Even good journalists can make mistakes, based on commonly held assumptions which are simply wrong. Take the New York Times’s economics reporter David Leonhardt. In an insightful and well written article about the huge drop in consumer spending, Leonhardt writes,” If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day.”
The only problem is that, as Megan McArdle pointed out in a July 8 blogpost on The Atlantic website, “the evidence is not ambiguous: Hoover did not tighten up on spending.” She goes on to provide the facts:
“According to the historical tables of the Office of Management and Budget, spending in 1929 was $3.1 billion, up from $2.9 billion the year before. In 1930 it was $3.3 billion. In 1931, Hoover raised spending to $3.6 billion. And in 1932, he opened the taps to $4.7 billion, where it basically stayed into 1933 (most of which was a Hoover budget). As a percentage of GDP, spending rose from 3.4% in 1930 to 8% in 1933--an increase larger than the increase under FDR, though of course thankfully under FDR, the denominator (GDP) had stopped shrinking.
“This spending represented a substantial increase over the Coolidge years (outlays had been steady between $2.85 billion and $2.95 billion since 1924). And in real terms they represented a very substantial increase, since both nominal and real GDP were falling.”
Does David Leonhardt not read Megan McArdle? He really should. Whether you agree or disagree with her, she’s one of the sharpest economics writers around.