The View From 1776

Stimulus packages first surfaced in this country, under President Herbert Hoover, as a product of the liberal-progressive-socialist doctrine of the early 20th century.  They failed miserably throughout the Depression and haven’t worked anytime since then. 

The bottom line is that stimulus packages don’t do the intended job of jump-starting the economy.  Instead they work against righting misallocation of economic resources and add to inflationary pressures that rob people of the value of their savings.

Tax cuts, coupled with reduced government spending, are the only effective and non-inflationary economic stimulants.

Why then have one-shot stimulus packages?

Socialist theory since its inception in the first decades of the 19th century had always preached that industry could best be managed by intellectuals, working through industry councils and bureaucratic managers.  Imposing public regulatory control (what was called socialization) on business was presumed to make it more efficient and thereby to raise wages and employment.

20th century American business itself ironically was partly responsible for the popularity of the idea of scientific management in government and its manifestation in stimulus packages.

As corporations grew to hitherto unimaginable size around the time of World War I, management became more structured.  The professional manager came into being, and scientific management techniques came into vogue.  To that end, the Harvard Business School was founded in 1908.  Business leaders and the general public alike believed that the same highly successful business management approach should be applied to local, state, and national government. 

Such was the essence of early Progressivism and its love affair with experts. Note that Progressivism was embraced by both liberal Republicans and liberal Democrats.

President Herbert Hoover was a leading exponent of Progressivism in government, despite his characterization by liberal historians as a laissez-faire conservative.  So much so that Austrian School economists date the inception of the New Deal to the inauguration of Hoover in 1929.  Much of what President Franklin Roosevelt did with disastrous results, from 1933 until late 1940, was merely a continuation and expansion of President Hoover’s policies.

As Amity Shlaes wrote:

The premier line in the standard history is that Herbert Hoover was a right-winger whose laissez-faire politics helped convert the 1929 Crash into the Great Depression. But a review of the new president’s actions reveals him to be a control freak, an interventionist in spite of himself. Hoover signed the Smoot-Hawley Tariff Act, which worsened a global downturn, even though he had long lived in London and understood better than almost anyone the interconnectedness of markets. He also bullied companies into maintaining high wages and keeping employees on their payrolls when they could ill afford to do so. Perhaps worst of all, he berated the stock market as a speculative sinner even though he knew better. For example, Hoover opposed shorting as a practice, a policy that frightened markets at an especially vulnerable time.

Stephen W. Carson, on the Mises.org website, writes about the first stimulus package, President Hoover’s efforts in 1929. Be sure to read the 1929 Time Magazine article linked in Mr. Carson’s post.

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