25 percent up to 63 percent, and the bottom rate from 1 percent to 4 percent.

    Small wonder, then, why the economy didn’t quickly recover like it did after the downturn of 1920. Hoover followed the opposite path. Rather than cutting government to let the free market grow, he grew government, which shrank the free market and staved off recovery.

    Posted in Economics [slideshow_deploy]

    One Response to Myths of Austerity Failures

    1. David Feldman says:

      David,
      I suggest you read your hyperlinks before linking to them. The original source of your first hyperlink is Professor Timothy Taylor. Taylor is not an ally of yours. Taylor supports deficit spending, and is opposed to fiscal austerity during a recession. So you ended up quoting an article that refutes your strategic argument. In the very hyperlink you draw from Professor Timothy Taylor, the original source of your hyperlink writes in the same article being cited, "While Judis believes that additional fiscal stimulus is warranted. I supported both the Bush fiscal stimulus package in 2008 and the Obama stimulus package in 2009, although I had some disagreements with their design and targetting. While I do think it's tremendously important to get the U.S. deficits under control in the middle term, I wouldn't try to slash the deficit in the short run with unemployment still up around 9%."

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