Can We Trust Macroeconomists?

I’ve been criticizing Krugman a fair amount lately for making erroneous statements, now there’s this from Brad DeLong, who, like Krugman, insists that dramatically increased federal spending is an obvious and inarguable solution to the current economic slump:

Andrew Mellon … dragged Herbert Hoover along into policies of austerity, of tax increases and spending cuts during the Great Depression

I know it’s a popular belief among the general public that Hoover oversaw an austerity policy in response to the Depression, but I thought at least economists who specialize in studying such things would know better. Russ Roberts gives us the actual data:

I don’t know anything about Mellon’s influence on Hoover. Or Hayek’s. But whatever it was, it didn’t yield spending cuts. Here are the levels of federal government spending (from here, Series Y 457-465) between 1924 and 1934 in billions of dollars

1924 $2.9
1925 $2.9
1926 $2.9
1927 $2.9
1928 $3.0
1929 $3.1
1930 $3.3
1931 $3.6
1932 $4.7
1933 $4.6

Hoover took office in March of 1929. FDR took office in March of 1933. The data on spending are fiscal years, that ended in June 30 for this period. So Hoover’s budgets are roughly 1930 through 1933. Of course you have to correct for inflation. Or deflation as the case may be. In those years it was deflation. Prices of government purchases of goods and services (from here, Table 41) fell between 1930 and 1933 by roughly 10%. So Hoover actually increased spending by over 50% in real terms.

Roberts posted that on June 3. The same day DeLong posted what appears to be a rebuttal (although he doesn’t reference Roberts’ or anyone else’s posts, so I can’t claim that with any real certainty), which consists solely of excerpts from Herbert Hoover’s budget messages to Congress, which contain numerous references to cutting spending.

Has DeLong really mistaken political rhetoric for political reality? Is he really suggesting that Hoover’s speeches about spending are a better data source about spending levels than the actual numbers themselves? That beggars imagination, because DeLong’s not an idiot.* But it certainly has that appearance.

Here’s what we don’t have in this debate so far–data on what Hoover’s proposed budgets were vs. what Congress actually passed. Hoover’s budget messages, of course, referred to his proposals, not to what was ultimately passed, so it’s possible Hoover was more of a cutter and Congress more of a spender. But ultimately Hoover signed those budgets,** and let’s not forget that his party–the Republicans–controlled both chambers of Congress during Hoover’s presidency.

If the macroeconomists who insist on the inarguable efficacy of fiscal policy are going to rely in part on false historical claims about which they really have no excuse for being wrong, does that not undermine their demand for the public’s confidence?

*I want to emphasize that I am not trying to subtly imply that he really is an idiot. I read his blog regularly, despite my disagreements with his approach, because he’s a hell of a smart guy who provides an intelligent counterpoint against the economists whose approach is more amenable to my own. DeLong forces me to constantly check my assumptions. In fact he does so in the very post referenced here, in his main argument, which is about how easily the economy can be modeled.

**A list of Hoover’s vetoes does not show any vetoes of budget bills.


About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
This entry was posted in Economical Musings. Bookmark the permalink.

One Response to Can We Trust Macroeconomists?

  1. Scott Hanley says:

    That’s rather embarrassing from someone who has a responsibility to know better. Hoover was pretty darned interventionist by the standards of his day, which is perhaps not so surprising since he was a professional engineer before getting into the Presidency business. He spent much less than Roosevelt, but he did spend money. He grew unpopular because the Depression continued and he adamantly rejected the idea of direct relief to the unemployed, for fear of the moral hazard. But he definitely was pulling the levers he thought it was appropriate to pull and an economist ought to know that.

Comments are closed.