Wednesday, February 22, 2012

More on Herbert Hoover as Interventionist-in-Chief

Yesterday, I linked to excellent posts by Steven Horwitz and Phillip Scranton documenting Herbert Hoover's interventionist ways in responding to the recession and stock market crash of 1929.

Today I want to direct your attention to a debate of sorts over the nature of Herbert Hoover's intervention in the labor market. The Volume 13, No. 3 issue of The Quarterly Journal of Austrian Economics is devoted to a symposium on modern macroeconomics and the recession of 2008. One of the articles included is Douglas W. MacKenzie's "Industrial Employment and the Policies of Herbert Hoover." The article's abstract reads as follows:
Most historians claim that Herbert Hoover adhered to a policy of laissez faire after the stock market crash of 1929. This laissez faire policy is allegedly responsible for the severity and persistence of unemployment during the early years of The Great Depression. Herbert Hoover actually reacted to the crash of 1929 by urging industrial leaders to keep money wages high. Hoover believed that high wages would support consumer spending and spur recovery. This paper extends the hypothesis advanced by Rothbard (1972) that Hoover’s high wage policy intensified and prolonged unemployment during the depression. Analysis of wages and employment in specific industries indicates that Herbert Hoover successfully increased real wages. There are strong correlations between real wages and employment losses in the industries that Hoover intended to influence. The evidence indicates that Hoover’s activist high wage policy prolonged and intensified unemployment during the early years of the Great Depression.
The most recent issue of the QJAE includes a response by Daniel Kuhn who takes issue with MacKenzie's characterization of the efficacy of Hoover's wage policy. Kuhn argues the following:
In a recent article appearing in this journal, Douglas MacKenzie (2010) argues that President Hoover’s business conferences artificially propped up wages in the early years of the Depression, aggravating unemployment. MacKenzie’s (2010) critique of Hoover fails on at least two counts: it commits an aggregation fallacy and ignores the vast literature on real wage cyclicality, and it exaggerates a series of historical points on the authority that Hoover had to implement his high-wage policy. Readers of MacKenzie (2010) could also benefit from new research on Hoover’s business conferences by Rose (2010), although MacKenzie (2010) himself certainly cannot be blamed for failing to incorporate such recent research.
In the same issue Richard Vedder and Lowell Gallaway weigh in on the debate with a rejoinder that sides with MacKenzie and against Kuhn. Vedder and Gallaway conclude:
Hoover was successful in implementing the “high-wage doctrine,” just as many contemporary observers opined. If this is the case, in the process, he produced the most precipitous rise in unemployment in American history. We accept this interpretation, and come down on the side of MacKenzie in this debate.
Anyone interested in the economic history of the Great Depression should read the debate which provides much food for thought.

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