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New Deal economics: lessons from Herbert Hoover

Bill Jamieson

Wednesday, 20th August 2008

Bill Jamieson says calls for a Rooseveltian New Deal to stave off US recession are misinformed; it was FDR’s much-maligned predecessor who set the course for recovery

A year into the credit crunch and the world’s leading economies seem locked in a macabre race to be first over the recession line. America, a few months ago firm favourite, has lost the lead to Germany. Or is it France? Or Spain? Is Japan already over the line? In truth, who ‘wins’ is secondary to the direction in which the global economy is heading and the sense of apprehension over further shocks to come in the banking system. Little wonder that in France, Spain and Britain there is growing talk of emergency action, and that across America, many have been urging a ‘New Deal’ Obama presidency.

Indeed, a head of steam is building up for New Deal politics: policy actions in Europe and America that will cushion if not reverse the downturn. In America, interest rates have already been slashed to 2 per cent and the administration has given a $600-a-head tax rebate to help boost consumer confidence and spending. While these have helped the economy skirt recession so far, it is still likely to enter one.

Domestic consumption barely grew in June and retail sales fell in July. The financial sector has been devastated by huge write-downs against subprime loans and related paper. Bank shares have plummeted. The financial health of the two mortgage giants Fannie Mae and Freddie Mac, together accounting for some $5 trillion of American mortgages, is on a knife-edge. Home foreclosures are 55 per cent up on last year. Across the US the number of jobs lost in the first seven months of the year has hit 463,000. And the prognosis? Worse to come.

Little wonder voters look for a new presidency that will deliver them from this Herbert Hoover misery. The call is for a Rooseveltian New Deal. But the problem with the credit crunch is that it does not lend itself to quick-fix solutions. However, in political terms, it is not the intractability of problems that matters so much as confidence, and a leadership that can convey a sense of being in charge. Without that confidence, little change seems likely. This was where Hoover was seen to have failed, while Roosevelt succeeded.

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Alexander

August 22nd, 2008 7:27pm

Please stop using the word "Democrat" when you mean "Democratic". Normal Americans, of either party, will refer to the "Democratic Party" and a "Democratic landslide". Only partisan Republican spindoctors refuse to use the word "Democratic" to refer to the "Democratic Party" or a "Democratic landslide".

Hal

August 26th, 2008 4:09am

Jamieson writes:

"He created the Reconstruction Finance Corporation with a capital of $2 billion to uphold bank credit: it sustained more than 5,000 banking institutions and the savings of 25 million families. This was the agency that more than 60 years later was to be dusted down by the Reagan administration to tackle the ‘Savings and Loans’ crisis."

No. The RFC was abolished in 1957. The Resolution Trust Corporation was created by Congress in 1989 to wind up the affairs of insolvents savings and loans. No Hoover connection at all.

Is the rest of the article more reliable?

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Judi Bevan meets Sir John Parker, who chairs National Grid and the Court of the Bank of England — and takes an optimistic view of the deepening recession

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Stephen Vines says stock markets may seem wildly volatile at times of crisis, but they always follow a pattern

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My hopes for America lie less in Obama- mania, more in Vaud and the Villains

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James Doran assesses the qualities needed to be Obama’s Treasury secretary at a time of unprecedented crisis, and wonders whether the front-runners measure up

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Financial crisis has transformed Robert Peston from egghead to celebrity, says Dominic Midgley, but the BBC business editor indignantly denies he’s a government mouthpiece

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Edinburgh is an undemonstrative city, says Bill Jamieson, but its financial community has been mortified by the loss of two banks that have guarded its wealth for centuries

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Matthew Lynn says Britain’s largest building society prospered by refusing to follow fashion — while its bolder, greedier rivals have all gone bust or been taken over