The New Hoovers

There’s something very odd about the Herbert Hooverism that seems to have taken over American journalism. This was the second presidential debate in which the moderator decided to editorialize heavy in favor of the odd proposition that amidst a recession caused by a credit crunch at a time when the federal government is able to borrow funds on very favorable terms that we ought to be imposing austerity budgeting. I have a bunch of disagreements with McCain’s policy proposals, but to his credit even he won’t embrace this. Mike Scherer seems to find the candidates’ refusal to follow Jim Lehrer and Tom Brokaw off the cliff to be some kind of dishonesty:

Neither candidate has the courage to speak straight with the American people about our nation’s fiscal problems. Asked about the financial crisis, McCain talked about energy independence, hitting the same talking points he used in July. Obama talked about the need to give tax cuts to the middle class, and expand spending programs, a proposal he put forward last year. Both men have proposed policies that will lead to an increase in the deficit, according to independent analysts, even without a dramatic economic downturn, which looks increasingly inevitable. Neither man has shown any clear intention to tell Americans to face head on the hard economic times that await us. This is politics. The candidates are playing it safe, not telling voters anything they don’t want to hear. They choose to demagogue Wall Street instead.

This is ludicrous. You need to respond to a downturn with expansionary policies of some kind. In recent decades, we’ve preferred relying on expansionary monetary policy (Fed interest rate cuts) rather than Keynesian deficit spending. But at the moment, there’s no real room left for the Fed to cut rates. That means you need deficit spending. Among other things, the nature of state and local budgets means that a contraction in the economy will naturally lead to a contraction in state and local spending. That will lead to further contraction in the economy. If the federal government did what Scherer’s suggesting and added its own cutbacks to state government cutbacks, local government cutbacks, and private sector cutbacks that would only deepen the recession.

Meanwhile, as you may have noticed, there’s a credit crunch afoot. A lot of people or business who might think they have solid ideas about how to invest some money in new production or sales are finding they can’t get the loans they need to do that. One of the few entities that still can easily raise large quantities of money on favorable terms is the federal government. If the feds don’t take up that opportunity and borrow cash that gets plowed into something or other, then there’s going to be no new economic activity at all. What we ought to be doing is debating not whether to spend, but what to spend the money on since, clearly, it’s much better to have the money spent on something useful than on something pointless.


Instead, though, a lot of the press’ leading lights seem to think we ought to follow Herbert Hoover off the cliff. Everyone’s been living too high on the hog and we need to liquidate everything. Massive suffering will be good for us.