Does austerity lead to economic depression? One often hears that cutting government spending now would derail our nation's fragile...
Does austerity lead to economic depression? One often hears that cutting government spending now would derail our nation's fragile economic recovery, and perhaps even throw the economy into deep recession. Advocates of this view sometimes point to the Great Depression as evidence that dramatic cuts to government spending lead to economic disaster. If only Herbert Hoover had been more like Franklin Roosevelt, we hear, there might have never been a Great Depression. However, as the Bush Institute's Amity Shlaes points out in a recent column for Bloomberg, the problem with the "Hoover austerity" explanation for the Great Depression is that Hoover did not actually practice austerity. Rather, under Hoover's watch, the size of government increased substantially. Federal spending grew to $4.8 billion in 1932 from $2.9 billion in 1929. Under Hoover there were severe policy errors — credit markets were too tight, wages were not flexible, and tariffs were downright disastrous. But austerity was not one of them, and that is a lesson today's policy leaders would be wise to remember.
