…real government purchases actually rose by 11.0% between 1929 and 1932, with federal government purchases alone growing 18.1% between 1929 and 1932.
Here is more, mostly on Germany. Here is my earlier post on automatic stabilizers. For the pointer I thank Yancey Ward.
If you’re trying to debunk people who make somewhat too bold statements about Hoover, this is fine.
If you’re trying to say something about the macroeconomics of fiscal policy you might want to take a look at this table instead:
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1930&LastYear=1932&3Place=N&Update=Update&JavaBox=no
Funny, that 18% increase in real purchases is almost exactly the same as the rate of deflation over that period. Indeed, if Hoover didn’t change any budget number in nominal terms from 1929 to 1932 real purchases would have increased 20% anyway. So if your null is “Hoover did nothing”, would you reject? (I wouldn’t.) Oh, and when you look at government spending in nominal dollars (NIPA table 1.1.5) you see that government purchases fell from $9.4b to $8.7b. (Federal $ was flat.)
Dan and Adam, Your factual response notwithstanding, you missed Tyler’s point: Hoover worsened the depression because he wasn’t austere enough!
It’s something of a mystery to me why Krugman keeps getting away with this blatantly untrue statement about Hoover. The man is either grossly misinformed or telling porkies: who’s going to tell him?
“it would appear to me that Hoover had to have done something to maintain real spending as the nominal economy shrank. He clearly didn’t shrink spending in tandem with shrinking receipts.”
Pretty sure he attempted to raise taxes to maintain real spending. Didn’t work out all that great.
Adam seems to have this right. Considering tax receipts are a lagging indicator and the amount of deflation over the short term is very large I think we should be careful of the sorts of shenanigans that can be played by looking at real outlays.
Automatic stabilizers aren’t.
Progressive income taxes are the leading cause of revenue volatility. And when government spends every dime of revenue (and more) during good times, the subsequent decline in revenues leaves them nothing for government transfers except through debt.
The decline in revenues comes largely from higher unemployment, so a reduced marginal tax rate provides no comfort for the person earning nothing.
Unemployment insurance might maintain consumption in the short run, but we see that states also spent all their UI funds. So they are getting deeper in debt and enacting draconian cuts and tax increases. These stifle or counteract any gain from the automatic stabilizer.
UI needs to be fully funded, private insurance where policyholders choose their benefit level and duration. Tax rates should be proportional to smooth out revenues. Regardless of whether taxes are progressive or proportional, government expenditures should grow at a rate slower than the trend growth rate of revenues to guard against deficits from business cycles.
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