What the British are teaching their children about the U.S.

A couple of weeks ago, Capital Freedom observed how terribly written modern history books tend to be: there's much of information, but ultimately no substance. I came across this education-oriented website in my Internet travels, and while it isn't a textbook, it still contains outrightly false claims, much like a bad textbook steeped in historical revisionism. For example:

The Wall Street Crash in October 1929, created the worst depression in American history. President Herbert Hoover was slow to provide federal relief to farmers and stubbornly refused to give help to the unemployed in urban areas. Hoover vetoed a bill that would have created a federal unemployment agency and also opposed a plan to create a public works programme.

The Crash of 1929 did not "create" the Great Depression. It is often considered to mark the perceived beginning of the Depression, but it was actually just another precipitate of the circumstances that really caused the Depression. Briefly, the Depression stemmed partially from agricultural overproduction (self-induced deflation), but principally from the Federal Reserve suddenly tightening the money supply after encouraging years of unsustainable growth via loose monetary policy. The Hawley-Smoot Tariff of 1930, and other nations' retaliatory tariffs, exacerbated the Depression by destroying international trade. Hoover and FDR's massive federal spending also worsened the situation, which I will detail later.

It is completely wrong to claim that Hoover didn't commence public works projects to help stimulate employment: FDR's "New Deal" was simply a successor to Hoover's policies. While Hoover may not have instituted programs to help farmers like Roosevelt did, Hoover focused on industrial employment. He was hardly slow to commence federal interventionism into the "unemployment situation."

I've never spent the hours required to compile an exhaustive list of Hoover's support of public works, but the owner of this site did, and he lays it out so well. It documents Hoover's many instances just from late 1929 through mid-1932 of advocating and planning public works programs. He did veto two bills that were intended for "unemployment relief," not because he opposed them in principle, but because the federal budget couldn't afford such spending. It is patently false to portray Hoover as any different than FDR when it comes to the proto-Keynesian absurdity of establishing government programs to "increase employment": one was as bad as the other. Last March, I was highly critical of Bob Herbert for his insinuation that Hoover was a sort of "limited-government conservative" who nevertheless distrusted capitalists.

As governor of New York, Roosevelt made strenuous attempts to help those without work. He set up the New York State Emergency Relief Commission and appointed the respected Harry Hopkins to run the agency. Another popular figure with a good record for helping the disadvantaged, Frances Perkins, was recruited to the team as state industrial commissioner. With the help of Hopkins and Perkins, Roosevelt introduced help for the unemployed and those too old to work.

Roosevelt did indeed help people find work, and the two biggest beneficiaries are named right there: Harry Hopkins (who became one of the New Deal's chief architects) and Frances Perkins (who served as Roosevelt's Secretary of Labor and was instrumental in Social Security's creation). What more comfortable job is there than a bureaucrat's?

What dismays me most about that site is how, in discussing Roosevelt's New Deal, it promotes John Maynard Keynes' greatest fallacy: "To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services."

Bastiat in "What Is Seen and What Is Not Seen" famously exposed the "broken window" as an economic fallacy (which we're still seeing today in natural disasters' aftermath). Less well known is that, in the same essay published over 80 years before Keynes' General Theory, Bastiat refuted the notion that government spending can increase employment. Yet many Republicans still believe as much as Democrats, which I discussed in my entry When conservatives become socialists. Whether it is 19th century French government taxing a farmer to fund state dinners in Paris, or New York City and New York state taxing their citizens to spend possibly $1 billion to help construct a football stadium, the ultimate effect is still the same. The farmer now has no money to drain his field, and modern taxpayers have less money to spend on what they want. There is no increase in total spending, only a transfer -- at best.

We saw this very situation in Hoover and FDR's tax hikes to finance public works: businessmen had less money to invest and hire, since the federal government taxed it away and spent it on public works that largely produced nothing. Back in April I recounted the disastrous tax hikes to finance the New Deal; the first was actually in 1932, under Hoover. Obscenely high marginal tax rates stifled the already weak U.S. economy as businessmen gave up trying to create something with their money. Who will work at something profitable when government will take most of it? So when Brad DeLong claims the federal government had to step in during the Depression because there was no business investment, he's confusing cause and effect like his mentor Paul Krugman (scroll down a bit for the update with my comments). There was no business investment because the federal government had stepped in.