Nicholas Kristof Gets His History Backwards
In a column in the New York Times, he writes:
"But one of the most basic principles of economics is that when an economy is anemic, governments should use deficit spending as a fiscal stimulus, even though that means an increase in debt. If Senator Rubio believes that the response to a weak economy is to slash spending, he is embracing the approach that Herbert Hoover discredited 80 years ago."
Kristof has his historical facts precisely backwards. From 1929 to 1932 federal spending increased by 50% in nominal terms, doubled in real terms, tripled relative to national income. Judged by that measure, Herbert Hoover makes Barack Obama look like a fiscal conservative.
Kristof is not the only one to subscribe to this particular historical myth. Just over a year ago, I wrote a op-ed that appeared in several places, responding to the same mistake made by David Frum, a conservative commentator.
As I pointed out there, we do have an example of a Republican president who responded to a surge in unemployment in the way they think Hoover did. From 1920 to 1921, unemployment rose from 5.2% to 11.7%, almost as sharp an increase as from 1930 to 1931. Harding responded by sharply cutting spending. By 1922, federal expenditure relative to national income had dropped almost fifty percent.
And the unemployment rate was back down to 2.4%.
That does not prove that Kristof's (and Frum's) view of the relevant economics is wrong; proof is hard to come by on such questions. Perhaps there were other features of the two episodes that explain why the Great Depression that happened in the thirties did not happen in the twenties. But both of them chose to base their argument on historical facts, and the historical facts are the exact opposite of what they claim.