What Should Herbert Hoover Have Done Differently?

[RousseauX]

I'm not quite following you.
A weakening economy means demand is dropping. The drop in demand means there is excess supply/production capacity. Companies cut back to reduce the excess supply and misallocated production capacity. Some of this is weaker companies going out of business. When the shakeout is over, the economy can improve and you go back to a growth cycle. Typically, this is an 18-24 month process. The Depression of 1920 (which is referred to in The Great Gatsby) lasted from Jan 1920-July 1921. The Panic of 1893 was one of the worst before the Great Depression. It lasted 4 years.
It's painful but there's no way to avoid it. The goal should be to not make it worse. In trying to avoid the pain, Hoover turned a 2-year problem into a 12-year problem. There was a big concern that the US would go back into Depression when WW2 ended. Things picked up when the Revenue Act of 1945 repealed a chunk of the wartime and depression taxes.

"Your spending is my income, my spending is your income"

If car factory cuts production, then the steel company would experience a further drop in demand. They would also start lowering prices and have to lay off workers, which would then impact other firms upstream. Which eventually mean there are less people who are capable of buying cars due to layoffs: and the whole cycle begins again.

So everyone is worse off

 

[daveg1967]

"Your spending is my income, my spending is your income"

If car factory cuts production, then the steel company would experience a further drop in demand. They would also start lowering prices and have to lay off workers, which would then impact other firms upstream. Which eventually mean there are less people who are capable of buying cars due to layoffs: and the whole cycle begins again.

So everyone is worse off

That's what a recession/depression is. It starts with a drop in demand. Demand for cars drops. Does the car company keep producing cars they can't sell? They cut production and cancel orders for steel. The steel company doesn't want to produce steel that won't be used. They cut production for auto steel. Maybe they sell the auto steel at a loss to someone else to reduce the storage expense. If you keep producing products that nobody will buy, you are wasting money and creating a supply glut that needs to be cleared before normal economic activity can resume.

 

[GuildedAgeNostalgia]

So did the federal reserve make the depression worse ?

 

[Workable Goblin]

So did the federal reserve make the depression worse ?

Yes. Absolutely. As I posted earlier, the single most well-supported conclusion about the Great Depression, from an economics point of view, is that the more rapidly countries left the gold standard (and stopped constricting the money supply as a result) the faster the recovery was. The Fed absolutely screwed the pooch.

 

[GuildedAgeNostalgia]

Yes. Absolutely. As I posted earlier, the single most well-supported conclusion about the Great Depression, from an economics point of view, is that the more rapidly countries left the gold standard (and stopped constricting the money supply as a result) the faster the recovery was. The Fed absolutely screwed the pooch.

So considering the Federal Reserve was a Wilson idea, what if Coolidge/Hoover decide to abolish it in the 20s? How does that affect the Depression?

 

[Workable Goblin]

That almost certainly makes matters even worse, because the most likely replacement is nothing and now the money supply is completely dependent on commercial banks, which are all failing and collapsing. The fact that the Federal Reserve failed to do its job does not mean that getting rid of it would have any positive effects.

 

[RamscoopRaider]

So did the federal reserve make the depression worse ?

Yes. Absolutely. As I posted earlier, the single most well-supported conclusion about the Great Depression, from an economics point of view, is that the more rapidly countries left the gold standard (and stopped constricting the money supply as a result) the faster the recovery was. The Fed absolutely screwed the pooch.

Also a big problem was that the Fed did not use the flexibility it had under the Gold Standard, it could have done quite a bit even with that constraint but did not. We know this because that was the policy of the Fed under Benjamin Strong, who unfortunately died in 1928. Strong focused on price stability, and expanded and contracted the money supply within the limits of the Gold Standard to avoid inflation/deflation. When he died the Fed moved to a "real bills doctrine" where they would only loan money to banks if banks had an equal amount of "real bills", financial notes backed by goods in the process of production. This meant that when the Depression hit and companies started making fewer goods, that had less real bills to offer to banks, and thus banks had less ability to borrow from the Fed, resulting in the contraction of the money supply that crippled the economy. This was made worse by Fed policy of only loaning to banks that had never been involved in the stock market after the Stock market crashed and requiring banks to go through a proverbial inquisition to borrow money, which meant that many who could have borrowed from the fed were unable, in having the real bills but the Fed still saying no, or unwilling in that the bankers felt the Fed's disclosure requirement too humiliating

So even with maintaining the Gold Standard the Fed underperformed

 

[The Slytherin Mudblood]

I think this video gives an interesting perspective. Without Smooth Hawley and tax increases, and pressuring business to not cut wages, the depression could have been a lot different.

 

[BELFAST]

I think this video gives an interesting perspective. Without Smooth Hawley and tax increases, and pressuring business to not cut wages, the depression could have been a lot different.

FDR was very effective at rewriting history.

 

[brunohusker]

I feel like the big problem Hoover had was basically thinking no government intervention would help until it was too late. It sucks too because the guy cared for people and was big on charitable relief but that can fail if an economic downturn hurts everyone.

I don’t know if he would have been able to unless the Democrats ran Garner instead of Roosevelt, allowing Hoover have a chance at winning but I still think he’s screwed.

 

[Amadeus]

I feel like the big problem Hoover had was basically thinking no government intervention would help until it was too late. It sucks too because the guy cared for people and was big on charitable relief but that can fail if an economic downturn hurts everyone.

I don’t know if he would have been able to unless the Democrats ran Garner instead of Roosevelt, allowing Hoover have a chance at winning but I still think he’s screwed.

I think even if Hoover had acted faster and more effectively, he would likely still have lost to FDR in 1932 because the economy would not likely have fully recovered in time for the election.

I have heard that the October 1929 Crash did not directly cause the Great Depression. In a PBS documentary called "Landslide," Robert Reich argued that it is more accurate to say that the Crash depressed global markets which led to massive runs on banks within the US because people panicked and rushed to their local banks to recover their money before it was too late. Hoover did not act to restore peoples' faith in banks (as FDR did in 1933) and he did not pursue the creation of deposit insurance - resulting in millions of people losing their life savings as a result of bank runs. If Hoover had handled the banking crisis differently as early as 1929, the Depression would have been less severe from the start.